Redundancy Pay Computation Based on NCR Minimum Wage of P537.00

Redundancy Pay Computation Based on NCR Minimum Wage of P537.00

Redundancy exists where the services of an employee are in excess of what is reasonably demanded by the actual requirements of the enterprise. Succinctly put, a position is redundant where it is superfluous, and superfluity of a position or positions may be the outcome of a number of factors, such as over hiring of workers, decreased volume of business, or dropping of a particular product line or service activity previously manufactured or undertaken by the enterprise. (See p. 221, Guide to Valid Dismissal of Employees citing Coats Manila Bay, Inc. vs. Ortega, supra, citing Wiltshire File Co., Inc., vs. NLRC, G.R. No. 82249, 7 February 1991, 193 SCRA 665)

Employees terminated under Article 283 are entitled to separation pay, with certain exceptions. Thus it provides that in case of termination due to the installation of labor-saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year.

For instance, Mr. Maco Padnatao was hired on January 1, 2004 as Delivery Crew of Turtle Speed, Inc. and paid minimum wage of P250 which was the prevailing rate at that time. He reports to work 6 days a week and HR used the factor of 313 days per year in computing the monthly equivalent of his daily rate. On May 31, 2019 he was declared redundant by the company since the delivery service was outsourced to another company.

How much shall Maco receive in the form of separation pay if his redundancy shall take effect May 31, 2019?

Since he is paid minimum, the prevailing rate at the time of the effectivity of his redundancy shall be observed. Thus, the daily rate to be used for computation is P537 and not P250.

Considering that the separation pay should be at least one (1) month pay or at least one (1) month pay for every year of service the daily rate of P537 should be converted to monthly equivalent.

But first, what does the law mean in stating “at least one (1) month pay?” This means that the employee declared redundant should receive not less than one (1) month pay.

Since the formula states one month per year of service there is a possibility that the employee declared redundant would have served less than one year. Logically, the separation pay can be prorated based on one (1) month pay per year of service. But this is not the intention of the law. The employee should be given a minimum separation pay of one (1) month.

In the event that the employee has served more than one year, the employee should be paid one (1) month pay per year of service. A fraction of at least six (6) months shall be considered as one year.

In this case, Maco has rendered at least five (5) years of service. To convert his daily rate of P537 into monthly the formula should be:

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Daily rate x No. of days considered paid in a year (factor) / 12 months


P537 x 313 days / 12 months

P168,081 / 12


To compute separation pay:

Monthly rate x No. of years of service

P14,006.75 x 5 years


Hence, the separation pay that should be given to X for being declared redundant is P70,033.75.

How about the service for the months January to May 2019, should they be included in the computation as one year? The law states that the fractional months shall only be considered as one year if they cover at least six (6) months. In this case, there are only 4 fractional months.

The separation pay is separate from the accrued pay such as salary, SIL and prorated 13th month pay.

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