How to compute the 13th Month Pay in the Philippines? For business owners who utilize the help of employees to run their business, assuring that adequate benefits are given to their people is vital in maintaining a motivated and productive work force. Thus, every employer should know the correct and lawful amounts of benefits they should give to their employees. These mandated monetary employee benefits, which are covered by the Philippine Labor Code, include overtime pay, separation pay and 13th month pay. Let’s start on the discussion of computing the 13th month pay.
Computation of 13th Month Pay
According to Section 2(a) of PD No. 851 known as the 13th Month Pay Law issued by former president Ferdinand E. Marcos on December 16, 1975:
“Thirteenth-month pay” shall mean one twelfth (1/12) of the basic salary of an employee within a calendar year.”
The basic salary according to the Revised Guidelines on the Implementation of the 13th Month Law issued on November 16, 1987 by then Labor Secretary Franklin Drilon is described as follows:
“The “basic salary” of an employee for the purpose of computing the 13th month pay shall include all remunerations or earning paid by this employer for services rendered but does not include allowances and monetary benefits which are not considered or integrated as part of the regular or basic salary, such as the cash equivalent of unused vacation and sick leave credits, overtime, premium, nigh differential and holiday pay, and cost-of-living allowances. However these salary-related benefits should be included as part of the basic salary in the computation of the 13th month pay if by individual r collective agreement, company practice or policy, the same are treated as part of the basic salary of the employees.”
Thus, we can conclude that 13th month pay is computed as:
13monthpay = total basic salary within the calendar year / 12
Employees who are entitled to 13th Month Pay
According to the Memorandum Order No. 28 issued by former President Corazon C. Aquino on August 13, 1986, which has modified Section 1 of PD No. 85:
“All employers are hereby required to pay all their rank-and-file employees a 13th month pay not later than December 24 of every year.”
“All rank and file employees are entitled to a 13th month pay regardless of the amount of basic salary that they receive in a month if their employers are not otherwise exempted from the application of P.D. No. 851. Such employees are entitled to the benefit regardless of their designation or employment status, and irrespective of the method by which their wages are paid, provided that they have worked for at least one (1) month during a calendar year.”
Definition of Rank-and-file employees
According to the Labor code, all employees not falling within the definition of a managerial employee are considered rank-and-file employees. A managerial employee is one who is vested with powers of 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.
13th Month due to resigned and separated employees
Based on the Labor code, an employee who has resigned or whose services were terminated at any time before the time for payment of the 13th month pay is entitled to this monetary benefit in proportion to the length of time he worked during the year, reckoned from the time he started working during the calendar year up to the time of his resignation or termination from the service. Thus, if an employee, who receives P10,000 basic salary per month, resigns at the end of September and has earned a total basic salary amounted to P90,000 (P10,000 x 9) for that period during the calendar year, his proportionate 13th month pay should be equivalent to 1/12 of P90,000 or P7,500.
The payment of the 13th month pay may be demanded by the employee upon the cessation of employer-employee relationship. This is consistent with the principle of equity that as the employer can require the employee to clear himself of all liabilities and property accountability, so can the employee demand the payment of all benefits due him upon the termination of the relationship.
Is 13th Month Pay taxable?
According to the Bureau of Internal Revenue (BIR), Thirteenth month pay and other benefits amounting to P 30,000 and below are not subject to income tax. This means, if you receive P 50,000, the P20,000 excess is already taxable.
Employers who are not covered by the 13th month pay law
The following employers are still not covered by P.D. No. 851:
a. The Government and any of its political subdivisions, including government-owned and controlled corporations, excepts those corporations operating essentially as private subsidiaries of the Government;
b. Employers already paying their employees a 13th month pay or more in a calendar year or its equivalent at the time of this issuance;
c. Employers of household helpers and 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 where the workers are paid on piece-rate basis in which case the employer shall grant the required 13th month pay to such workers.
As used herein, workers paid on piece-rate basis shall refer to those who are paid a standard amount for every piece or unit of work produced that is more or less regularly replicated, without regard to the time spent in producing the same.
The term “its equivalent” as used on paragraph (b) hereof shall include Christmas bonus, mid-year bonus, cash bonuses and other payments amounting to not less than 1/12 of the basic salary but shall not include cash and stock dividends, cost of living allowances and all other allowances regularly enjoyed by the employee, as well as non-monetary benefits. Where an employer pays less than required 1/12th of the employees basic salary, the employer shall pay the difference.
When should employers give the 13th Month Pay to their employees?
The required 13th month pay shall be paid not later than December 24 of each year. An employer, however, may give to his employees one half (½) of the required 13th month pay before the opening of the regular school year and the other half on before the 24th of December of every year. The frequency of payment of this monetary benefit may be the subject of agreement between the employer and the recognized/collective bargaining agent of the employees.
To protect the Filipino workers, the 13th Month Pay Law was created. Though, business owners and employers should not just take this law as mandatory. They should also consider it as an obligation that should always be observed by responsible business leaders. Besides, the employees, who help a business grow and help earn its daily success, deserve not just 13th Month Pay, but all the monetary and nonmonetary benefits they need to be happy, motivated and productive.
For employees, it’s your responsibility to know and exercise your rights. However, workers should not just focus on the monetary benefits they can get in doing their jobs to their companies, but they should also pay attention to the quality of their services. It must be noted that employees and employers share the same organization and even share the same roof. Thus, everyone should see to it that “everyone” is happy.
Please check and inquire with the Department of Labor and Employment (DOLE) for more information.
Disclaimer: New and subsequent issuances, rulings, or laws may cause the whole or part of the article inaccurate or obsolete. It is advised to make inquiries with the Department of Labor and Employment for more information.