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The Philippine Retirement Pay Law (RA 7641)

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.

ABOUT THE AUTHOR

Raymund Zalamea

Raymund has over 20 years of experience in retirement consulting, entrepreneurship and marketing. He manages both the actuarial and the benefits administration services for Zalamea.

Raymund has also been successful in launching an online employee portal that provides seamless processing of payroll, timekeeping, retirement savings and loans.

30 thoughts on “The Philippine Retirement Pay Law (RA 7641)

  1. Hello,

    I am a Consultant for two medium sized companies and I am interested in engaging your actuarial services.
    I was Fluor’s former Controller. We have talked before.

    Thank you.

    1. Thanks Medy. Yes, kindly email the employee head count and contact info of each of the 2 companies so we can prepare and send you the proposal.

  2. Hi,

    I had just turn 60 years old last June. And file my notice of upto end of November this year. Stayed to the company for 11 years.

    My query is my retirement benefits be subject to withholding tax? If so by how much granting my basic salary is 100k per month.

    Many thaks

    1. Hi Roberto,

      Thank you for the query. If you’re company has a tax qualified retirement plan then the benefits paid to you will be tax-exempt under RA 4917. Under RA 4917, retirement benefits paid to an employee will be tax exempt provided you meet the following requirements: (1) company has a BIR registered retirement plan, (2) the retiring employee is at least 50 years old with at least 10 years of service in the same company and (3) that the employee has not previously availed of a tax exempt retirement benefit.

    1. Yes, a lot of companies who set up their retirement plan provides early retirement benefits. An example is upon reaching the age of 50 with at least 10 years of service.

      Another example of an early retirement provision is tenure based such that if you reach at least 10 years of service (regardless of age), you receive a partial benefit of 50% of your salary for every year of service. The vesting % increases for every year of service.

  3. My co-employee were planning to resigned from the company which she work for 22 years. She was diagnosed stage 4 brain cancer, she is now 45years old. How much does she can get as retirement pay?

    1. First of all, if the Company has a private retirement plan, she can request to be retired under their Disablity provision, if any, or under Early Retirement Provision. Assuming her Company did not established a formal Retirement Plan, then there is nothing she can expect from a private plan. Looking at the mandated retirement program (R A 7641) she can get a retirement pay only upon reaching age 60 with at least 5 years of service, so she is not entitled to any benefit under this mandated plan. She shoud ask her Company to retire her due to disability and apply for disability benefit under the SSS. Also she can get her Accumulated Value with Pag-IBIG Fund.

  4. The company that I worked for has a retirement plan which is managed by BDO. Although, I stayed for the company for few years, I was told that I was eligible for 30% of what was saved. The total amount is less than Php 250,000.00. Would that still be subjected to tax?

    1. How old and how many year of service were you when you left the company? If you were less than 50 years old and less than 10 years of service that time, then the benefit should’ve been subject to withholding tax.

  5. Hi,

    What is the tax implication to both the company, if any, and to the retiree when a company which does not have a retirement plan pays the full benefit to a retiree aged 60 with at least five years of service?

    1. The Company will not be able to recognize the payment as an expense since no withholding tax was deducted. On the part of the receipient, the payment should be reported as a taxable income.

  6. Hi there,
    Im working with private company for 5 years and half. But im still.40years old. Can i avail the RA7641for early retirement?

    Thank you.
    Jhun

    1. If your company doesn’t provide a benefit for early retirement, then you are not eligible to receive a benefit. Note that RA 7641 will only kick in when an employee reaches 60 years old with 5 years of service.

  7. Hi! Good Afternoon.

    I work as a Financial Advisor and usually I offer retirement plan for companies could be for keyman insurance or insurance plans named to the employees, usually i share RA 7641, which states that companies need to provide a retirement benefit for their employees.

    Is Dole, strict nowadays in the implementation regarding this ? And also, how do they classify or like mapping for checking for companies?

    Thank you.

  8. If the company has a formal retirement plan with benefit package that is higher than what is mandated by RA7641 (one month salary or higher for every year of service), is the benefit still tax exempt if the tenure of the 60 year old employee is less than 10yrs (as specified in RA4917, retirement benefit is tax exempt if employee is 50years old with at least 10yrs of service)? If tenure of the 60-year old employee is less than 5 years, is the employee still eligible to receive a retirement benefit and is this benefit exempted from income tax?

  9. Hello,
    I am employed in a private company and been working for 20 years. I am 51 years old.
    AM I entitled already for the retirement pay? The company doesn’t have a retirement plan.
    Thank you!

  10. Sir, I just want to ask if project employees are also entitled for retirement pay under RA 7641 upon reaching 60 years old and rendered at least 5 years in the company but employed as project based employee/project employees?

  11. Hi what if the company closes 5 months prior to retirement. What pay should i get? The separation pay or retirement? My company only offers separation pay which is Very minimal. What happen to my retirement? 16 yrs in the service.

    1. does the employer have a retirement plan? if the retirement plan has a death benefit, then the employee’s beneficiaries may be eligible. in case the company doesn’t have a retirement plan or policy on death, then the beneficiaries may not receive anything.

    2. does the employer have a retirement plan? if the retirement plan has a death benefit, then the employee’s beneficiaries may be eligible. in case the company doesn’t have a retirement plan or policy on death, then the beneficiaries may not receive anything.

  12. Sir
    We are a company with less than 10 employees . We are into retail & services .
    One of our empployee at age 61 retired this month. Is it compulsory for us to give retirement benefit?

    1. Hi Mary Ann, we have a Retirement Pay Law (RA 7641) which provides a minimum regulatory retirement benefit in the absence of an establishment’s retirement plan. However, the said Law does not apply to employees of retail and service establishments with not more than ten (10) employees.

      You may check if your company/establishment has retirement policy or retirement plan providing benefits to its employees.

  13. Bakit parang walang ngipin naman ang batas na yan? I just don’t know where the minds of the legislators when they crafted this law!!! Just as the question: Where is their interest when they legislated such a useless law?

    1. Agree. I hope they will amend the law and make it more beneficial to workers who have contributed at least 5 years of their working life in any company.

  14. Hi
    Hi! If a 65 y/o employee retired and was hired again, is he eligible for another retirement/separation pay for the added 5 years in service? Would appreciate your advice. Thanks!

    1. Hi Tina! To answer your question, it shall be checked first if the said employee will be regularized or will be a consultant of the company. In case he becomes a regular employee and the company does not have a formal retirement plan, then he will not be entitled to another retirement benefit since based on R.A. 7641, employees are entitled to retirement benefits until age 65 only. On the other hand, if the company has a retirement plan, you may check the late or compulsory retirement mentioned in the plan. If the age of the retiring employee will still be covered (i.e. late retirement in the plan is until age 70 or higher) considering his new tenure upon retirement, then he is eligible for another retirement benefit under the plan.

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