How to compute retirement pay in the Philippines? On January 7, 1993, Republic Act (R.A.) No. 7641, otherwise known as the New Retirement Law, took effect and amended Article 287 of the Labor Code of the Philippines (PD No. 442). According to the new law, any employee may be retired upon reaching the retirement age established in the collective bargaining agreement or other applicable employment contract.
We cannot stop the aging process of the nature. No matter who we are, we will reach the time that we need to retire from our job. In the principle of good employment, it is just and reasonable that retiring employees will receive due benefits to support them after serving their employers for years. Moreover, they need sufficient amounts of fund that will support their daily living at the age of 60 and above. Thus, the law intended to protect the welfare of those workers and employees.
Coverage of this provision
Republic Act No. 7641 or the Retirement Pay Law shall apply to all employees in the private sector, regardless of their position, designation or status and irrespective of the method by which their wages are paid. They shall include part-time employees, employees of service and other job contractors and domestic helpers or persons in the Personal service of another.
The law does not cover employees of retail, service and agricultural establishments or operations employing not more than ten (10) employees or workers and employees of the National Government and its political subdivisions, including Government-owned and/or controlled corporations, if they are covered by the Civil Service Law and its regulations.
Qualification of employees subject to retirement pay
Employees who are covered by RA No. 7641 can have an optional or compulsory retirement.
Optional Retirement. — In the absence of a retirement plan or other applicable agreement providing for retirement benefits of employees in an establishment, an employee may retire upon reaching the age of sixty (60) years or more if he has served for at least five (5) years in said establishment.
Compulsory Retirement. — Where there is no such plan or agreement referred to in the immediately preceding sub-section, an employee shall be retired upon reaching the age of sixty-five (65) years.
Upon retirement of an employee, whether optional or compulsory, his services may be continued or extended on a case to case basis upon agreement of the employer and employee.
Service Requirement. — The minimum length of service in an establishment or with an employer of at least five (5) years required for entitlement to retirement pay shall include authorized absences and vacations, regular holidays and mandatory fulfillment of a military or civic duty.
Computation of retirement pay
A covered employee who retires pursuant to RA 7641 shall be entitled to retirement pay equivalent to at least one-half (1/2) month salary for every year of service, a fraction of at least six (6) months being considered as one whole year.
The law is explicit that “one-half month salary shall mean fifteen (15) days plus one-twelfth (1/12) of the 13th month pay and the cash equivalent of not more than five (5) days service incentive leaves” unless the parties provide for broader inclusions. Evidently, the law expanded the concept of “one-half month salary” from the usual one-month salary divided by two.
In reckoning the length of service, the period of employment with the same employer before the effectivity date of the law on January 7, 1993 should be included.
Substitute Retirement Plan
Qualified workers shall be entitled to the retirement benefit under RA 7641 in the absence of any individual or collective agreement, company policy or practice. In case there is such an agreement, policy or practice providing retirement benefit which is equal or superior to that which is provided in the Act, said agreement, policy or practice will prevail.
PAG-IBIG Fund as a substitute retirement benefit
As provided in RA 7742, a private employer shall have the option to treat the coverage of the PAG-IBIG Fund as a substitute retirement benefit for the employee concerned within the purview of the Labor Code as amended; provided, such option does not in any way contravene an existing collective bargaining agreement or other employment agreement. Thus, the PAG-IBIG Fund can be considered as a substitute retirement plan of the company for its employees provided that such scheme offers benefits which are more than or at least equal to the benefits under RA 7641. If said scheme provides less than what the employee is entitled to under RA 7641, the employer is liable to pay the difference.
If both the employee and the employer contribute to a retirement plan, only the employer’s contribution and its increments shall be considered for full or partial compliance with the benefit under RA 7641. On the other hand, where the employee is the lone contributor to the PAG-IBIG Fund, the employer being exempted from its coverage, the employer is under obligation to give his employee retirement benefits under the Act.
Source:
Guidelines for the Effective Implementation of R.A. 7641, The Retirement Pay Law
Disclaimer: This article was published for informational use only. New laws, rules, and DOLE issuances may render this article obsolete in whole or in part. For more information please visit and inquire with the Department of Labor and Employment (DOLE).
Victorino Q. Abrugar is a marketing strategist and business consultant from Tacloban City, Philippines. Vic has been in the online marketing industry for more than 7 years, practicing problogging, web development, content marketing, SEO, social media marketing, and consulting.
What is Gratuity?how to compute?who are entitled to it?my dad is a retired government employee for 30 yrs and having problem what are his real benefits?he retired in 1987 until now we’re still having problem its already in the Ombudsman?really need help small amount but it will be a big help right now…
Hi, Sorry to hear what happened to your Dad. But Republic Act (R.A.) No. 7641, does not cover government employees. I think it is the Civil Service laws and rules that covers the government employees.
hello. i have been a pag ibig member since i work with the commission on elections in pangasinan from dec. 23, 1979 to present. my salary now is php31080./mo. can u give me an idea of how much to receive when i retire if i will retire at age 60 or 65. as of to date,, 32 yrs. na ako sa comelec. im now 56 yrs. old. at age 64, 40 yrs. na rin ako in service. i will be very thankful if you can compute it for me. i will visit your column again. god bless you always. before i forget, i lost my pag ibig id. my id no. is 0005-01325505. can you pls. help me secure a replacement so that when i retire i will not have difficulty in securing my benefits.
hello again. how soon can a member withdraw his contributions? is it necessary that he reaches the age of 60,, 65 or death? pls. be patient to answer our querries . thank you and god bless you always.
Hi, I just turned 60 years old and I want to avail of my PAGIBIG retirement benefits, however,I still have an outstanding housing loan thru PagIbig fund, Can I still avail the benefits or have to pay first the loan balance?
Just want to ask if there is a new retirement pension computation for DepEd employees.
My mom just retired last Sep 2011 and computed pension based on average salary for the last 3 years. By the way, she availed 5 years lump sum.
I heard from other retiring employees that it should be computed based on latest salary. How true is this? I searched from internet if there is any circular covering this issue but to no avail.
Thanks
Good Pm:
I resigned with the company after 6years of service. Am i entitled to a retirement benefit?
Thank you
I am 35 years old, I have recently submitted a retirement letter, I’ve been working there for 13 years as a teacher. the school doesn’t have a retirement plan or CBA, will I be entitled for a retirement pay?
I am working for 20 years now in a small private corporation we are only 4 employees, am planning to resign now, am i entitled to get separation or any benefits? By the way we only have sss and Philheatlth no pag-ibig.
Hi!
Gusto ko lang po sanang humungi ng tulong kung paano po ba magcompute ng retirement benefit. 73 yrs. old na po ksi yung mother ko until now nagwowrk pa rin po sya. Nag start po syang magtrabho since 1991 until now. Gusto nya po kacing malaman kung magkano ang makukuha niya. Ang salary nya po ay 7,700.00 a month only philhealth lang po ang dinededuct s kanya.
Hi Joyce, need to know how many employees does your mother’s company have? If they are 10 employees or less they will be covered on this retirement benefits mandated by law.
* they will NOT BE COVERED.
Good day,
Inquire ko lang po yung current policy ng company namin. We have a retirement program 5 years of service is equivalent to 50%….10 years is equivalent to full 100%, however as I read the computation above is hindi po nakakasama yung 1/12(13th month pay)and cash equivalent of the 5 days service incentive leave.
We have a Vacation and Sickleave policy na convertible sa cash, sa pagkaka alam ko po kasi is ang may SIL lang is yung mga walang VL and SL policy.
Entitled padin po ba kami sa 1/12 13th month pay and SIL upon availment of retirement?
Thank you and May God bless you more!
in connecton on above inquiry. what if the employee just serve the company for only 3 years and he already reach his 60 last march 2017. does the company can offer the retirement?
ask ko lang po ang tamang computation ng retirement pay even if we are daily paid employees ,working 22 days a month
Our actuary calculated our retirement for 21.83days, i.e.
half month salary (15days)
5days service incentive leave
1/12 x 22days (coz we use 22 actual working days a month)
Is this correct or does RA7641 say it should be 22.5days? irrespective of actual working days being used by the company?
Our company gives employees 7 days sick leave and 7 days vacation leave convertible to cash at the end of the year. When an employee retires, is the company required to give the employee an additional monetary equivalent of the 5 days Service Incentive Leave per year of service?.
If a military is required for compulsory retirement, and he continues the service, will he be paid of his annual salary or not anymore?
Hi,
I am due to retire next year on my 60th (March 11, 1957). I started as project-based employee with this company 2008 but was eventually integrated as a regular employee last April 12, 2012. If you count the length of service, it is 4 years and 11 months on my 60th birthday.
Am I entitled to any retirement benefit?
The company rule states that at the age of 60 the employee is entitled to 1.6% for every month of service rendered. There is no qualifier in the rule about length of service.
I asked HR but was told I am not entitled to the 1.6% computation due to my length of service of 4 years and 11 months and it will not be rounded off to 5 years. I will still get the equivalent compensation for my unused leaves but it will not be tax exempt.
Is this legal?
Hi, I just want to know the exact amount that my friend will get. Under this law, 1/2 month salary means 15 days + 1/12 month of 13th month pay + 5 days Incentive leaves.
Scenario, he is working for only 22 days kasi he has saturday and sunday as day off. So in a month 22 days lang ang work. So in this how is it computed is it the 1/2 month or 15 exact days? Kasi magkaiba po ang output between 1/2 month and 15 exact working days.
Example:
30K salary per month
15K for 1/2 month salary.
30K / 22 days x 15 working days = 20454.54
so ano po ang accurate dito, ung 20K based on 15 exact working days or 15K based on the literal 1/2 month salary?
im security guard..can i avail the retirement benifits even i already separated to my former agency?.im working from them almost 7 years…how can i get the benifit
Hi, if the company is only 3 years old and then an employee wants to retire because he is already 65, will the company be required to give retirement benefit?
Anton its not meted the minimum requirements of 5 years therefore its not mandatory for your company. But it could be a prerogative of the company whether they will grant that to that person or not.
My wife is private employee she served 25 years in their company paano po any computation sa private company is it the same with government? Thanks po
Optional retirement po any mangyyari pg mg retire wife ko s private company for 25years of service thanks po
mag 60yrs old na po ako sa darating na april 22,2017. tanong ko lang po kung meron akong retirement pay na makukuha sa company na pinagtatrabuhan ko hanggang ngyon, 24yrs napo ako dito na nagtatrabaho. 6 lang po kàsi kaming empliyado na regular sa company (condominium ). binasa ko po kasi yon RA 7641 , ang nakasulat po kasi ang bellow 10 workers ay exempted sa RA7641
Thanks
Hi Vic,
yung father ko kaka 60 lng last year. nagwowork na siya in a compnay fot he last 10 years. pero 3 years ago, dun lng sila naging 10 employees. now, how do we compute for the retirement pay niya?
at sya nga pala, yung 3 bagong empleyado hindi pa baging regular after 1 year. bale, 2 years palang na 10 employees talaga sila. may basis kaya yun? o ang retirement pay ng father ko ay 10 years pa din?
for example. School
basic salary Php 25,000 /26.17 = 955.29
15daysx955.29 = 14,329.35
25,000/12 = 2,083.33
955.29×5=4,775/12=397.92
total =16,810.60
#of years Service = 30years
Total Retirement Php 504,318.00
Good Day. I would like to clarify when it comes to computation of length of service, will it start from the employee’s hiring date or regularization date in the company? Thank you.
Should be the hiring date. Because for Philhealth and SSS, it is mandatory to register New Employees on their first month.
Hello.
I am 50 yrs old now and plan to have an early retirement. I have worked for more than 10 years now with my employer. We do not have a CBA nor a retirement plan. Am I entitled to any retirement pay?
Thank you.
Early retirement is a chance or benefit offered by the company. Not all companies offer this benefit, if you plan to retire early and an early retirement program is not in your Company Policy or CBA, You will not be entitled to a retirement pay. Though, some companies offer Separation Pay for employees who rendered a number of years but it is not also mandatory. I would view your plan to retire early as a resignation.
Hi!
Ask ko lang po kung pwede pa maghabol ang tatay ko sa retirement pay nya dahil pumirma na sya ng quit claim, subalit ang kanilang computation ay kulang ayon sa labor code.
Maari pa po ba maghabol?
If ever, maari ba ma walang bisa ang ang quit claim dahil kulang ang kanilang ibinayad
Siya po ay nagretiro noong 2015 at nagserbisyo sa trabaho ng 38 taon, siya po ay min wage earner.
Nabayaran po sya ng P232K sa kanyang retirement pay sa loob ng 38 taon pagtrarabaho.
Nagpapasalamat,
Atoi
Hello.
Quitclaim is valid if the employer is able to prove the following requisites:
(1) the employee executes a deed of quitclaim voluntarily;
(2) there is no fraud or deceit on the part of any of the parties;
(3) the consideration of the quitclaim is credible and reasonable
(4) the contract is not contrary to law, public order, public policy, morals or good customs or prejudicial to a third person with a right recognized by law.
source: https://bataspinoy.wordpress.com/2010/11/11/quitclaims/
If you think that the consideration of the quitclaim is not reasonable or their is fraud/deceit committed on the part of the employer, then you may go to the DOLE/NLRC to bring your case.
Hello po,
ask ko lang po sana kung entitled pa po ba yung employee na 60 y/o. pero bigla po siya namatay, under processing pa lang po sana yung kanyang retirement pay.
mababayaran or matatanggap pa po ba niya yung retirement pay?
maraming salamat po.
Good Day,
The company that I worked for the past 10 years has been delaying in providing the early retirement benefit that I’m entitle of. I submitted a letter of intent to avail of the said benefit in August 2017 but until now its still being reviewed and no approval yet. I was promised that it will take only 2 months to release my benefit but its running 4 months already. I didn’t get my backpay, 13th month pay and other yet, because they have not let do my clearance yet. Need your legal advise.
Hello. We are not lawyers so we cannot give you legal advice. We recommend that you visit any Labor office to bring your concern to them and to give you the proper legal advice and action. Just some note, the 13th month pay should be given to eligible employees not later than December 24. The separated employee can also demand 13th month pay. Remember that the essence of 13th month pay according to PD 851 is to give employees the amount they deserve to enjoy Christmas and New Year celebration – that is why it must be given not later than December 24.
hi! i just resigned in an office from which i worked for over 11yrs. they say that as per our company policy we do not have a separation pay, only 13th month. i am not a senior citizen yet but i would like to know if retirement benefits is mandatory for any company and does it have a required age?
thank you!
Hello, if you have resigned voluntarily from your company, your company is not obliged to give you separation pay.
Retirement agreement is usually stated in the collective bargaining agreement (CBA) or employment contract. If not, the employee may retire upon reaching the age of 60 or more, but not more than 65, provided he has served at least 5 years or more in the same establishment according to the Labor Code (Art. 287).
Aside from the retirement benefits agreed in your contract, employers are also mandated to provide employees benefits such as contributions to SSS, Philhealth, and Pag-ibig so they can claim benefits when they retire.
Is an employee who is at the age of requirement and met all the other qualifications still entitled to receive this retirement benefit despite being covered by the SSS? So does it mean that an employee will be able to receive both the retirement benefit plus his SSS pension?
Hello. If you’re a contributor member with SSS and is eligible for SSS pension, you will receive the pension. Your employer has a separate retirement pay which is given to you if you’re eligible depending on your agreement.
Hi! We have a business and one of our employees have retired last month. We dont have any agreement on the provision of retirement benefits and retirement pay. Are we still obliged to give his retirement pay or we could just treat his Pag-ibig fund as alternative for the retirement pay?
Thank you.
hi! I am 56 years old and worked in a private company for 31 years. as of now i am not fit to work because i become deaf after hospitalized. and receiving pension from sss.
is there any benefits for an employee working 31 years and what are the computation?
I am not on my retirement age.
Hello Neila, you may be entitled to a separation pay if your job was terminated due to a disease in accordance with Art. 284 of the Labor Code. According to the law:
An employer may terminate the services of an employee who has been found to be suffering from any disease and whose continued employment is prohibited by law or is prejudicial to his health as well as to the health of his co-employees: Provided, That he is paid separation pay equivalent to at least one (1) month salary or to one-half (1/2) month salary for every year of service, whichever is greater, a fraction of at least six (6) months being considered as one (1) whole year.
You may confirm this with your employer.