Retrenchment pay: half a month per year
When a company cuts staff to prevent losses (retrenchment) or closes for reasons other than serious losses, the Labor Code gives you half a month’s pay per year of service, or one month’s pay, whichever is higher (Article 298). It’s a smaller rate than redundancy, so it’s worth knowing which cause your notice states. Let’s walk through it.
Example: ₱18,000 a month, started 1 April 2022, last day 30 November 2026, 10 unpaid days and 5 days of leave to convert.
- Service: 4 years and 8 months. The 8 months are six months or more, so you are credited 5 years.
- Separation pay: ½ × ₱18,000 × 5 = ₱45,000. One month’s pay would only be ₱18,000, so the higher amount applies: ₱45,000.00.
- Unpaid salary: 10 × ₱827.59 = ₱8,275.86.
- Pro-rated 13th month: ₱16,471.23.
- Leave conversion: ₱4,137.93.
Total: ₱73,885.02. The separation pay is tax-free because retrenchment is beyond your control, and the 13th month is under the ₱90,000 ceiling.
Same worker, different causes
The cause written on your notice decides the separation pay. Same salary, same dates:
| Reason for separation | Separation pay | Total final pay |
|---|---|---|
| Redundancy / labor-saving devices | ₱90,000.00 | ₱118,885.02 |
| Retrenchment / closure not due to serious losses | ₱45,000.00 | ₱73,885.02 |
| Disease (Art. 299) | ₱45,000.00 | ₱73,885.02 |
| Closure due to serious losses | ₱0.00 | ₱28,885.02 |
| Resignation | ₱0.00 | ₱28,885.02 |
| Dismissal for just cause | ₱0.00 | ₱28,885.02 |
Notice how “closure due to serious losses” gives no separation pay at all, while a closure without proven serious losses gives the same as retrenchment. If the company says it is losing money, it has to prove it — usually with audited financial statements.
When the “one month minimum” matters
For short service, the minimum protects you. With 1 year and 2 months at ₱18,000, half a month per year would be ₱9,000, but you get ₱18,000 because one month is higher. From 2 credited years on, the half-month formula gives at least the same amount.
Your rights during retrenchment
- At least one month’s written notice to you and to DOLE before the effective date.
- Fair, reasonable criteria for choosing who is retrenched (for example seniority or performance).
- Final pay released within 30 days from separation.
Signing a quitclaim doesn’t erase your right to the legal minimum. If what you receive is less than the law requires, DOLE can help through SEnA, free of charge.
FAQ
How is retrenchment pay computed in the Philippines?
Half a month’s pay for every year of service, or one month’s pay, whichever is higher (Article 298). A fraction of at least six months counts as one year.
How much retrenchment pay with ₱18,000 and 4 years 8 months?
4 years 8 months is credited as 5 years: ½ × ₱18,000 × 5 = ₱45,000.00. Total final pay with 10 unpaid days, pro-rated 13th month and 5 leave days is ₱73,885.02.
Is there separation pay if the company closes due to losses?
Not if the closure is due to serious, proven business losses. If the closure is not due to serious losses, you get the same as retrenchment: half a month per year, minimum one month.
Sources (checked 5 November 2026): Labor Code of the Philippines, Arts. 95, 297, 298 and 299 (renumbered, DOLE Department Advisory No. 01-2015); PD 851 and its revised guidelines; DOLE Labor Advisory No. 06, series of 2020 (dole.gov.ph); NIRC Sec. 32(B)(6)(b) and 32(B)(7)(e) as amended by RA 10963 (TRAIN), bir.gov.ph.