NDVLaw Article - How to Compute Your Retirement Pay

What is Retirement Under Philippine Law?

Many of us dream of living comfortably, free from stress and pressure when we reach our twilight years. Since our stay in this world is merely temporary, we wish to enjoy our remaining years in our lifetime. For this reason, retirement comes to mind. Retirement has been defined as a withdrawal from office, public station, business, occupation, or public duty (Webster’s Third New International Dictionary). In Brion vs. South Philippine Union Mission of the Seventh Day Adventist Church (G.R. No. 135136, 19 May 1999), the Supreme Court added that 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 and/or consents to sever his employment with the former.

What is the Legal Basis for Retirement Pay?

Article 302 (previously Art. 287) of the Labor Code, as amended by Republic Act No. 7641, otherwise known as the Retirement Pay Law, provides that in the absence of an agreement to the contrary, an employee may optionally retire upon reaching the age of sixty (60) years or more, but not beyond sixty-five (65) years of age which is hereby considered as the compulsory retirement age. The same law mandates that an employee falling within the retirement age who has served for at least five (5) years in the company shall be entitled to retirement pay. The retirement pay will be based on the retirement plan of the company.  If the company does not have a retirement plan or has one but falls below the requirements set by law, the retirement pay is equivalent to one-half (1/2) month salary for every year of service whereby a fraction of at least six (6) months is considered as one (1) whole year.

How do you Compute your Monthly Retirement Pay?

However, do not be misled by the term one-half (1/2) month.  It doesn’t simply mean a half month’s salary for every year of service.  Half-month is computed as fifteen days salary plus one-twelfth (1/12) of the 13th month pay and the cash equivalent of five (5) days service incentive leave. Thus, 22.5 days per year of service is the correct formula (Serrano vs. Santos, G.R. No. 187698, 09 August 2010).

In the computation of the salary, it shall be based on the employee’s latest salary rate which includes all remunerations paid to an employee for services rendered during normal working days. However, in computing retirement pay, salary does not include cost of living allowance (COLA), profit-sharing payments and other monetary benefits not considered part of the regular salary of the employee.  Sales commissions which are effectively an integral portion of the basic salary structure of an employee, shall be included in determining the retirement pay (Reyes vs. NLRC, G.R. No. 160233, 08 August 2007). Otherwise, commissions do not form part of the salary computation.

This is how to compute retirement pay in the Philippines.

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If you need assistance with labor-related issues, compliance with DOLE issuances, and help in the enforcement of company employment policies, we can help you. Nicolas and de Vega Law Offices is a full-service law firm in the Philippines.  You may visit us at the 16th Flr., Suite 1607 AIC Burgundy Empire Tower, ADB Ave., Ortigas Center, 1605 Pasig City, Metro Manila, Philippines.  You may also call us at +632 84706126, +632 84706130, +632 84016392 or e-mail us at [email protected]. Visit our website https://ndvlaw.com/.

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