Separation Pay Demand from Micro Business

I'm a micro business operator, single proprietorship, running a small internet cafe. Just the typical mom & pop internet shop. I told my two staff that I can no longer pay their salary because I'm already losing a lot in the business and I decided to man the shop myself. I told them I'll try to find money to pay their salary until Dec. 31. I didn't want them to be jobless during Christmas and I gave them almost 2 months to find other jobs.

One staff is now demanding a separation pay and threatening to report me to DOLE. Am I required to pay a separation pay? I really don't have any more money and I'm deep in debt for trying to keep the business afloat for some time with consideration that my employees will lose their jobs. Unfortunately, this one employee is trying to milk me dry.

I will really appreciate your input guys. Thanks.

for business losses as basis for separation, you have to 1) give 30 day written notice to the employees (verbal will not count); 2) give written report to DOLE 30 days prior also; 3) give separation pay amounting to 1/2 month or if none, be prepared to show that you (and not just the business) do not have money to pay them.

failure to abide will mean illegal dismissal.

Thank you for the quick reply sir attyLLL. I also did some research while waiting for your reply. By law, I saw it is my obligation to pay the separation pay. Thank you for the details, those I was not able to find researching the web. Just one clarification though, my staff has worked for me for 5 years. His separation pay would be 1/2 his monthly salary times 5, is that correct sir? And this separation pay will not be taxable?

nydron, that's correct it's 1/2 month for every year of service.