Republic Act No. 7641 (Retirement Pay Law) is the Philippine law that guarantees a minimum retirement benefit for qualified private-sector employees who are not covered by a more favorable retirement plan. It amended Article 302 (formerly Article 287) of the Labor Code.
Who is entitled?
A private-sector employee is entitled to retirement pay if he or she:
- Is at least 60 years old but not beyond 65 years old (optional retirement); and
- Has rendered at least five (5) years of service in the same establishment.
At 65 years old, retirement becomes compulsory.
How much is the retirement pay?
The minimum retirement pay is:
½ month salary × years of service
A fraction of at least six (6) months is counted as one whole year.
For purposes of RA 7641, "½ month salary" is equivalent to 22.5 days of pay, consisting of:
- 15 days salary
- 1/12 of the 13th-month pay (2.5 days)
- 5 days Service Incentive Leave (SIL)
Total = 22.5 days.
Sample Computation
If an employee:
- Monthly salary = ₱20,000
- Years of service = 20 years
Retirement pay:
₱20,000 × ½ × 20 years = ₱200,000 minimum retirement pay.
Important Notes
- If the company has a retirement plan or CBA providing benefits higher than RA 7641, the employee receives the higher benefit. RA 7641 serves as the minimum standard.
- Retirement pay is different from separation pay. Separation pay is generally granted when employment ends due to authorized causes such as redundancy, retrenchment, or closure.
- Government employees are generally covered by the GSIS retirement system, not RA 7641.