RETIREMENT PAY

(Article 302)

A. Coverage

1. Employees shall be retired upon reaching the age of sixty (60) years or more but not beyond sixty-five (65) years old [and have served the establishment for at least five (5) years].
2. This benefit applies to all employees except:
   1. government employees;
   2. employees of retail, service and agricultural establishments/operations regularly employing not more than ten (10) employees .

B. Amount of Retirement Pay

The minimum retirement pay shall be equivalent to one-half (1/2) month salary for every year of service, a fraction of at least six (6) months being considered as one (1) whole year. For the purpose of computing retirement pay, “one -half month salary” shall include all of the following:

1. Fifteen (15) days salary based on the latest salary rate;
2. Cash equivalent of five (5) days of service incentive leave;
3. One-twelfth (1/12) of the thirteenth-month pay.
   (1/12 x 365/12 = .083 x 30.41 = 2.5)

Thus, “ one-half month salary” is equivalent to 22.5 days (Capitol Wireless, Inc. v. Honorable Secretary Ma. Nieves R. Confesor, G. R. No. 117174, November 13, 1996).

The COLA shall not be included in the computation of retirement pay.

Illustration:
Minimum Retirement Pay = Daily Rate x 22.5 days x number of years in service

Other benefits may be included in the computation of the retirement pay upon agreement of the employer and the employee or if provided in the Collective Bargaining Agreement (CBA).

C. Retirement Benefits under a Collective Bargaining Agreement or
Applicable Contract

Any employee may retire or be retired by his or her employer upon reaching the retirement age established in the collective bargaining agreement (CBA) or other applicable agreement/contract and shall receive the retirement benefits granted therein; provided, however, that such retirement benefits shall not be less than the retirement pay required under RA 7641, and provided further that if such retirement benefits under the agreement are less, the employer shall pay the difference.

Where both the employer and the employee contribute to a retirement fund pursuant to the applicable agreement, the employer’s total contributions and the accrued interest thereof should not be less than the total retirement benef its to which the employee would have been entitled had there been no such retirement benefits’ fund. If such total portion from the employer is less, the employer shall pay the deficiency.

D. Retirement Benefits of Workers who are Paid by Results

For covered workers who are paid by results and do not 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.

E. Retirement Benefit of 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 workers may likewise be computed at least in proportion to the salary and related benefits due them.

F. Retirement Benefit of Underground or Surface Mine Employees under Republic Act No. 8558 as amended by Republic Act No. 10757

The retirement age of underground or surface mine employees has been reduced to a much lower age. For this purpose, an underground or surface mine employee refers to any person employed to 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 benefits 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.

G. Other Benefits upon Retirement

The retirement benefits under RA 7641 and RA 8558 are separate and distinct from those granted by the Social Security System.
Under the law, upon optional or compulsory retirement, the employee is also entitled to the proportionate thirteenth-month pay for the calendar year and to the cash equivalent of accrued leave benefits.

H. Coverage from Income Tax of Retirement Pay

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.

Source: 2016 Revised Handbook on Workers’ Statutory Monetary Benefits prepared by the Department of Labor and Employment, Bureau of Working Conditions