Separation Pay of a Retrenched or Laid Off Employee Fue to COVID-19, Not Subject to Tax | 20 October 2024

Under the afore-cited provision of the Labor Code, it requires the employers to pay separation benefits to the affected employees equivalent to one month’s pay or at least half a month’s pay for every year of service.

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Alburo Law
October 20, 2024

Under the afore-cited provision of the Labor Code, it requires the employers to pay separation benefits to the affected employees equivalent to one month’s pay or at least half a month’s pay for every year of service. Please take note that a fraction of at least six months is to be considered a full year.

Question, “Is the separation pay of a retrenched employee subject to tax?”. Section 32 (B) (6)(b) of the National Internal Revenue Code (Tax Code), as amended is very clear. Any amount received, separation pay in this case, by an employee or by his heirs from the employer as a consequence of his separation from the service of the employer for any cause beyond the control of the said employee shall be exempt from tax. The fact that the employee was separated from employment due to the inevitable effect of COVID-19 pandemic is certainly beyond his control.

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