Depending on the economic and business policies in each country, there may be additional employee entitlements and bonuses that are required which may be unfamiliar to you. One of those is what is known as ‘13th month pay’, where employees receive an extra month of salary as though there were 13 months in the calendar year.
This is the case in the Philippines, where 13th month pay is mandated by statute, and widely expected by employees for the holidays. This guide will explain to you how 13th month pay is offered, calculated and taxed so that you can plan for this additional cost of total compensation.
What is 13th month pay?
13th month pay is an amount equal to 1/12 of the annual salary, paid by December 24 of each year. Because it is mandatory, employers don’t have any discretion of whether to pay it or not based on employee performance or business revenues. It is distinct from the Christmas bonus, which is optional but can be awarded to employees out of appreciation.
Who is entitled to receive the 13th month pay in the Philippines?
All non-management employees are entitled to 13th month pay as long as they have worked at least one month for the employer (managers also often receive 13th month pay, although it’s not required).
Employees who resign or are terminated also receive the additional pay, but it may be pro-rated depending on the date of termination. They would receive it as part of their final payroll.
What is “bonus”?
Bonus is an amount granted to an employee in excess of what the law requires as a reward or incentive for achieving a goal and/or contributing to the success of the employer’s business. Unlike 13th month pay, a bonus is given out of the employer’s generosity and is not a demandable and enforceable obligation, unless when it has been made part of the wage or made the subject of an express agreement.
Who are covered or entitled to the 13th month pay?
All rank-and-file employees who have worked for at least one (1) month during the calendar year, are entitled to receive 13th month pay regardless of the nature of their employment and irrespective of the methods by which their wages are paid.
Who are rank-and-file employees?
All employees not considered managerial employees are considered rank-and-file employees. A managerial employee is one who is vested with powers or prerogatives to lay down and execute management policies and/or to hire, transfer, suspend, lay-off, recall, discharge, assign or discipline employees, or to effectively recommend such managerial actions.
Are there employers who are exempted from paying 13th month?
Yes. The following employers are exempted from paying 13th month pay under PD 851:
- 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;
- 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;
- Employers of persons in the personal service of another in relation to such workers; and
- 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.
When should the 13th month pay be paid?
It should be paid not later than December 24 of each year. An employer, however, may give to his employees one-half of the 13th month pay before the opening of the regular school year and the other half on or before the 24th day of December of every year.
Are resigned or separated/terminated employees entitled to 13th month pay?
Yes. 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.
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 (a) from the time she has starting working during the calendar year or (b) the time the last 13th month pay was given, up to the time of his/her resignation or separation/termination from the service.
Thus, 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.
How to Compute 13th Month Pay
1. Basic 13th Month Pay Formula in the Philippines. This is the formula used by almost every company in computing their 13th month pays.
Monthly Basic Salary x Employment Length ÷ 12 months
If you want to know how calculate your 13th month pay, just multiply your basic monthly salary by the number of months you’ve worked for the entire year, then divide the result by 12 months.
For example, your basic salary is PHP 10,000, multiplied by say, you have worked 9 months in the company so 10,000 x 9 = 90,000 and then you divide it by 12, so 90,000/12 = 7,500
PHP 7,500 is the amount you will be receiving for your 13th month pay.
2. However, according to DOLE or the Department of Labor and Employment, the accurate formula in computing for the 13th month pay is:
Basic Monthly Salary Earned for the Year ÷ 12 months
The formula mentioned is computed with the exclusion of the the staff's absence without leave on a specific day or month.
Here is a detailed break down on how to compute for the 13th month pay according to DOLE:
For example you earn PHP 10,000 per month and you took 2 months off for maternity leave.
January - P10,000.00 P100,000.00 = P8,333.33
February - P10,000.00 12 months
March - P10,000.00
April - P10,000.00
May - P10,000.00
June - on maternity leave
July - on maternity leave
August - P10,000.00
September - P10,000.00
October - P10,000.00
November - P10,000.00
December - P10,000.00
P100,000.00
3. In the company, the computation for the 13th month pay is different. This is the formula used in our company to compute for the 13th month pay. Not the standard one and not the DOLE format one.
The formula goes: Total Basic Salary (for the whole year) ÷ 12 months
And to compute for the total basic salary: Daily Rate x Total Days Worked + Paid Leave - Lates
The total basic salary includes the paid leaves made by the employee and the deductions for his/her absences and lates.
For example, your basic salary is PHP 10,000 and your daily rate is PHP 459.77. The total of your basic salary without the paid leaves and the deductions is PHP 119,999.97 excluding the paid leaves and the lates.
So, 119,999.97 (let's say that it is included in the 119,999.97 the 3 paid leaves you had within the year totaling to PHP 1,379.31 since your daily rate is 459.77, multiplied by 3, that is the product). It is also important to note that the basic pay does not include the holiday pays and the legal pays.
After which, subtract the deduction of PHP 114.95 from when you were late for 2 hours collectively (not a single time but the total of all the lates you have accumulated). The computation for the lates is hourly rate multiplied by the hour/s the employee was late.
119,999.97 - 114.95 = 119,885.02
Lastly, divide it by 12 or the number of months in a year.
119,885.02/12 = 9,990.42
PHP 9,990.42 is the amount you will be receiving for your 13th month pay.