The age 60 or more, but below 65, is considered as the voluntary retirement age. Sixty-five is considered as the compulsory retirement age. A company may have CBA or employment contract setting a retirement age different (higher or lower) from that fixed by law. For example, the CBA may fix the retirement age at 50.
It is important to note that the company cannot unilaterally fix the retirement age of employee. Retirement age may be established only by a valid CBA or employment contract, or in the absence of both, by the law. Another thing, the retirement age fixed by law applies only when no CBA or employment contract setting the retirement age exist. If the establishment has a CBA or employment contract providing for a retirement plan or benefits to employees, the employee shall be entitled to receive the benefits as provided in the said CBA or contract. However, such benefits must not be less than that provided under the Labor Code.
Retirement benefits received by officials and employees of private firms in accordance with a reasonable private benefit plan maintained by the employer shall be exempt from income tax, provided:
(1) The retiring official or employee has been in the service of the same employer for at least 10 years;
(2) The retiring official or employee is not less than 50 years of age at the time of his retirement.
(3) The retiring official or employee should not have previously availed of the privilege under the retirement benefit plan of the same or another employer.
A “reasonable private benefit plan” means a pension, gratuity, stock bonus or profit-sharing plan maintained by an employer for the benefit of some or all of his officials or employees, wherein contributions are made by such employer for the officials or employees, or both, for the purpose of distributing to such officials and employees the earnings and principal of the fund thus accumulated. Relevant revenue regulations prescribe in detail the requirements for a reasonable retirement benefit plan to be determined as a tax-qualified plan by the Bureau of Internal Revenue (BIR). It means the company should register the retirement plan to BIR in advance.
In the absence of the retirement plan, the law will be applied.
Under the Labor code, the retirement pay must at least be equivalent to half of a month’s salary for each year of service and a fraction of at least 6 months is considered as one whole year.
One-half (1/2) month salary must include the following:
a) 15 days salary based on the last salary pay
b) the pays equivalent of a five days of incentive leave
c) 1/12 of the 13th month pay
Therefore, one-half month salary is equivalent to 22.5 days.
Illustration:
Minimum Retirement pay = Latest daily pay rate x 22.5 days per month x number of years of service
Notes: Excluded employees are:
● Government employees;
● Employees of retail, service and agricultural establishments regularly employing not more than 10 (10) employees.
A “reasonable private benefit plan” means a pension, gratuity, stock bonus or profit-sharing plan maintained by an employer for the benefit of some or all of his officials or employees, wherein contributions are made by such employer for the officials or employees, or both, for the purpose of distributing to such officials and employees the earnings and principal of the fund thus accumulated. Relevant revenue regulations prescribe in detail the requirements for a reasonable retirement benefit plan to be determined as a tax-qualified plan by the Bureau of Internal Revenue (BIR). It means the company should register the retirement plan to BIR in advance.
In the absence of the retirement plan, the law will be applied.
Under the Labor code, the retirement pay must at least be equivalent to half of a month’s salary for each year of service and a fraction of at least 6 months is considered as one whole year.
One-half (1/2) month salary must include the following:
a) 15 days salary based on the last salary pay
b) the pays equivalent of a five days of incentive leave
c) 1/12 of the 13th month pay
Therefore, one-half month salary is equivalent to 22.5 days.
Illustration:
Minimum Retirement pay = Latest daily pay rate x 22.5 days per month x number of years of service
Notes: Excluded employees are:
● Government employees;
● Employees of retail, service and agricultural establishments regularly employing not more than 10 (10) employees.