Retirement Pay in the Philippines: RA 7641 Computation Guide

By Robin Salvador, co-founder, Caffeine Brothers
Last updated: November 13, 2026

Quick answer: Under RA 7641 (Article 302 of the Labor Code), a private-sector employee who retires at 60 to 65 after at least five years with the same employer gets at least one-half month’s salary for every year of service. The law defines that half month as 22.5 days: 15 days of pay, 2.5 days for 1/12 of the 13th month pay, and 5 days of service incentive leave. At the NCR minimum wage of ₱755 a day, that is ₱16,987.50 per year of service. Retail, service and agricultural businesses with not more than 10 workers are exempt.

What is retirement pay under RA 7641?

Retirement pay is a one-time amount the employer owes a worker who retires. Republic Act No. 7641, approved on December 9, 1992, rewrote the Labor Code article on retirement. The article is now numbered Art. 302 [287]. Its implementing rules say the law took effect on January 7, 1993.

The law sets a floor. It applies “in the absence of a retirement plan or agreement,” and any plan or collective bargaining agreement cannot give less. The DOLE Bureau of Working Conditions 2023 handbook says a plan may not be “less than the retirement pay required under RA 7641,” and if the employer’s contributory fund falls short, the employer pays the difference.

Who can retire and who is exempt?

An employee may retire at 60 or older, up to 65, which the law declares the compulsory retirement age, after serving at least five years in the establishment. The five years include authorized absences, vacations, regular holidays and mandatory military or civic duty, according to the implementing rules. Part-time workers are covered, with pay “computed at least in proportion to the salary and related benefits due them,” the DOLE handbook says.

The small-business exemption is narrower than many owners think. The implementing rules define a retail establishment as one “principally engaged in the sale of goods to end-users,” and say it loses the exemption “if it is engaged in both retail and wholesale of goods.” A service establishment is one principally engaged in selling services to individuals for their own or household use. If your café fits the retail or service definition and regularly employs 10 or fewer workers, it is exempt. With 11 or more, it is covered.

Note the overlap with the minimum wage. Under Wage Order NCR-28, effective September 26, 2026, retail and service establishments with 15 or fewer workers pay ₱718 a day instead of ₱755. A café with 11 to 15 workers pays the lower wage but still owes retirement pay. If you claim the exemption, keep proof of your headcount: in C. Planas Commercial v. NLRC (2005), a case on other wage exemptions, the Supreme Court said the employer invoking an exemption has “the burden of showing the basis.”

Why is half a month equal to 22.5 days?

RA 7641 says “the term one-half (1/2) month salary shall mean fifteen (15) days plus one-twelfth (1/12) of the 13th month pay and the cash equivalent of not more than five (5) days of service incentive leaves.” The DOLE handbook adds the three parts together.

The Supreme Court settled the number in Capitol Wireless v. Confesor in 1996. The employer had used 21.82 days. The Court said “it is clear in the law” that one-half month salary means 22.5 days. In Grace Christian High School v. Lavandera (2014), the Court rejected an attempt to pro-rate the leave component and held that “the whole 5 days of SIL are included” in a retiring employee’s pay. In Serrano v. Severino Santos Transit (2010), a bus conductor paid by commission was also found entitled to the full 22.5 days.

The daily rate excludes cost of living allowances. The DOLE handbook says “The COLA shall not be included in the computation of retirement pay,” and the implementing rules also leave out profit-sharing and other benefits not integrated into the regular salary. For workers paid by results, use the average daily salary over the last 12 months.

How much is retirement pay at the 2026 minimum wage?

The DOLE handbook formula is: minimum retirement pay = daily rate × 22.5 days × number of years in service. A fraction of at least six months counts as one whole year, so 12 years and 7 months is 13 years, while 12 years and 5 months is 12.

For monthly-paid staff, convert the monthly salary to a daily rate first. The DOLE handbook uses 313 days a year for workers who do not get paid on rest days and work six days a week, and 261 for those on a five-day week. A ₱20,000 monthly salary is ₱766.77 a day on the 313 factor (₱20,000 × 12 ÷ 313), so one year of service earns ₱17,252.33 and 10 years ₱172,523.25. On the 261 factor it is ₱919.54 a day, ₱20,689.65 a year and ₱206,896.50 for 10 years.

A worked example for a café

Take a hypothetical barista in a Metro Manila café with 14 regular workers. She earns the ₱718 minimum, joined at 47 and retires at 60 after 12 years and 7 months. The café has no retirement plan.

1. Check coverage. The café has more than 10 workers, so the exemption does not apply. She is 60 and has more than 5 years of service.
2. Round the service. 12 years and 7 months has a fraction of at least six months, so it counts as 13 years.
3. Apply the formula. ₱718 × 22.5 = ₱16,155 a year. × 13 years = ₱210,015.
4. Add what else is due. The DOLE handbook says a retiree also gets the proportionate 13th month pay for the year and the cash value of accrued leave. Our final pay guide and 13th month pay guide show how to compute those.
5. Release it tax-free. RA 7641 retirement pay is excluded from gross income, so no withholding tax applies to it.
6. Keep the records. File the computation, payroll records and her acknowledgment. Underpayment is a violation punished under Art. 303 [288] by a fine of ₱1,000 to ₱10,000, imprisonment of three months to three years, or both.

If the café had paid only 15 days a year, she would have received ₱140,010, which is ₱70,005 less than the law requires.

Is retirement pay taxable?

Section 32(B)(6)(a) of the Tax Code excludes from gross income “Retirement benefits received under Republic Act No. 7641” and benefits from “a reasonable private benefit plan maintained by the employer.” For a private plan, the employee must have at least 10 years with the same employer, be at least 50 years old and use the exemption only once. PwC Philippines, in a February 2024 article, describes the RA 7641 route as tax-free for employees aged 60 to 65 with at least five years of service, availed only once.

Employers who set up their own plan should note Revenue Regulations No. 15-2025, issued April 29, 2025 and effective June 12, 2025. Grant Thornton Philippines says it requires a BIR certificate of qualification for a tax-qualified plan, applied for within 30 days from the plan’s effectivity. This is general information, so check your plan with your accountant.

How is it different from the SSS pension?

Many workers mix the two up. SSS pays a monthly pension to members with at least 120 monthly contributions before the semester of retirement, at 60 if separated from work or at 65 whether working or not. Members with fewer contributions get a lump sum. The DOLE handbook says RA 7641 benefits are “separate and distinct from those granted by the Social Security System,” so a covered worker gets both. Our SSS contribution table for 2026 shows what employers remit each month.

Are there proposals to change the retirement age?

Yes, but nothing has passed. House Bill 6954, the Adjusted Retirement Age Act, was filed in December 2025 and would make 60 the compulsory retirement age for private employees, according to the bill text and BusinessWorld (December 26, 2025). A Daily Tribune column on November 8, 2026 notes that until it becomes law, turning 60 does not by itself end employment. Two other House bills, HB 2120 and HB 2395, would lower the optional retirement age of government workers under GSIS to 56; they do not change private-sector retirement pay. We’ll update this article if any of them is enacted.

Retirement pay also stacks with other benefits staff earn along the way, such as service incentive leave. This article is general information about Philippine labor law, not legal advice. For a specific case, consult DOLE or a labor lawyer.

Frequently asked questions

Sources

1. Republic Act No. 7641. LawPhil, approved December 9, 1992. Ages, 5-year rule, half-month definition, exemption, penalties
2. Labor Code Book Six, Art. 302 [287]. Labor Law PH Library, modified October 9, 2023. Current article text
3. Labor Code Book Seven, Art. 303 [288]. Labor Law PH Library. Penalties
4. Rules Implementing Book VI, Rule II: Retirement Benefits. DOLE, via ChanRobles. Effectivity Jan 7, 1993; exemptions; retail and service definitions; salary components
5. Handbook on Workers’ Statutory Monetary Benefits, 2023 edition. DOLE Bureau of Working Conditions, pp. 49 to 52. Formula, COLA exclusion, part-time, mine workers, jockeys, SSS, 313 and 261 factors
6. Republic Act No. 8558. LawPhil, approved February 26, 1998. Underground mine workers
7. Republic Act No. 10757. LawPhil, approved April 8, 2016. Surface mine workers
8. Capitol Wireless, Inc. v. Confesor, G.R. No. 117174. Supreme Court, November 13, 1996. 22.5 days
9. Grace Christian High School v. Lavandera, G.R. No. 177845. Supreme Court, August 20, 2014. Full 5 days of SIL included
10. Serrano v. Severino Santos Transit, G.R. No. 187698. Supreme Court, August 9, 2010. Commission-paid workers covered
11. C. Planas Commercial v. NLRC, G.R. No. 144619. Supreme Court, November 11, 2005. Employer bears burden of proving an exemption (wage and SIL case)
12. Republic Act No. 8424 (Tax Code), Sec. 32(B)(6)(a). LawPhil. Tax exclusion for retirement benefits
13. Taxability of retirement benefits. PwC Philippines, February 28, 2024
14. Revised retirement benefit plan regulations (RR 15-2025). P&A Grant Thornton. Issued April 29, 2025, effective June 12, 2025
15. Retirement Benefit. Social Security System, read November 13, 2026. 120 contributions, ages 60 and 65
16. DOLE: P60 wage hike in NCR takes effect Sept. 26. GMA News, September 26, 2026. ₱755 and ₱718 rates
17. House Bill No. 6954, Adjusted Retirement Age Act. House of Representatives, 20th Congress. Pending
18. Lower retirement age proposed to boost workforce openings. BusinessWorld, December 26, 2025
19. Retirement by choice, not by calendar. Daily Tribune column by Nilo Divina, November 8, 2026
20. House Bill No. 2120. House of Representatives, 20th Congress, July 21, 2025. GSIS optional retirement at 56

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