Retirement Pay at Age 60 in the Philippines: Can “Contractual” Service Count Toward the 5-Year Requirement?

Short answer: Yes—contractual service generally counts toward the five-year service requirement as long as it was service as an employee of the same employer (the “establishment”). It can be continuous or broken. Service rendered through a legitimate manpower agency usually counts only for that agency (not the principal), unless the agency arrangement was unlawful “labor-only contracting,” in which case service may be credited to the principal.

This article summarizes the law and common rulings as of 2025-09-08. It’s general guidance—not legal advice. Rules can change and facts matter; consult counsel for your case.

1) The legal baseline (Labor Code, as amended by the “Retirement Pay Law”)

Coverage. Private-sector employees, regardless of rank, status, or pay method, are covered by the minimum retirement pay standards—except:
- Employees of retail, service, and agricultural establishments that regularly employ not more than 10 workers (micro-enterprise exemption).
- Government employees (Civil Service rules apply).
- Kasambahay (domestic workers) are governed by a separate law and are not covered by the Labor Code’s retirement pay provision.
Ages.
- Optional retirement: 60 to below 65.
- Compulsory retirement: 65 (absent a different, valid plan/CBA).
- Without a company plan/CBA, an employee may retire at 60+ if the 5-year service condition is met. An employer cannot force a worker to retire at 60 absent a valid plan/CBA; only at 65 is it compulsory.
Minimum benefit. At least one-half (1/2) month salary for every year of service, with a fraction of at least 6 months counted as one whole year.
- By long-standing DOLE rules, “1/2 month salary” is commonly treated as 22.5 days (15 days + 1/12 of 13th-month pay ≈ 2.5 days + 5 days service incentive leave) for employees legally entitled to both 13th-month and SIL.
- If the worker is not legally entitled to 13th-month and/or SIL (e.g., certain managerial/field personnel), the 22.5-day figure is reduced accordingly (typically down to 15 days if neither applies).
- Base of computation = last basic salary (regular wage). Non-integrated allowances, OT, premiums, etc., are generally excluded unless a company plan/CBA says otherwise.
More-favorable benefits prevail. Employees get whichever is better between the statutory minimum and a company plan/CBA. A plan cannot reduce statutory minimums.

2) The 5-Year Service Requirement—what counts?

A. “Service in the said establishment”

The law speaks of service “in the said establishment,” i.e., with the same employer (legal entity).
Corporate changes:
- Merger/consolidation or asset sale can affect whether the successor must honor prior service. If the buyer assumes employees or expressly recognizes seniority, prior service usually carries over. If workers are re-hired as new without assumption of liabilities, crediting prior service depends on agreements, practice, or rulings.
- Transfers within a group (parent/subsidiary/affiliate) don’t automatically carry credit unless a plan/CBA or employer policy recognizes group-wide service.

B. Continuous vs broken service

It need not be continuous. The five years can be accumulated over multiple stints with the same employer.
Authorized absences, paid leaves, holidays, and similar periods are generally counted as service.
Long unpaid gaps (e.g., off-season for seasonal workers) don’t reset seniority but aren’t “service days” for benefit quantum; they still can count toward the 5-year threshold because service can be broken. (The amount of retirement pay, however, is still based on years of service actually rendered, with 6+ months rounded up.)

C. “Contractual” service—how it’s treated by type

In Philippine practice, “contractual” can mean several things. Treatment hinges on whether there was an employer–employee relationship with the same employer.

Probationary employees – counted. Probationary service with the same employer forms part of creditable service.
Casual/fixed-term (“endo”/5-5) – counted if there is/was an employment relationship with the same employer. Repeated fixed-term hires with the same firm can be aggregated for the 5-year threshold; if the pattern was used to avoid regularization, the worker may be deemed regular and all service counts.
Project employees (e.g., construction/IT) – counted for that employer. Multiple projects for the same company over years are often aggregated; the broken-service rule allows reaching 5 years cumulatively. For the benefit amount, sum the actual service and apply the 6-month rounding.
Seasonal employees (e.g., milling, agriculture, retail peaks) – counted. Season-to-season stints for the same employer aggregate toward 5 years. Benefit quantum is computed from total credited service, with the 6-month rule.
Agency-deployed workers (contracting/subcontracting)
- If you were employed by a legitimate manpower agency, your service belongs to that agency, not the principal—unless the principal later absorbs you.
- After absorption, service with the agency usually does not count toward the principal’s 5 years unless:
  - there’s a plan/CBA or policy recognizing prior agency service, or
  - the agency arrangement was actually labor-only contracting (illegal), in which case the principal is deemed the true employer from the start and all service may be credited to the principal.
- If you never became the principal’s employee, your retirement claim (at 60–65) is against the agency.
Independent contractors / freelancers (no employment) – not counted. If the relationship was genuinely contract for services (no employer–employee tie), it doesn’t count. If you can prove misclassification (the elements of employment were present), periods may be re-characterized as employment and credited.
Part-time employees – counted. Part-time status does not bar coverage; service is creditable with the same employer.

3) How to compute retirement pay (practical method)

Step 1: Determine creditable years of service.

Add up all periods you were an employee of the same employer.
Convert to years and months.
Apply the 6-month rule: a fraction of at least 6 months = 1 year; less than 6 months is disregarded in the year count.

Step 2: Fix the “1/2 month salary” equivalent.

If legally entitled to 13th-month + 5 SIL → 22.5 days.
If not entitled to one or both, exclude the corresponding component(s).
Use the last basic rate.

Step 3: Multiply.

Daily-paid: Retirement pay = (Daily rate) × (22.5 days or adjusted days) × (Years of service).
Monthly-paid: You can compute as 0.75 × last monthly basic salary × years of service (because 22.5 ÷ 30 = 0.75) if you’re using the 22.5-day factor. Otherwise, apply the correct day-equivalent.

Example (monthly-paid, entitled to 13th-month and SIL):

Last monthly basic = ₱30,000
Credited service = 14 years, 7 months → 15 years (6-month rule)
Retirement pay = 0.75 × ₱30,000 × 15 = ₱337,500

Tip: A company plan/CBA may give more (e.g., 1.0 or 1.5 months per year). The higher benefit applies.

4) Interaction with company retirement plans and CBAs

If there’s no plan/CBA: The Labor Code minimum applies—optional retirement at 60+ with 5 years of service.
If there is a plan/CBA:
- Plans often set different ages (e.g., early at 55) and service crediting rules.
- You cannot receive less than the statutory minimum. If a plan requires 10 years of service to get any benefit at 60, an employee who meets 5 years at 60 may still claim the statutory minimum.
- Employees may choose the more favorable between plan and statute, but no double recovery for the same retirement event.

5) Taxes, SSS, and other benefits

Income tax. Statutory retirement pay received at age 60–65 with ≥5 years of service is generally income-tax-exempt. Benefits under a reasonable private benefit plan can also be tax-exempt if that law’s separate conditions (commonly ≥50 years old and ≥10 years of service, availed once) are met. Outside those conditions, withholding may apply. Always confirm with your payroll/BIR adviser.
SSS pension. Your statutory/company retirement pay is separate from SSS. You can receive both (subject to each system’s rules). SSS eligibility (usually 60 for optional, 65 compulsory) doesn’t change your employer’s retirement obligations.
Separation vs retirement pay. If employment ends due to authorized causes (e.g., redundancy) near retirement eligibility, you get whichever is higher, not both, unless a plan/CBA clearly grants both.

6) Proof and process (employees)

Map your service. List every stint with the employer: dates, positions, whether probationary, project, seasonal, or agency-deployed.
Gather documents. Contracts, appointment letters, payslips, SSS/PhilHealth remittances, 201 file entries, IDs, clearances, COEs, duty rosters.
Identify the true employer. If you were “agency” for years but performed core work under the principal’s control, evaluate whether labor-only contracting existed.
Check the plan/CBA. See if it recognizes prior agency/group service or gives a better formula.
Compute both ways. Compare statute vs plan; claim the more favorable.
File timely. Money claims in labor cases generally have a 3-year prescription from accrual (the date retirement pay became due). Some claims under written plans can implicate longer civil deadlines, but don’t risk delay—assert within 3 years.

7) Compliance checklist (employers)

Audit workforce status. Identify probationary/project/seasonal/fixed-term workers who are nearing age 60 with aggregated 5 years of service.
Agency arrangements. Ensure contractors are legitimate. Decide (and document) whether you’ll recognize prior agency service upon absorption.
Update plans. Confirm the plan/CBA meets or exceeds statutory minimums and clearly states how broken/seasonal/project service is credited.
Compute correctly. Use the proper 1/2-month equivalent (22.5 days or adjusted), last basic rate, and the 6-month rounding.
Document payouts and issue tax rulings/clearances where needed.

8) Special scenarios & quick takes

Transferred between branches/regions of the same corporation? Counts toward the 5 years.
Seconded to an affiliate but remained on the original employer’s payroll? Service generally continues with the original employer.
Absorbed by the principal after years with an agency? Prior agency service doesn’t automatically count for the principal unless recognized or the agency was a labor-only setup.
Seasonal work for 10 years with gaps? Likely meets the 5-year threshold; compute the total credited service to fix the benefit.
Multiple fixed-term stints (5-5) spanning 6 years? Aggregated service with the same employer typically meets the threshold; the pattern may also support regularization claims.
Floating status (temporary lay-off up to 6 months). Employment is suspended, not terminated; it doesn’t reset seniority. Whether that period counts as “service” for the benefit quantum depends on pay/plan terms; conservatively, don’t include unpaid idle months in the day-equivalent, but they don’t prevent you from meeting 5 years overall.

9) FAQs

Q: I was a project employee for 5 years across several projects with the same employer. Do I qualify at 60? A: Yes, the 5 years can be broken across projects with the same employer.

Q: I worked 3 years via Agency A at Company P, then 2 years as a direct hire of Company P. Does that reach 5 years for Company P? A: Not automatically. The 3 years are generally credited to Agency A. Unless Company P recognizes them (plan/policy) or the agency setup was labor-only contracting (making P your true employer from day one), you’d have 2 credited years with P.

Q: My company plan says early retirement at 60 needs 10 years. I have 7. Can I still retire at 60? A: Yes, you may rely on the statutory minimum (age 60+ with ≥5 years) even if the plan sets 10; the more favorable standard applies.

Q: Is retirement pay taxed? A: Statutory retirement pay at 60–65 with ≥5 years is typically tax-exempt. Keep documents; confirm treatment with payroll/BIR.

10) Action steps (both sides)

Employees: Compute both statutory and plan benefits; identify whether all “contractual” service was with the same employer; assess any agency/principal complications.
Employers: Proactively track creditable service for non-regular categories; clarify agency-to-principal absorption rules; align your plan/CBA with the statutory floor.

If you want, I can walk through your exact timeline (contracts, agencies, absorption dates) and compute your minimum retirement pay under both the law and any company plan you have.