Retirement Pay (2024)

Retirement pay is an additional pay provided to a covered employee who is retiring. In the private sector, the ½ month pay in retirement pay is equivalent to 22.5 days. 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.

1. Concept

Retirement Pay (Private Sector) – refers to an additional pay given to private sector employees who qualify for retirement benefits. (See: P.D. 442, Labor Code, Article 287; 2023 DOLE-BWC Handbook on Workers’ Statutory Monetary Benefits or “DOLE-BWC Handbook”, pp. 48-49)

a. Legal basis

The following are the legal bases:

Legal Basis	Provisions
1) P.D. 442, Labor Code	Arts. 298 and 299
2) Omnibus Rules Implementing the Labor Code (“Omnibus Rules”)	Title II, Book Six

Art. 287. Retirement. – Any employee may be retired upon reaching the retirement age established in the collective bargaining agreement or other applicable employment contract.

In case of retirement, the employee shall be entitled to receive such retirement benefits as he may have earned under existing laws and any collective bargaining agreement and other agreements: Provided, however, That an employee’s retirement benefits under any collective bargaining and other agreements shall not be less than those provided herein.

In the absence of a retirement plan or agreement providing for retirement benefits of employees in the establishment, an employee upon reaching the age of sixty (60) years or more, but not beyond sixty-five (65) years which is hereby declared the compulsory retirement age, who has served at least five (5) years in the said establishment, may retire and 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.

Unless the parties provide for broader inclusions, the term one-half (1/2) 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 of service incentive leaves.

Retail, service and agricultural establishments or operations employing not more than (10) employees or workers are exempted from the coverage of this provision.

Violation of this provision is hereby declared unlawful and subject to the penal provisions provided under Article 288 of this Code. (P.D. 442, Labor Code, as amended by R.A. 7641)

a. R.A. 7641

RA 7641, which was enacted on December 9, 1992, amended Article 287 of the Labor Code, providing for the rules on retirement pay to qualified private sector employees in the absence of any retirement plan in the establishment. The said law states that “an employee’s retirement benefits under any collective bargaining [agreement (CBA)] and other agreements shall not be less than those provided” under the same – that is, 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 – and that “[u]nless the parties provide for broader inclusions, the term one-half (1/2) 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 of service incentive leaves.” (Grace Christian High School v. Lavandera, G.R. No. 177845, August 20, 2014, Per Perlas-Bernabe, J.)

The foregoing provision is applicable where (a) there is no CBA or other applicable agreement providing for retirement benefits to employees, or (b) there is a CBA or other applicable agreement providing for retirement benefits but it is below the requirement set by law. Verily, the determining factor in choosing which retirement scheme to apply is still superiority in terms of benefits provided. (Grace Christian High School v. Lavandera [2014], supra.)

Grace Christian High School v. Lavandera, G.R. No. 177845, 20 August 2014, Per Perlas-Bernabe, J.:

⦁ In the present case, GCHS has a retirement plan for its faculty and non-faculty members, which gives it the option to retire a teacher who has rendered at least 20 years of service, regardless of age, with a retirement pay of one-half (1/2) month for every year of service. Considering, however, that GCHS computed Filipinas’ retirement pay without including one-twelfth (1/12) of her 13th month pay and the cash equivalent of her five (5) days SIL, both the NLRC and the CA correctly ruled that Filipinas’ retirement benefits should be computed in accordance with Article 287 of the Labor Code, as amended by RA 7641, being the more beneficent retirement scheme. They differ, however, in the resulting benefit differentials due to divergent interpretations of the term “one-half (1/2) month salary” as used under the law.

⦁ The Court, in the case of Elegir v. Philippine Airlines,Inc., has recently affirmed that “one-half (1/2) month salary means 22.5 days: 15 days plus 2.5 days representing one-twelfth (1/12) of the 13th month pay and the remaining 5 days for [SIL].” The Court sees no reason to depart from this interpretation. GCHS’ argument therefore that the 5 days SIL should be likewise pro-rated to their 1/12 equivalent must fail.

b. Humanitarian in character

By their very nature, retirement laws are humanitarian in character. They reward an employee’s loyalty and long service to their employer. (Government Service Insurance System [GSIS] v. Palmiery, G.R. No. 217949, 20 February 2019)

retirement benefits are intended to help the employee enjoy the remaining years of his life, lessening the burden of worrying for his financial support, and are a form of reward for his loyalty and service to the employer. Retirement benefits, where not mandated by law, may be granted by agreement of the employees and their employer or as a voluntary act on the part of the employer. (De La Salle Araneta University v. Bernardo, G.R. No. 190809, 13 February 2017, Per Leonardo-De Castro, J.)

c. Daily- or monthly-paid, irrelevant

Whether employees are daily- or monthly-paid is not relevant.

Both daily-paid and monthly-paid are entitled to retirement pay.

Otherwise stated, the rules on retirement pay apply to both daily-paid and monthly-paid employees. There should be no distinction between the two.

Related: Daily-paid v. Monthly-paid

d. Employee status, irrelevant

The employee’s status is not relevant.

Simply, so long as they are employees, they are entitled to retirement pay. Thus, it does not matter whether they are regular, probationary, casual, project, seasonal, or fixed-term.

e. “In the absence of a retirement plan or agreement providing for retirement benefits”

The provisions under the Labor Code applies only “[i]n the absence of a retirement plan or agreement providing for retirement benefits.” (Labor Code, Article 287)

Meaning, if there is a more favorable retirement plan, benefit, package that is provided for by the employer or agreed upon between the employer and the employee, then such retirement benefits will be followed. After all, the Labor Code provisions on retirement pay activates only if there is no such retirement plan or agreement.

2. Covered employees

The retirement benefits provided for under the Labor Code applies to all employees (“covered employees”) except the following (“exempted employes”):

1) Government employees; and

2) Employees of retail, service and agricultural establishments/operations regularly employing not more than ten (10) employees. (Labor Code, Article 287; DOLE-BWC Handbook, pp. 48-49)

3. The Benefit

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. (Labor Code, Article 287; 2023 DOLE-BWC Handbook on Workers’ Statutory Monetary Benefits or “DOLE-BWC Handbook”, pp. 48-49)

a. Computation

See: Computation of Retirement Pay, Private Sector

4. Conditions for entitlement

These are the conditions for entitlement to retirement pay:

1) There is no retirement plan or agreement providing for retirement benefits of employees in the establishment;

2) The covered employee should reach retirement age – i.e. for optional retirement, he/she should be at least sixty (60) years old, whereas for mandatory retirement, he/she should be at least sixty-five (65) years old;

3) The covered employee should have rendered at least five (5) years of service in the establishment. (Labor Code, Article 287)

a. No retirement plan/agreement on retirement benefits

The law on retirement applies only if there is no retirement plan or agreement providing for retirement benefits of employees in the establishment. Otherwise stated, if there is a retirement plan or agreement which is equal to or better than that that provided for by law, then it will be the one that will be followed for purposes of retirement benefits. For clarity, the retirement plan or agreement should not be lower than the retirement benefits provided for by law (i.e. computation).

Notwithstanding, the retirement plan or agreement may provide for a lower retirement age as discussed herein under optional retirement.

b. Retirement age

The covered employee should reach the retirement age, whether optional or mandatory.

1) Optional retirement

The optional retirement age is sixty (60) years old.

By its express language, the law permits employers and employees to fix the employee’s retirement age. Absent such an agreement, the law fixes the age for compulsory retirement at sixty-five (65) years, while the minimum age for optional retirement is set at sixty (60) years. Thus, retirement plans allowing employers to retire employees who have not yet reached the compulsory retirement age of sixty-five (65) years are not per se repugnant to the constitutional guaranty of security of tenure, provided that the retirement benefits are not lower than those prescribed by law and they have the employee’s consent. It is axiomatic, therefore, that a retirement plan giving the employer the option to retire its employees below the ages provided by law must be assented to by the latter, otherwise, its adhesive imposition will amount to a deprivation of property without due process. (Pulong v. Super Manufacturing, Inc., G.R. No. 247819, October 14, 2019, Per Lazaro-Javier, J.)

Retirement is the result of a bilateral act of the parties, a voluntary agreement between the employer and the employee whereby the latter, after reaching a certain age, agrees to sever his or her employment with the former. (Pulong v. Super Manufacturing, Inc. [2019], supra.)

a) Nature of consent

The character of the employee’s consent to the employer’s early retirement policy: it must be:

1) Explicit;

2) Voluntary;

3) Free; and

4) Uncompelled. (Pulong v. Super Manufacturing, Inc. [2019], supra.)

b) Acceptance of early retirement plan

Acceptance by the employees of an early retirement age option must be explicit, voluntary, free, and uncompelled. While an employer may unilaterally retire an employee earlier than the legally permissible ages under the Labor Code this prerogative must be exercised pursuant to a mutually instituted early retirement plan. In other words, only the implementation and execution of the option may be unilateral, but not the adoption and institution of the retirement plan containing such option. For the option to be valid, the retirement plan containing it must be voluntarily assented to by the employees or at least by a majority of them through a bargaining representative. (Pulong v. Super Manufacturing, Inc. [2019], supra.)

Pulong v. Super Manufacturing, Inc., G.R. No. 247819, 14 October 2019, Per Lazaro-Javier, J.:

⦁ [Complainant-employee] essentially alleged that, in December 1978, [the employer] hired him as a spot welder in its production plant in Quezon City. In May 1998, he and other workers were granted their separation pay following the transfer of [the employer’s] production plant to Calamba City, Laguna. On August 1, 1998, [the employer] re-employed him as a Senior Die Setter. He had since continued working for [the employer].

⦁ On September 22, 2014, however, he was denied entry into [the employer’s] production plant. [The employer’s] Personnel Manager… showed him a document stating he was compulsory retired since he had already turned sixty (60) years old. He refused to sign the retirement papers because he still wanted to work until sixty-five (65) years old. [The employer], nevertheless, prevented him from returning work.

⦁ For their part, [the employer] countered that [the employee] was not illegally dismissed. Rather, he was compulsorily retired pursuant to the Memorandum of Agreement (MOA) dated January 1, 2013 between [the employer] and its workers, purportedly represented by Safety/Liaison Officer [E. Abad], Painter II [G. Bionat], and Rewinder I [J. Cruz]…

⦁ It is incumbent upon [the employer] to prove that Abad, Bionat, and Cruz were the duly authorized bargaining representatives of [the employer’s] workers for purposes of signing the MOA. This, [the employer] failed to do. For it merely asserts that Abad and Bionat were among the representatives of [the employer’s] workers in the previous MOAs of [the employer] and the employees…

⦁ This is non-sequitur. Even assuming that one (1) of the three (3) signatories to the MOA dated January 1, 2013 had, on different periods, validly represented [the employer’s] workers, [the employer] still had to establish that all three (3) signatories, Abad, Bionat, and Cruz, were authorized by [the employer’s] workers to represent them in the subsequent negotiations and execution of the MOA dated January 1, 2013. But this, [the employer] failed to do.

⦁ [The employer] has not shown any proof that Abad, Bionat, and Cruz were authorized to represent [the employer’s] workers to sign the January 1, 2013 MOA in their behalf. It did not even disclose under what capacity or authority they could have represented [the employer]’s workers, including herein [the employee]. In fact, by Decision dated September 30, 2015, the NLRC found that [the employer] failed to submit any evidence showing that Abad, Bionat, and Cruz were either appointed or elected by their co-workers to represent them in negotiations with [the employer]. Evidently, the January 1, 2013 MOA is not the “covenant” between [the employer] and its workers. For Abad, Bionat, and Cruz were not proven to have been chosen by [the employer’s] workers as their true collective bargaining representative. The MOA dated January 1, 2013, therefore, does not govern the employment terms and conditions of [the employer’s] workers, let alone, [the employee’s]’s “retirement”.

⦁ As stated, the MOA here was not assented to by petitioner and his co-workers. It was not executed after consultations and negotiations with the employees’ authorized bargaining representative. The MOA, therefore, does not bind petitioner; much less, its provisions on compulsory retirement at age sixty (60). For it was not a result of any bilateral act; instead, it was a unilateral imposition of SMI upon petitioner.

c) Anti-Age Discrimination in Employment Act

Under R.A. 10911, a.k.a. Anti-Age Discrimination in Employment Act, earlier retirement based on employee’s or worker’s age is generally prohibited, to wit:

Section 5. Prohibition of Discrimination in Employment on Account of Age –

(a) It shall be unlawful for an employer to:

x x x

(7) Impose early retirement on the basis of such employee’s or worker’s age.

(b) It shall be unlawful for a labor contractor or subcontractor, if any, to refuse to refer for employment or otherwise discriminate against any individual because of such person’s age. (R.A. 10911, Anti-Age Discrimination in Employment Act)

By way of exception, a bona fide employee retirement or a voluntary early retirement plan that is consistent with R.A. 10911 is valid, viz:

Section 6. Exceptions. – It shall not be unlawful for an employer to set age limitations in employment if:

x x x

(c) The intent is to observe the terms of a bona fide employee retirement or a voluntary early retirement plan consistent with the purpose of this Act: Provided, That such retirement or voluntary retirement plan is in accordance with the Labor Code, as amended, and other related laws; x x x

2) Mandatory retirement

The mandatory retirement age is sixty-five (65) years old.

The Anti-Age Discrimination Act did not amend/modify the mandatory retirement age. What is prohibited under the said law is for an employer to “[i]mpose earlier retirement on the basis of… [an] employee’s or worker’s age.” Mandatory retirement is not early retirement.

c. The covered employee should have rendered at least five (5) years of service in the establishment.

The covered employee should render at least five (5) years of service in the establishment to be entitled to retirement benefits. (Labor Code, Article 287; DOLE-BWC Handbook, p. 48)

However, the employer and the employee may stipulate a lower length of service, such as three (3) years of service. Such a stipulation is in favor of an employee as he/she will just render fewer years of service to be entitled to retirement benefits. Accordingly, such a stipulation may be considered valid.

5. Special cases

a. 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 benefit to which the employee would have been entitled had there been no such retirement benefits’ fund. If such total portion from the employer is lesser, the employer shall pay the deficiency.” (Labor Code, Article 287; DOLE-BWC Handbook, p. 49)

b. 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.” (Labor Code, Article 287; DOLE-BWC Handbook, p. 49)

c. Retirement benefits of part-time workers

Part-time workers are entitled to retirement pay provided they meet the requirements stated earlier. The benefit shall be computed pro rata to their salary and related benefits. (Labor Code, Article 287; DOLE-BWC Handbook, pp. 49-50)

Republic Act No. 7641 enumerates certain exemptions from coverage, and that this enumeration provides no basis to exempt petitioners from paying retirement benefits to qualified part-time employees. (Father Saturnino Urios University [FSUU] Inc. v. Curaza [2020], supra.)

The coverage of the law and exemptions thereto were further elaborated upon by the Rules Implementing the Labor Code and an October 24, 1996 Labor Advisory, neither of which suggest that part-time employees could be considered excluded from being entitled to retirement pay. (Father Saturnino Urios University [FSUU] Inc. v. Curaza [2020], supra.)

The only exemptions specifically identified by Republic Act No. 7641 and its Implementing Rules are:

1) 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; and

2) Employees of retail, service and agricultural establishments or operations regularly employing not more than 10 employees. (Father Saturnino Urios University [FSUU] Inc. v. Curaza [2020], supra.)

De La Salle Araneta University v. Bernardo, G.R. No. 190809, February 13, 2017, Per Leonardo-De Castro, J.:

⦁ In the present case, DLS-AU, through Dr. Bautista, denied Bernardo’s claim for retirement benefits because only full-time permanent faculty of DLS-AU are entitled to said benefits pursuant to university policy and the CBA. Since Bernardo has not been granted retirement benefits under any agreement with or by voluntary act of DLS-AU, the next question then is, can Bernardo claim retirement benefits by mandate of any law?

⦁ We answer in the affirmative.

⦁ Republic Act No. 7641 is a curative social legislation. It precisely intends to give the minimum retirement benefits to employees not entitled to the same under collective bargaining and other agreements. It also applies to establishments with existing collective bargaining or other agreements or voluntary retirement plans whose benefits are Jess than those prescribed in said law.

⦁ Under the rule of statutory construction of expressio unius est exclusio alterius, Bernardo’s claim for retirement benefits cannot be denied on the ground that he was a part-time employee as part-time employees are not among those specifically exempted under Republic Act No. 7641 or its Implementing Rules…

d. Retirement benefit of underground or surface mine employees under R.A. 8558, as amended

“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.” (DOLE-BWC Handbook, p. 50)

“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.” (DOLE-BWC Handbook, p. 50)

Related: Surface Mine Workers

e. 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.” (DOLE-BWC Handbook, p. 50)

6. SSS retirement benefits

“The retirement benefits under RA 7641 and RA 8558 are separate and distinct from those granted by the Social Security System.” (DOLE-BWC Handbook, p. 50)

“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.” (DOLE-BWC Handbook, p. 50)

7. 13th month pay and unused service incentive leave credits

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

“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.” (DOLE-BWC Handbook, p. 50)

“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.” (DOLE-BWC Handbook, p. 50)

9. Liberally construed in favor of retiree-beneficiary

“Retirement laws are liberally construed in favor of the retiree-beneficiary.” (Aniñon v. Government Service Insurance System, G.R. No. 190410, April 10, 2019, Per Bersamin, C.J.)

10. Favorable employee stipulations

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.

11. When in doubt, interpretation favors labor

Art. 1702. In case of doubt, all labor legislation and all labor contracts shall be construed in favor of the safety and decent living for the laborer. (R.A. 386, Civil Code)

ART. 4. Construction in Favor of Labor. – All doubts in the implementation and interpretation of the provisions of this Code, including its implementing rules and regulations, shall be resolved in favor of labor. (P.D. 442, Labor Code)

Article 4 of the Labor Code provides that all doubts in the implementation and interpretation of its provisions, including its implementing rules and regulations, shall be resolved in favor of labor. For the working man’s welfare should be the primordial and paramount consideration. (Asian Transmission Corporation v. CA, G.R. No. 144664, March 15, 2004, Per Carpio-Morales, J.)

⦁ Retirement Pay, Private Sector

⦁ FAQ: Retirement Pay, Private Sector

⦁ Cases: Retirement Pay, Private Sector