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Republic Act No. 7641 (RA 7641), also known as the Retirement Pay Law, came into effect in January 7, 1993 and was made to amend Article 287 of the Labor Code of the Philippines. This law prescribes minimum retirement benefit that companies must pay eligible retiring employees. It does not inhibit these companies from providing more benefits than the minimum required, as provision for additional benefits is well recognized to increase a company’s competitive edge.

RA 7641 covers qualified private sector employees, but provides for certain exemptions. Those not covered by this law include agricultural establishments, government institutions, and retail establishments employing fewer than 10 employees.

Employees who retire – not resign – at age 60 and with at least 5 years of service to the company are entitled to the minimum regulatory benefit prescribed by RA 7641. According to the law, eligible retiring employees are paid “one-half month salary for every year of service.” Specifically, this “one-half month” includes: (1) 15 days’ salary, (2) cash equivalent of 5 days of service incentive leave, and (3) 1/12 of the 13th month pay. The actual benefit thus becomes approximately 22.5 days’ pay for every year of service rendered.

Note that this law does not require companies to set up retirement plans for its employees, and this initiative remains a company-initiated endeavor. RA 7641 simply prescribes the minimum benefit that must be paid to an eligible employee – it does not dictate where funds for this benefit should come from.