Can You Afford To Pay Your Employees When They Retire?

The workplace can evolve very fast, with younger generations entering the labor market as older ones leave. In fact, there’s been a wave of Baby Boomer retirements across the globe over the last decade or so. As an employer, it’s crucial for you to always have the pulse on the makeup of your team, including having a good understanding of when your more senior employees plan to hand in their notices.

Retirements can prove to be a challenge for your company. In addition to losing tenured and trusted members of your team that you need to replace, you're also required to pay their retirement pay, as required. (You can refer to the Department of Labor and Employment’s handbook on monetary benefits for further reference.)

In the Philippines, employees within the retirement age range of 60 to 65 years old that have stayed in a company for at least five years have the right to receive retirement pay. The amount paid is computed by a number of factors, including their final salary and the number of years they’ve stayed. And this is paid up-front – unless your employees are willing to agree to an installment payment, which likely won’t be the case.

Having one retiree might not prove to be that big of a blow on your company expenses, but you might have more than one in the same year. Such a scenario can undoubtedly be costly, possibly making it harder to manage your cash flow or derail your plans for expansion.

Do you want to have to reach down your own pockets to pay retirees? Surely, not. As such, you have to start saving today, not tomorrow or next week. Today.

You can do this by initiating a retirement savings program, which is a fund meant to cover the huge amount you might eventually need to pay your retirees. The first step of the program is to come up with projections on how much that amount might be. From there, use what you know of when your employees plan to retire in designing a timeline for your savings. Once you have that, you can then decide on how to best invest your money to reach the amount you need when you need it.

Obviously, the earlier you start, the better the outlook. Time lets you enjoy the benefit of flexibility in your savings. Let’s say, your company encounters a financial emergency and you can’t afford to allot anything for your retirement savings program for a couple of months, that shouldn’t be too much trouble. If you have time to spare, you can easily adjust your program to work for your current situation.

There’s also a greater chance of your investments yielding more than what you’ll need if you start on your savings program early. Those additional funds can then be used for your company’s other needs.

As with saving in general, what matters most is that you’re using time to your advantage because any kind of retirement savings program, whether big or small, has to start somewhere.

These programs also benefit everybody in the company. For your employees, they’ll have the assurance that they’re being well taken care of. They can come to work everyday certain they’ll receive their retirement pay upon retiring. For you, the employer, meanwhile, you save yourself from the headache and time of worrying about where to get this money from. You similarly also have certainty that regardless of what might happen in the future, when it’s time to pay your retirees, you’ll be able to pay them.

If you think about it, it’s a simple concept that seems easy to initiate – and it actually is. At the same time, however, it can be an involved process with a lot of important technical details. That’s why it might be in your best interest to consult with a professional about starting your own program. This way you’ll receive a good overview and an objective opinion of how to best go about each step.

Interested in more? Learn about your retirement savings plan options in our more comprehensive discussion here.