Losing one’s job because of unforeseen events can be challenging for anyone. It can even be more confusing when you received the news about it with barely any backup plans to support your finances.

So, when you receive the unfortunate news, knowing the details about your employer’s benefits can be helpful. One such help that you need to know is separation pay. To learn more about it, we’ll walk you through potential reasons for receiving separation benefits and how to file for tax exemption. 

What is separation pay?
Separation pay is the amount that the employee receives at the time of his severance with the company. These causes are:
• Death
• Sickness/ Physical Disability
• Installation of Labor-saving Devices
• Redundancy
• Retrenchment
• Closure or Cessation of Operation

An employer can justify your separation by submitting documents and undergoing the due process to prove that you have been terminated because of authorized causes. 

Suppose you were terminated because of the installation of labor-saving devices. In that case, your employer should provide a board resolution, affidavit or certificate that there has been an introduction of machinery. They should also provide documentation that the employees selected to get laid off have been made according to fair criteria.

Meanwhile, if an employee got terminated because of redundancy, the employer should provide an affidavit, certificate or board resolution that the positions or services are more than what the company needs.

For termination due to retrenchment, employers should produce an affidavit or certificate which states that the retrenchment is necessary to prevent business losses. 

Is separation pay tax exempted?
Yes. According to Revenue Memorandum Order (RMO) No.26-2011, the amount that the employee receives from their employers because of their separation due to unforeseen circumstances is exempt from income tax. To process the tax exemption request, specific documents must be submitted to the Revenue District Office (RDO) or appropriate Large Taxpayers (LT) Office, where the employer initially registered the business.

What are the documents needed to apply for tax exemption?
You should submit a written notice to the employee and DOLE at least thirty (30) days before the termination’s effectivity. A board resolution, in case of a juridical entity, or an affidavit from your employer that was filed to the RDO should also be submitted. However, there are instances where further documents are required, depending on the reason for separation.

Can my employer dismiss me without prior notice because of unforeseen circumstances?
No. The employer should provide the employee and the appropriate Regional office of the Department of Labor and Employment (DOLE) with a thirty (30) day period ahead of the projected separation. The written notice should specify the ground for termination to let both the employee and DOLE know about it.

Final thoughts
Losing your job for any reason beyond your control can be hurtful. However, you should know that you’re entitled to separation pay as long as it falls under any of the authorized causes—regardless of your age or service length. So, try your best to understand how this benefit works and what you need to do to make it tax exempted. The money that you will get can help a lot, especially while you look for another work.

To know how tax exemption for separation benefits work, you can visit the link below for further information.
https://www.bir.gov.ph/images/bir_files/internal_communications_3/Full%20Text%20of%20RMO%

202016/RMO%20No.%2066-2016.pdf