Retirement Pay Law (R.A.

7641)
Took effect: January 3, 1993

Retirement Pay
The employee may be retired upon reaching the retirement age established in the
employment contract, CBA, or company policy.[1] If there is no retirement plan or
agreement, an employee may be retired upon reaching the age of 60 years (optional) or
more but not beyond 65 years old (mandatory) provided he/she has served at least five
years in the establishment.[2]
The employee is entitled to receive such retirement benefits as he may have earned under
existing laws and any collective bargaining agreement and other agreements.[3] The
retirement benefits cannot be lesser than that provided for in the Labor Code.[4]
If there is no existing retirement plan or agreement in the establishment, the employee is
entitled to retirement pay equivalent to at least ½ month salary for every year of service, a
fraction of at least six months being considered as one year.[5] Unless otherwise agreed
upon by the parties, the said “½ month” salary includes: (a) 15 days salary based on latest
salary rate; (b) cash equivalent of the 5 days service incentive leave; and (c) 1/12 of
13th month pay.[6] As a result, the “½ month salary” is equivalent to 22.5 days.[7] COLA is
not included in the computation. [8]
Table 1
Retirement Pay Computation
Minimum Retirement Pay = Daily Rate x 22.5 days x Number of Years in
Service
In addition to the retirement pay, the employee is entitled to the proportionate 13th month
pay for the calendar year and to the cash equivalent of accrued leave benefits.[9]
An underground mining employee may be retired upon reaching the age of 50 years or
more, but not beyond 60 years so long as he has served at least five years as an
underground mine worker with the establishment.[10]
For covered workers paid by results with no fixed monthly salary rate, the basis for the
salary of 15 days will be based on their average daily salary.[11]
Part-time workers are entitled to retirement pay if these additional conditions are met: (a)
there is no retirement plan between the employer and the employee, and (b) the employee
should have reached the age of 60 years, and should have rendered at least five years of
service with the employer.[12]