Retirement Benefit of Employees Under the Labor Code vs. Retirement Plan under R.A. 4917
Retirement benefit under the Labor Code is provided under Article 302. This is the retirement benefit provision if there is no existing retirement plan of the company.
This should not be confused with Reasonable Retirement Benefit Plan provision under R.A. 4917 which was enacted for purposes of exemption from all taxes and not to establish compulsory coverage of employees.
Hence, not all companies have tax-exempt retirement plan under R.A. 4917. If so, what retirement provision shall apply? As mentioned Art. 302 of the Labor Code kicks in. It provides that:
“Article 302 [Formerly Article 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 therein.
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.”
As shown from the above, 60 years old is optional. This means the employee cannot be compelled to retire if he is just 60 years old but not yet 65. However, if he is 65 years old he can be compelled to retire provided he has served at least 5 years in service.
The computation of retirement benefit is 22.5 days per year of service. This is arrived at as follows:
One-half month is 15 days
SIL 5 days
Proportionate 13th month of 2.5 days (30 days / 12 = 2.5 days)
To illustrate:
Company X has no retirement plan. Gus T. Aretayr is already 60 years old and has been with the company for ten (10) years. Thus, he expressed his intention to retire. He is currently receiving PhP15,000 per month and the company implements Monday-Saturday work and adopts a factor of 313.
Thus, to compute his retirement pay:
Equivalent daily rate of PhP15,000 is PhP575.08. This is computed as follows:
PhP15,000 x 12 months / 313 days
PhP15,000 x 12 = PhP180,000
PhP180,000 / 313 days = PhP575.09
Hence,
PhP575.09 x 22.5 x 10 years of service
PhP5,750.90 x 10 years = PhP57,509.00
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