How to Compute 13th Month Pay | 13th Month Pay Law in the PH
The Christmas season is the most exciting time for employees looking forward to spending their holidays with family and friends feasting and gift-giving. In addition to that, everyone is excited to receive their 13th-month pay and for some, additional bonuses! Before estimating how much 13th-month pay you’ll be receiving this coming December, learn about the must-know facts regarding the 13th-month salary first.
Facts About 13th-Month Salary
It’s mandated by the law.
Presidential Decree No. 851 says that employers must abide by the law and provide their rank-and-file employees with 13th-month pay.
All rank-and-file employees are entitled to 13th-month pays regardless of their statuses and the amount of their basic salary as long as they have rendered a minimum of 1-month work in their respective companies.
When should I receive my 13th Month Pay?
According to the rules implementing the 13th-month pay law, employers must grant 13th-month compensation to all their rank-and-file employees no later than 24th of December. Generous employers are free to give this benefit to their employees as early as November.
Are Christmas bonus different from 13th Month Pay?
A Christmas bonus is a different payout. Employers are given the option to give out Christmas bonuses to their employees. These bonuses usually come from extra payouts from company-wide performance revenues. Aside from cash, Christmas bonuses can take different forms such as Christmas baskets, gift certificates, or anything of value.
The equivalent of your 13th-month pay may be of lesser value than your basic salary.
This is because the 13th-month pay only counts your basic pay and not your other bonuses, allowances, de minimis, etc (more of that below). The law also describes the basic salary as the primary payment paid by an employer to an employee for the services rendered. Note that the following credits aren’t included in your basic pay:
- Cash equivalent of unused paid leave and sick leave credits
- Cost-of-living allowance (COLA)
- Holiday Pay
- Night Differential
Who is exempted from the rules implementing the 13th-month pay?
The PD No. 851 protects many employees working under the public, private sectors, and even the government. However, employees working in these specific circumstances are exempted from this decree:
- Employees working for the government except for corporations operating as private subsidiaries of the government.
- Employees receiving mid-year bonuses, Christmas bonuses, cash bonuses, or payments equal to or more than 1/12 of the basic salary excluding cash and stock dividends, cost of living allowances, other regular allowances, and non-monetary benefits.
- Employers are mandated to pay the difference should employees receiving bonuses take home less than 1/12 of their basic salary.
- Household employees and professionals in personal services.
- Employees paid by commissions and boundary work and professionals receiving fixed payments for specific projects and tasks.
Parental leaves aren’t included in the 13th-month pay computation.
The number of days parents took their maternity and paternity leaves will not be included in the computation of their 13th-month pay. The law states that the inclusion of the 13th-month salary is 1/12 of the rendered monthly work of an employee. Though parents received claims from other government institutions, they will still not be counted in the final computation of the mandatory pay.
13th-month pays are not subjected to tax, except for…
Employees receiving less than Php 82,000 gross benefit won’t be subjected to tax; workers earning more than Php 82,000 are mandated to have their 13th-month salary taxed.
Terminated employees or those who have resigned are still eligible for 13th-month pays from their previous companies.
The Philippine Labour Code promotes employees’ wellness in many ways. It’s a law that protects employees from abusive employers.
Terminated employees or those who have resigned before the 13th-month payment are still eligible for it. The computation for this benefit remains the same.
Tax deficits are a thing!
The term tax refund is more popular than the term tax deficit. A tax refund is a rebate to the payer if he paid more than the required amount for his tax while tax deficit is the opposite. It means the payer paid less than the required tax amount. Tax deficit becomes a problem once a taxpayer tallies his tax payables and the amount is less than the required amount as he is obligated to pay the discrepancy from his 1st or 2nd paycheck for the following month.
The 13th-month payment is a great additional source of income and savings, especially for the upcoming holidays. To maximise your most anticipated payment of the year, always be punctual and present at work. A great way to minimise your absences is to use your leave credits when sick, on a holiday, or when you have an emergency at home. It’s also necessary to pay attention to specific deductions on your payslips like withholding tax to anticipate any tax deficits the following year.
How to Compute Your 13th-Month Pay
It’s easy to overestimate your 13th-month pay especially when you only know the basic way to compute it which is monthly basic salary multiplied by months rendered in the company over 12 months. As shown in the table below:
Monthly basic salary × months rendered
However, there is a little bit more to it than that. The best way to get as close as you can to estimating your 13th-month salary is to gather all your payslips for more accurate computation.
FIRST Create a spreadsheet and enter the correct data in the right category. Make sure to include everything including your deductions such as lates, absences, and undertime.
SECOND Tally everything to easily compute your estimated 13th-month pay. Note that 13th-month pay is computed as the number of months rendered by the employee which means additional holiday pays and premiums will not be included in the computation.
The formula is total basic salary minus total of salary deductions including absences, lates, and undertime over 12 months.
Total of basic salary – Total of salary deductions
It’s as simple as that! This is the closest estimate you can get when you compute your 13th-month pay. Should there be any discrepancies, approach your HR managers or leaders to get a clearer explanation as to how your 13th-month payment was computed in your company.
Additional Facts You Need To Know About 13th-Month Salary
When an employer failed to provide 13th-month pay
Some employers think they can get away with not providing 13th-month benefits to their employees but they can’t. The law states that employers must grant employees 13th-month benefits unless they are already providing them with Christmas bonuses equal to their 13th-month pay or higher.
Employers who fail to grant 13th-month benefits to their employees can be subjected to administrative cases. Employees are encouraged to file charges at the nearest DOLE office to report such employers and receive their mandatory pay.
Can employers be exempted from paying the 13th-month?
If an employer is eligible for an exemption, then yes, they may be exempted and not pay out 13th month pays. There are quite a lot of factors to consider if an employer is eligible for an exemption. Some of these are (1) if the worker is on commission-based, boundary, or task-based and (2) if the employer is already paying their employees 13-month pay or more in a calendar year or its equivalent. It has also been a talking point in the country whether to defer the 13th-month pay or not if a business is affected by a crisis.
The Department of Labor and Employment (DOLE) has considered that “distressed” small and medium enterprises (SMEs) which are affected by a global crisis or have incurred substantial losses may be exempted from granting 13th-month pay to their employees. But after days of discussion, Labor Secretary Silvestre Bello III has made it clear that all employers should release their worker’s 13th-month pay on or before the 24th of December as stated by the Law.
NEW! 13th month during the pandemic.
Last year (2020), the Government advised the employers to give out their respective 13-month pay to their employees despite the pandemic and the financial loss they have faced along with it (source) As for this year, there is no announcement yet given by the Department of Labor and Employment as of writing.
13th-month pays can be divided into two and given to employees twice a year.
To help with the growing need of parents, Presidential Decree No. 851 has allowed companies to grant employees half of their 13th-month pay in the first half of the year and the rest of their 13th-month salary in the latter half of the year, given the employee consents or requests it.
ALSO: A 14th-month pay bill has been filed in the Senate.
Senate President of the Philippines Vicente “Tito” Sotto filed a bill in the Senate that mandates all employers of public, private, and government sectors to grant 14th-month payments to all rank-and-file employees every May of each year in anticipation of school enrolment for employees with dependents.
The 14th-month payment is still a farfetched dream to all employees looking for additional sources of income as the bill is yet to be an enacted law. The bill has been filed since July 2016, and must be approved by both House of Representatives and the Senate before being passed into law.