A Simple Guide on How to Terminate an Employee in the PH

Terminating an employee is a delicate phase that demands sensitivity from both employers and employees, necessitating a smooth transition for all parties involved. That said, given its sensitivity, expert accounting services in the Philippines say that the implementation of employee dismissal must follow Philippine Labor Laws, specifically the Labor Code. If you are in the process of or are planning to undergo this termination procedure, here is a step-by-step guide.

1. Identify Type of Employment Contract 

There are three types of contracts for employees. Review under what type you hired your employee. This includes:

– Trial Periods

Trial periods or probationary phases provide an opportunity for evaluating employee skills. Businesses can determine core competencies before finalizing permanent employment. It must be explicitly said by the employment contract. That said, when setting a trial period, the employer must observe a legal period not exceeding 6 months. However, apprenticeship programs may allow longer periods of time. 

– Fixed-term contracts

These are contracts that are agreed on by concerned parties for specific projects or undertakings. The parties must be specified in the contract, and the completion of the termination of the project shall be mentioned too. Meaning the duration is seasonal, with the contractor hired to work until the end stated. An example may be tax and audit services in the Philippines hired for busy tax filing seasons. 

– Open-ended contracts

These are contracts that are indefinite, considered so when the employee has been enlisted to do work ordinarily necessary and/or desirable for the employer’s usual business or trade. Excluded are specific works planned for specific periods of time. 

2. State Grounds for Dismissal

This varies based on type of employment. 

– Trial Periods

Ending employment before the contract concludes is permissible if the employee doesn’t meet the qualifications for a permanent position or for other valid reasons. It’s important to note that individuals who go on working past the trial period automatically transition into employees under an open-ended contract.

– Fixed Term and Open-Ended Contracts

Causes may be personal causes or business-related, and the exhaustive list may be found in Articles 282, 283, and 284 of the Labor Code.

Dismissal on personal grounds ‘just causes’ or personal faults

– Serious misconduct

– Gross and habitual negligence

– Fraud or willful breach of trust

– Commission of a crime

– Other similar facts to the aforementioned

Other non-infringing grounds

– Illness that prevents continuation of work as prohibited by law

– Illness that prevents continuation of work as is detrimental to employee health

Note, for dismissals caused by illness, employers must obtain a medical certificate specifying the nature and stage of the illness. The disease must also not be treatable within 6 months.

Dismissal on business-related grounds

– Termination for labor-saving

– Termination follows retrenchment device implementation

– Termination follows the wish to prevent business closure

– Termination justified by business closure

It’s important to know that using business reasons to avoid fair compensation and dismissal rules is seen as fraudulent. Also, if employers want to cut labor costs through retrenchment, they need to notify the Department of Labor and Employment (DOLE). Laying off workers must also be justified with proof of losses. Expert tax services in Manila also say that selecting the employees must be done based on objective criteria.

3. Notification of Labor Authorities and the Employee

The employee set to undergo dismissal must be duly informed. Notification procedures differ based on contract type and nature of dismissal.

Trial periods

These may be terminated by sending a notice to the employee within a reasonable time before the intended termination date.

– Dismissal for personal faults

The employer shall send a formal dismissal notice explaining the reasons. Employees have a right to reply and fight charges brought against them. The employer must then inform the employee of their final decision. A final decision notice will then be sent to the employee.

– Dismissal on business grounds

The employer shall send a written notice of dismissal specifying the reasons for dismissal and give it to the employee at least 30 days prior to the intended date of dismissal. Such notice must also be sent to the DOLE Regional Office. 

4. The Issue of Separation Pay

Dismissal not due to the employee’s faults guarantees a separation pay to compensate for the loss of employment. Such pay is calculated according to dismissal reasons and the best options for the employee.

Separation pay is also granted to employees terminated due to illness and must be equivalent to at least one month’s salary per year worked or half-month’s salary for each year of service.

In case of termination due to business-related reasons, the separation pay should be calculated as one month’s salary for each year worked or half a month’s salary, whichever is greater.

Dismissal due to employee faults disqualifies an employee from receiving separation pay.

5. Upholding Fairness and Due Process

In any termination, it’s crucial to maintain procedural fairness and due process. This involves giving the employee an opportunity to respond to allegations, conducting an unbiased 

investigation, and ensuring that the dismissal aligns with the severity of the offense.

6. Documenting the Termination

Thorough documentation is a cornerstone of the termination process. Keep records of the employee’s performance issues, any warnings or counseling, and the steps leading to the decision to terminate. This documentation is vital in case issues may arise, like an employee filing complaints with DOLE. 

Seeking professional consultation’ is wise to ensure that the termination process follows the laws. Contact our expert accounting services in Pasig for precise guidance on notice periods, separation pay calculations, and all legal requirements.