N – Retirement Pay
▪ The ½ month pay in retirement pay is equivalent to 22.5 days.
▪ COLA is excluded from the computation of retirement pay.
▪ Retirement pay requires at least five (5) years of service.
▪ Retirement is optional at sixty (60) years old, while mandatory at sixty-five (65) years old.
▪ Retirement pay is exempt from income tax.
Retirement pay is an additional pay given to employees who are retired from the service.
2. Covered and excluded employees
The benefit applies to all employees except:
1. Government employees; and,
2. Employees of retail, service and agricultural establishments/operations regularly employing not more than ten (10) employees.
Retirement by those in the Government service are covered by Civil Service Laws and Regulations.
3. The benefit and computation
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.
The term “one-half month salary” is equivalent to 22.5 days, as it consists 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; and,
3) One-twelfth (1/12) of the thirteenth-month pay. (1/12 x 365/12 = .083 x 30.41 = 2.5)
The retirement pay shall be computed as follows:
Minimum Retirement Pay = Daily Rate x 22.5 days x number of years in service
a. COLA, excluded
COLA is not included in the computation.
4. Conditions for entitlement
The following are the conditions for entitlement:
1) The employee should have rendered at least five (5) years of service in the establishment; and,
2) He/she should be at least sixty (60) years old for optional retirement and sixty-five years old for mandatory retirement.
5. Retirement Benefits under a CBA or Contract
Retirement benefits under an employment contract, company policy, or collective bargaining agreement, should not be less than that prescribed for by law.
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 benefits 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.
a. Retirement benefits of workers who are paid by results
Workers paid by results are entitled to retirement pay, which shall be based on their average daily salary (ADS) that is, in turn, 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.
b. Retirement benefits of part-time workers
Part-time workers are entitled to retirement pay provided they comply with 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.
c. Retirement benefit of underground or surface mine employees under R.A. 8558, as amended
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.
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.
d. Retirement benefit of racehorse jockeys
The compulsory retirement age of professional racehorse jockeys who are duly licensed by the Philippine Racing Commission (PHILRACOM) is fifty-five (55) years old provided that he/she has served for at least five (5) years as racehorse jockey and has paid additional premium to the SSS.
e. Retirement benefit of Kasambahay and persons in the personal service of another
Kasambahay and persons in the personal service of another are entitled to retirement benefits pursuant to DOLE Department Order No. 20, series of 1994.
6. SSS retirement benefits are separate and different
SSS retirement benefits are separate and different from the retirement pay required to be given by the employer.
7. 13th month pay and unused service incentive leave credits are separate and added
The proportionate 13th month pay and cash equivalent of unused service incentive leave credits are separate and added to the retirement pay.
8. Exempted from income tax, exceptions
Retirement benefits under R.A. 7614 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, are exempt from income tax: 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.
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.
9. Employment contract, company policies, CBA
The above discussion may be superseded by any stipulation favorable to the employee via an employment contract, company policies, collective bargaining agreement, or analogous thereto.
▪ Jurisprudence or Supreme Court Decisions
▪ Republic Act No. 7641
▪ DOLE Department Order No. 20, Series of 1994 – Amending Section 2 of RA 7641
▪ Republic Act No. 8558, An Act Reducing the Retirement Age of Surface Mine Workers from Sixty (60) to Fifty (50) Years
▪ National Internal Revenue Code of the Philippines, as amended, Section 32(B)(6)(a)
▪ Cebu Institute of Technology vs. Ople, GR No. 58870, Dec. 18, 1987
▪ Jurisprudence or Supreme Court Decisions
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