RETIREMENT PAY LAW (R.A.

7641) amending Article that such retirement benefit shall not be less than the
287 (now Article 302) of the Labor Code retirement pay required under RA 7641, and provided
further that if such retirement benefit under the
PURPOSE: To provide a retirement pay scheme to
agreement is lesser, the employer shall pay the
qualified private sector employees in the absence of
difference.
any retirement plan in the establishment.
Where both the employer and the employee contribute
COVERAGE
to a retirement fund pursuant to the applicable
1. Employees shall be retired upon reaching the age of agreement, the employer's total contributions and the
sixty (60) years or more but not beyond sixty-five (65) accrued interest thereof should not be less than the
years old [and have served the establishment for at least total retirement benefit to which the employee would
five (5) years]. have been entitled had there been no such retirement
benefits’ fund. If such total portion from the employer is
2. This benefit applies to all employees except: lesser, the employer shall pay the deficiency.
∙ government employees; COMPARATIVE RETIREMENT BENEFITS
∙ employees of retail, service and agricultural
NATURE/SOURCE
establishments/ operations regularly employing
not more than ten (10) employees. COLLECTIVE Any employee may retire or be
BARGAINING retired by his or her employer
RETIREMENT PAY BENEFIT
AGREEMENT or upon reaching the retirement
The minimum retirement pay shall be equivalent to one APPLICABLE age established in the
half (1/2) month salary for every year of service, a CONTRACT collective bargaining
fraction of at least six (6) months being considered as agreement (CBA) or other
applicable
one (1) whole year.
agreement/contract and shall
For the purpose of computing retirement pay, "one-half receive the retirement benefit
month salary" shall include all of the following: granted therein; provided,
however, that such retirement
1. Fifteen (15) days salary based on the latest salary rate; benefit shall not be less than
the retirement pay required
2. Cash equivalent of five (5) days of service incentive under RA 7641, and provided
leave; further that if such retirement
benefit under the agreement
3. One-twelfth (1/12) of the thirteenth-month pay.
is lesser, the employer shall
(1/12 x 365/12 = .083 x 30.41 = 2.5)
pay the difference.
Thus, “one-half month salary” is equivalent to 22.5 days
(Capitol Wireless, Inc. v. Honorable Secretary Ma. Nieves Where both the employer and
R. Confesor, G. R. No. 117174, November 13, 1996). the employee contribute to a
retirement fund pursuant to
The COLA (cost of living allowance) shall not be included the applicable agreement, the
in the computation of retirement pay. employer's total contributions
and the accrued interest
RETIREMENT BENEFIT UNDER A COLLECTIVE thereof should not be less
BARGAINING AGREEMENT OR APPLICABLE CONTRACT than the total retirement
benefit to which the
Any employee may retire or be retired by his or her employee would have been
employer upon reaching the retirement age established entitled had there been no
in the collective bargaining agreement (CBA) or other such retirement benefits’
applicable agreement/contract and shall receive the fund. If such total portion
retirement benefit granted therein; provided, however,
 from the employer is lesser, deficiency.
the employer shall pay the
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Workers who For covered workers who are
are Paid by paid by results and do not
Results have a fixed monthly salary
rate, the basis for the
determination of the salary
for fifteen (15) days shall be
their average daily salary
(ADS). The ADS is derived by
dividing the total salary or
earnings for the last twelve
months reckoned from the
date of retirement by the
number of actual working
days in that particular period,
provided that the
determination of rates of
payment by results are in
accordance with the
established regulations.
Part-time Workers Part-time workers are also
entitled to retirement pay of
“one-half month salary” for
every year of service under RA
7641 after satisfying the
following conditions
precedent for optional
retirement:
(a) there is no retirement plan
between the employer and
the employee; and
(b) the employee should have
reached the age of sixty (60)
years, and should have
rendered at least five (5)
years of service with the
employer.
Applying the foregoing
principle, the components of
retirement benefit of part-
time workersmay likewise be
computed at least in
proportion to the salary and
related benefits due them.
Underground or The retirement age of
Surface Mine underground or surface mine
Employees employees has been reduced
under Republic to a much lower age. For this
Act No. 8558, as purpose, an underground or
amended by surface mine employee refers
Republic Act to any person employed to
No. 10757 extract mineral deposits
underground or in the
surface, or to work in
excavations or workings such
as
shafts, winzes, tunnels, drifts,
crosscuts, raises, working
places whether abandoned or
in use beneath or in the
earth’s surface for the
purpose of searching for and
extracting mineral deposits.
Moreover, surface mine
workers shall only include
mill-plant workers, electrical,
mechanical and tailings pond
personnel.
In the absence of a retirement
plan or other applicable
agreement providing for
retirement benefit of
underground mine employees
in the establishment, an
employee may retire upon
reaching the compulsory
retirement age of sixty (60)
years or upon optional
retirement at the age of fifty
(50) years, provided he/she
has served for at least five (5)
years as an underground mine
 employee or in underground
mine of the establishment. Other Benefits upon Retirement

The retirement benefits under RA 7641 and RA 8558

Racehorse Jockeys The compulsory retirement
age of professional racehorse (reducing the retirement age of underground mine
jockeys who are duly licensed workers from 60 to 50) are separate and distinct from
by the Philippine Racing those granted by the Social Security System.
Commission (PHILRACOM) is
Under the law, upon optional or compulsory retirement,
fifty-five (55) years old,
provided that he/she has the employee is also entitled to the proportionate
served for at least five (5)
years as racehorse jockey and
has paid additional premium
to the SSS.

Kasambahay Kasambahay and persons in

and Persons in the personal service of
the Personal another are entitled to
Service of retirement benefit pursuant
Another to Department Order No. 20
s. 1994
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thirteenth-month pay for the calendar year and to the
cash equivalent of accrued leave benefits.

TAX EXEMPTION

Exempted from taxation are the retirement benefits

received under RA 7641 (now Article 302 herein) and
those received by officials and employees of private
firms, whether individual or corporate, in accordance
with a reasonable private benefit plan maintained by the
employer: Provided, That the retiring official or
employee has been in the service of the same employer
for at least ten (10) years and is not less than fifty (50)
years of age at the time of his retirement: Provided,
further, That the benefits granted under this
subparagraph shall be availed of by an official or
employee only once.

For purposes herein, the term 'reasonable private

benefit plan' means a pension, gratuity, stock bonus or
profit-sharing plan maintained by an employer for the
benefit of some or all of his officials or employees,
wherein contributions are made by such employer for
the officials or employees, or both, for the purpose of
distributing to such officials and employees the earnings
and principal of the fund thus accumulated, and wherein
it is provided in said plan that at no time shall any part of
the corpus or income of the fund be used for, or be
diverted to, any purpose other than for the exclusive
benefit of the said officials and employees. (Section
32(B)(6)(a) of the National Internal Revenue Code of the
Philippines, as amended)
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