J.A.B. Bulao & Associates

LEGAL NOTE 0006: ON RETIREMENT BENEFITS IN A PRIVATE COMPANY.

I WORK IN A PRIVATE COMPANY. AM I ENTITLED TO RETIREMENT PAY?

Yes. There are two ways. One if your company has a retirement plan and two if your company has no retirement plan.

The basis is RA 7641:  An Act Amending Article 287 of PD 442, as amended, otherwise known as the Labor Code of the Philippines, by providing for retirement pay to qualified private sector employees in the absence of any retirement plan in the establishment (09 december 1992).

SUPPOSE THERE IS A COMPANY RETIREMENT PLAN, WHAT IS THE RULE?

Sec. 1. Article 287 of Presidential Decree No. 442, as amended, otherwise known as the Labor Code of thePhilippines, is hereby amended to read as follows:

“Art. 287. Retirement. – Any employee may be retired upon reaching the retirement age established in the collective bargaining agreement or other applicable employment contract.

“In case of retirement, 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.

SUPPOSE THERE IS NO COMPANY RETIREMENT PLAN, WHAT IS THE RULE?

“In the absence of a retirement plan or agreement providing for retirement benefits of employees in the establishment, an employee upon reaching the age of sixty (60) years or more, but not beyond sixty-five (65) years which is hereby declared the compulsory retirement age, who has served at least five (5) years in the said establishment, may retire and shall be entitled to retirement pay equivalent to at least one-half (1/2) month salary for every year of service, a fraction of at least six (6) months being considered as one whole year.

“Unless the parties provide for broader inclusions, 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.

ARE THERE COMPANIES EXEMPT FROM GRANTING RETIREMENT BENEFITS?

“Retail, service and agricultural establishments or operations employing not more than (10) employees or workers are exempted from the coverage of this provision.”

SUPPOSE THE EMPLOYER VIOLATES THIS LAW ON RETIREMENT WHAT IS THE REMEDY?

File a criminal case.

“Violation of this provision is hereby declared unlawful and subject to the penal provisions provided under Article 288 of this Code.”

SUPPOSE A GENEROUS COMPANY IS GRANTING MORE BENEFITS ASIDE FROM THOSE PROVIDED IN THIS LAW, ARE YOU STILL ENTITLED TO THESE BENEFITS?

Yes.

Sec. 2. Nothing in this Act shall deprive any employee of benefits to which he may be entitled under existing laws or company policies or practices.  

ARE RETIREMENT BENEFITS SUBJECT TO TAX?

No, under certain conditions.

Read case below:

G.R. No. 162775             October 27, 2006

INTERCONTINENTAL BROADCASTING CORPORATION (IBC), represented by ATTY. RENATOQ. BELLO, in his capacity as CEO and President, petitioner,
vs.
NOEMI B. AMARILLA, CORSINI R. LAGAHIT, ANATOLIO G. OTADOY, and CANDIDO C. QUIÑONES, JR., respondents.

XXXXXXXXXXXX

Revenue Regulation No. 12-86, the implementing rules of the foregoing provisions, provides:

(b) Pensions, retirements and separation pay. – Pensions, retirement and separation pay constitute compensation subject to withholding tax, except the following:

(1) Retirement benefit received by official and employees of private firms under a reasonable private benefit plan maintained by the employer, if the following requirements are met:

(i) The retirement plan must be approved by the Bureau of Internal Revenue;

(ii) The retiring official or employees must have been in the service of the same employer for at least ten (10) years and is not less than fifty (50) years of age at the time of retirement; and

(iii) The retiring official or employee shall not have previously availed of the privilege under the retirement benefit plan of the same or another employer.

Thus, for the retirement benefits to be exempt from the withholding tax, the taxpayer is burdened to prove the concurrence of the following elements: (1) a reasonable private benefit plan is maintained by the employer; (2) the retiring official or employee has been in the service of the same employer for at least 10 years; (3) the retiring official or employee is not less than 50 years of age at the time of his retirement; and (4) the benefit had been availed of only once.

WHAT IS THE LEGAL BASIS?

RA 4917:  AN ACT PROVIDING THAT RETIREMENT BENEFITS OF EMPLOYEES OF PRIVATE FIRMS SHALL NOT BE SUBJECT TO ATTACHMENT, LEVY, EXECUTION, OR ANY TAX WHATSOEVER (17 JUNE 1967)

Sec. 1.   Any provision of law to the contrary notwithstanding, the retirement benefits received by officials and employees of private firms, whether individual or corporate, in accordance with a reasonable private benefit plan maintained by the employer shall be exempt from all taxes and shall not be liable to attachment, garnishment, levy or seizure by or under any legal or equitable process whatsoever except to pay a debt of the official or employee concerned to the private benefit plan or that arising from liability imposed in a criminal action: Provided, That the retiring official or employee has been in the service of the same employer for at least ten (10) years and is not less than fifty years of age at the time of his retirement: Provided, further, That the benefits granted under this Act shall be availed of by an official or employee only once: Provided, finally, That in case of separation of an official or employee from the service of the employer due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee, any amount received by him or by his heirs from the employer as a consequence of such separation shall likewise be exempt as hereinabove provided.

As used in this Act, the term “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 and employees, wherein contributions are made by such employer or officials and employees, or both, for the purpose of distributing to such officials and employees the earnings and principal of the fund thus accumulated, and wherein it is provided in said plan that at no time shall any part of the corpus or income of the fund be used for, or be diverted to, any purpose other than for the exclusive benefit of the said officials and employees.

Sec. 2.   This Act shall take effect upon its approval.

Approved: June 17, 1967

SUPPOSE AN EMPLOYEE IS SEPARATED FROM THE SERVICE FOR A CAUSE BEYOND HIS CONTROL, IS HIS SEPARATION PAY SUBJECT TO TAX?

No. As provided above:

Provided, finally, That in case of separation of an official or employee from the service of the employer due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee, any amount received by him or by his heirs from the employer as a consequence of such separation shall likewise be exempt as hereinabove provided.