How to Compute 13th Month Pay in the Philippines

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We all know that the Yuletide season is a time of joy and celebration. For most people, it’s also a time to receive their 13th month pay. In the Philippines, employees are entitled to 13th month pay, which is mandated by law. This additional compensation is given to employees by companies as part of their benefits package. It’s usually paid every December and can be anywhere from 10% to 100% of one’s regular monthly salary.

You might be wondering how to compute the 13th month pay. It’s not as simple as it may seem, and there are many factors that go into computing it. Nowadays, with the world wide web as a haven of information, you can easily generate data regarding this topic. And doing this will be much easier if you are equipped with fiber internet by a reliable internet provider in the Philippines.

If you want to know more about the 13th month pay, read through this article that will explain how this monetary benefit is offered, computed, and taxed so that you can plan for it as part of your overall compensation.

1. What is 13th month pay?

The 13th month pay is a mandatory benefit given to the employees in the country as provided by law. All rank and file employees in the private sector have the right to receive 13th month pay, provided they worked for at least one month in a year. The 13th month salary is 1/12 of the employee’s yearly income.

Since it is mandated, employers do not have the option of paying it depending on employee performance or business earnings. It differs from the optional Christmas bonus, which can be given to staff as a token of appreciation.

2. What is the basis for the 13 month pay?

Presidential Decree No. 851, S. 1975, entitled “Requiring All Employers to Pay their Employees a 13th-Month Pay” was a significant milestone for the labor laws and sector of the Philippines. This provided the basis for employees to receive an additional monetary benefit each year.

3. Who is eligible for or covered by the 13th month pay?

Regardless of the type of their job or the means by which their salaries are paid, all rank-and-file employees who worked for at least one (1) month throughout the calendar year are entitled to 13th month compensation.

The exact terms regarding the 13th month pay will be determined by the employment contract or through industry or collective agreements.

4. What do you mean by rank and file employee?

To begin, it should be noted that this category of an employee varies from that of a manager. A managerial employee is someone who works in a position that allows them to apply management rules and undertake tasks in their own capacity (e.g. lay-off, hire, transfer, suspend, assign or discipline).

Employees who do not meet the criteria of a managerial employee in the Philippines will normally be classified as a rank-and-file employee for the purposes of the 13th Month pay benefit.

5. How is the 13th month pay computed?

According to the Department of Labor and Employment (DOLE), the 13th month pay shall not be less than 1/12 of the total basic salary earned by an employee within a calendar year. The following is the basic formula for the computation:

Total basic salary earned for the year/12 months  =  proportionate 13th month pay

“Basic salary” means all remunerations paid by an employer to an employee for services rendered.

To illustrate, here is an example:  Ms. Sharon, an employee of AZ Agency, receives a monthly basic salary of P15,000.00. Her earnings for the current year are as follows:

January                 no absence                          P15,000.00

February              no absence                          P15,000.00

March                   on leave w/o pay             P0.00

April                      no absence                          P15,000.00

May                       no absence                          P15,000.00

June                      no absence                         P15,000.00

July                        no absence                         P15,000.00

August                 3 days leave w/ pay        P15,000.00

September         no absence                          P15,000.00

October               no absence                         P15,000.00

November          2 days leave w/pay         P15,000.00

December           no absence                         P15,000.00

Total Basic Salary Earned During the Year    – P165,000.00

Ms. Sharon’s 13th month pay will be computed as P165,000/12 months  = P13,750.00

6. What is included in the computation of the 13th month pay?

The 13th month pay covers only the basic salary of the employee. Allowances and monetary benefits not regarded or integrated as part of the employee’s regular remuneration are not included in the calculation of the annual basic salary.

Included in the computation are your basic pay and all of your paid leaves including maternity leave, sick leave, and vacation leaves. The cash equivalent of unused vacation and sick leave credits, overtime, premium pay, night difference, and holiday pay, as well as the cost-of-living allowance, are all excluded from the computation. If, however, these benefits are recognized as part of the employee’s basic annual salary under the employee’s contract or agreement, they will be factored into the employee’s 13th-month pay calculation.

7. When should the 13th month pay be paid?

Employees should get their 13th month salary on or before December 24 each year, according to the law. Employees often receive their 13th-month salary in the first week of December, with some receiving it during Christmas week or the day before Christmas.

Employers may decide to give their employees the 13th Month pay benefit in equal installments.

While payments can be made in installments, the full amount of the 13th Month Pay benefit must be paid before December 24 to assure 100 percent compliance.

8. Is the 13th month pay taxable?

Employers in the Philippines can take into account some non-taxable compensation when computing payroll. The income tax exemption threshold is one of them. Employees in the Philippines are eligible for an income tax exemption on benefits and allowances paid up to a total value of P90,000.00 each year.

What does this actually imply in terms of 13th Month Pay? If the value of the 13th Month Pay benefit, when combined with any other allowances or benefits received from the employer during a calendar year, does not exceed P90,000, the whole value of such benefits/allowances is tax-free.

If the value of any such benefits or allowances, including the 13th Month pay benefit, exceeds P90,000, the employee will still be eligible for the exemption for the first P90,000, but the remaining amount will be subject to income tax. The employer will be responsible for ensuring that the taxable value is deducted at source from their workers’ pay.

9. Are there employers who are exempted from paying 13th month?

 Yes.  The following employers are exempted from paying 13th month pay under PD 851:

a.  The government and any of its political subdivisions, including government-owned and controlled corporations, except those corporations operating essentially as private subsidiaries of the government;

b. Employers who are already paying their employees 13th month pay or more in a calendar year or its equivalent at the time of the issuance of PD 851;

c. Employers of persons in the personal service of another in relation to such workers; and

d. Employers of those who are paid on purely commission, boundary, or task basis, and those who are paid a fixed amount for performing specific work, irrespective of the time consumed in the performance thereof, except those workers who are paid on piece-rate basis, in which case the employer shall grant such workers the required 13th month pay.

10. What is a bonus?

A bonus is an amount given to an employee in excess of what the law mandates as a reward or incentive for completing a goal and/or contributing to the employer’s commercial performance. A bonus, unlike 13th month pay, is given out of the generosity of the employer and is not a demandable and enforceable duty unless it is formed part of the salary or the subject of an express agreement.

11. Is the 13th month pay the same as the bonus/Christmas bonus?

It’s important to realize that the 13th Month Pay benefit is distinct from any bonus or other type of remuneration that a Philippine company may provide or pay to its workers. Discretionary business incentive schemes or allowances – whether it’s a Christmas bonus, a performance bonus due around Christmas (or at any other time of the year), or any other category bonus – are normally exempt from labor regulations. As a result, employers should not mistake the 13th Month pay benefit with any other type of incentive or compensation payment (which is a statutory requirement).

A Christmas Bonus, for example, is not required; it is a voluntary reward that businesses may choose to make to their employees.

12. Are resigned or separated/terminated employees entitled to 13th month pay?

Yes. According to DOLE, an employee who has resigned or whose services were terminated at any time before the time for payment of 13th month is still entitled to the benefit.

13. How much is the 13th month pay of a resigned or separated/ terminated employee?

The 13th month pay of a resigned or separated/terminated employee is in proportion to the length of time he or she has worked during the year, reckoned from the time he has started working during the calendar year or the time the last 13th month pay was given, up to the time of his/her resignation or separation/termination from the service.

Therefore, if he/she worked only from January to September, his/her 13th month pay shall be equal to 1/12 of his total basic salary earned during that period.

When calculating payroll and the last pay for a departing employee, it is critical for companies and their HR teams in the Philippines to consider this cost in mind.

14. When can resigned or separated employees receive their 13th month pay?

The 13th month of compensation for a resigned or terminated employee is usually included in their back pay or final pay. Depending on the employee’s resignation date, this might take a month or two. You may need to verify the release date with your HR department.

15. Are maternity leave benefits included in the computation of 13th month pay?

Maternity leave is not included in the 13th month pay calculation. For example, if you were absent for two months of the calendar year due to maternity leave, you should only include the months during which you were present.

Using the same example as before, your calculation should be as follows:

(P15,000 x 10 months) /12 months = P 12,500.00

16. Are employers required to submit a report regarding the payment of the 13th month pay?

Employers must submit a report each year to their nearest Department of Labor and Employment, or DOLE, Regional Office confirming that they have complied with the 13th Month Pay requirement. This is to ensure that they are indeed complying with their statutory obligations to pay their employees their 13th Month Pay.

Employers must submit the Compliance Report to DOLE by January 15 of the following year.

17. Are government employees entitled to 13th month pay?

As discussed in the exceptions, government workers are not eligible, along with freelancers, contractual workers, household helpers, and employees who are paid solely on commission (real estate brokers) under PD No. 851 Section 3.

This does not, however, imply that government employees are not compensated throughout the Christmas season. Every year, they earn two sorts of bonuses: a mid-year bonus paid around June to July and a year-end bonus (also known as 14th month pay or Christmas bonus) paid around November to December.

Each of these bonuses is worth one month’s basic wage. Employees of the government are also eligible to a P5,000 cash bonus, which is provided in conjunction with their year-end bonus.

These incentives are awarded to regular, contractual, casual, full-time, and part-time government employees, from the President to the lowest-paid janitor or clerk, under the Salary Standardization Law (Republic Act 11466).

18. Can an employee report an employer for not giving his/her 13th month pay?

The employee may call the DOLE 24/7 hotline at 1349. They may also fill out the DOLE online query form. Through an amazing fiber internet, you can easily accomplish this task.

Spend your 13th month pay wisely

When someone mentions 13th month pay, there’s usually a sense of anticipation and happiness. However, it’s easy to lose track of your spending, so make the most of this additional compensation given this time of the year.

One of the ways to spend your 13th month pay wisely is by acquiring necessities that can make your life more comfortable. Since technology is one of the things that make life convenient nowadays, it is highly recommended to get fiber internet from a trusted internet service provider in the Philippines.

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