DISCLAIMER: This article does not create an attorney-client relationship between the author and the reader.  The answer of the author on the issue is just an expression of his general opinion based on Philippine law and hence does not constitute legal advice.

Qualified employees of private companies with early retirement benefit package have the option to encash their vested benefit under the retirement plan and may, thereafter, pursue different endeavor or simply relax and enjoy time free of corporate stress.

In the computation of early retirement pay, an error sometimes occurs by reason of confusion or otherwise.  Take this case.

An employee has availed of the early retirement benefit of the Company.  The employee has been with the Company for 15 years.  Under the Company’s tax-qualified plan, an employee who has been in the service for at least 15 years is entitled to a retirement pay of 20 days’ worth of salary for every year of service.  The HR computed the retirement pay of the employee based on this provision of the retirement plan.

The HR is misplaced in its computation. The enactment of Republic Act (R.A.) 4917 or an Act providing for an attachment-free retirement benefits of private employees has encouraged private employers to establish retirement plan with early retirement benefit package but the amount shall not be lower than the amount prescribed under R.A. 7641 or the New Retirement Law amending Article 287 of the Labor Code.

R.A. 7641 provides that the employee shall be entitled to receive such retirement benefits as he may have earned under existing laws and any collective bargaining agreement and other agreements: Provided, however, That an employee’s retirement benefits under any collective bargaining and other agreements shall not be less than those provided herein (which is 22.50 days for every year of service, a fraction of at least six (6) months being considered as one whole year).

Applying this provision of R.A. 7641, the employee in the instant case is entitled to receive 22.50 days for every year of service, a fraction of at least six (6) months being considered as one whole year, as this provision of the law is higher than the 20 days’ worth of salary in the retirement plan of the Company.

The 22.50 days minimum retirement pay of the employee is further explained in Clarissa E, Santo vs University of Cebu (GR No. 232522, August 28, 2019) as the 15 days’ worth of salary for every year of service provided under respondent’s faculty manual is much less than the 22.50 days’ worth of salary for every year of service provided under Article 287 of the Labor Code.

In the instant case, the error in the computation might be due to the confusion in the interpretation of the law that the 22.50 days minimum retirement pay applies only in normal retirement. Normal retirement is retirement at 60 years old or more but not more than 65 years old or at other age specified by law. This interpretation has been corrected by the Supreme Court (SC) in the case below and in the above-mentioned case.  

The employer is free to grant retirement benefits and impose different age or service requirements, but the benefits should not be lesser than those provided in Article 287 of the Labor Code (Beltran v. AMA Computer College-Biñan, GR No. 223795, April 3, 2019) which is 22.50 days for every year of service, a fraction of at least six (6) months being considered as one whole year.

To avoid any issue should the employee really intends to encash his vested early retirement benefit, the employee must submit to the employer not a resignation letter but a letter of intent expressly availing the early retirement benefit under the retirement plan.  If the employee simply tenders his resignation, there is a risk that the employer might not compute and grant the early retirement pay because resignation is different from early retirement.

(March 30, 2024)