HR 101: 13th Month Pay

13th Month Pay is a mandatory benefit provided to employees every year. Under Presidential Decree No. 81, all employers are to provide an additional one (1) month pay to all its rank and file employees.

WHO ARE "REALLY" ENTITLED TO THE 13TH MONTH PAY?

All Rank and File employees who have worked for at least one (1) month during the current calendar year will be entitled to receive it regardless of the nature of their employment with the company and how wages are paid (i.e. monthly, semi-monthy or weekly).

Household help (i.e. Kasambahay), under RA 10361 or Kasambahay Law, are now entitled to receive 13th month pay; provided that he/she has worked with his "amo" at least one month within the calendar year.

Supervisory and Managerial Employees, in reality, are not entitled to the 13th month pay, unless it is stated in the company benefits or already existing in practice. In fact, most if not all employers provide for 13th month pay for their Managerial Team.

Piece Rate workers, Part Time workers and/or employees who get paid a fixed or guaranteed wage including commissions are also entitled to receive the 13th month pay based on total earnings during the calendar year (on both fixed or guaranteed wages and commission)

To further clarify the "nature of employment", all those who have been in the company under probationary, contractual and short term (i.e. reliever) employment are qualified to receive the 13th month pay. Consultants and Project based Employees (unless the project based employment has a specific provision in their contract) are not entitled to receive it.

HOW TO COMPUTE FOR THE 13TH MONTH PAY?

The 13th month pay is equivalent to at least one (1) month of the total basic salary earned by the employee within the year if you worked from January to December of the current year. Basic salary refers to all earning paid to the employees but does not include allowances or monetary benefits not considered as part of one's salary such as unused vacation/sick leave credits cash conversion, overtime, premium and night differential pay and Cost of Living Allowance or COLA. 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 or collective agreement, company practice or policy, the same are treated as part of the basic salary of the employees.

Absences and tardiness (unfortunately) are deducted into the basic pay earned per month before computing the 13th month pay.

The formula for the 13th month pay is:

To illustrate it further, here's a sample computation for reference

If you joined a company anytime after January, you will receive the proportionate 13th month pay (pro-rated) by December.

Some companies do have cut offs when computing their 13th month pay, ex. December 2019 - November 2020, but this may vary per company. When I worked with a large conglomerate (Retail), they strictly observed this procedures so some employees who onboarded this organization in the middle of November did not get their portion of the 13th month pay until the following year. There is no violation of the Law since the Labor Code has given companies to set their procedures under the principle of Management prerogatives.

Under the Expanded Maternity Leave Law, Salary Differential received by the female employee from the employer is included. Note that any female employee on Maternity Leave and receive only the SSS Maternity Benefit but do not receive this will be tagged as "No Salary" in the computation of the said benefit.

WHEN IS THE 13TH MONTH PAY RELEASED?

By law, the 13th month pay should be released on or before December 24 of each year. However, some companies do release 1/2 or a portion of the 13th month pay on or before June (in preparation for their children's school enrollment).

This year, the DOLE asked the employers (who were forced to shut down operations) to provide a portion of the 13th month pay to their employees due to the COVID 19 Pandemic, in which some did comply and will be deducted in their total 13th month pay on December.

Failure on the part of the employer to release the 13th month pay before the 24th December is a violation of the PD #81.

IF I RESIGN - WILL I STILL BE ENTITLED TO THE 13TH MONTH PAY?

Yes, you are still entitled to the 13th month pay provided that you have rendered 1 month of service with your soon to be previous company. However, it will be computed pro-rata from the time you joined the company up to your resignation and will be part of your final pay.

WHAT'S THE DIFFERENCE BETWEEN THE 13TH MONTH PAY AND BONUSES?

There were a lot of confusion on social media on this topic alone; since some posted thought that the 13th pay is considered a company bonus.

The 13th month pay is a government mandated benefit - therefore there is no escape for the employer not to give this to all employees. Bonuses such as 14th month, pay and similar benefits are therefore optional or not mandatory.

Depending on the either the company's income by the end of the year or results of the performance review of the employees (not to be lumped or confuse with the Merit Increase), the employee will receive an additional pay at the end of each year. Like I mentioned, this is an optional benefit - meaning the company may or may not give it unless otherwise specified in the Collective Bargaining Agreement with the company union or profits are below than what is projected.

IS MY 13TH MONTH PAY TAXABLE?

In addition, this may be taxed if the total benefits exceed the Php 90,000 tax limits imposed by the TRAIN Law on the basis of your 13th month pay alone or additional bonuses. To compute the tax due, deduct 90,000 from your 13th month pay and use the annual tax table for reference.

I hope that this article clarifies concerns about the 13th Month Pay. For any question or clarification, please leave me a comment

Reference:

FAQ on the 13th Month Pay: https://bwc.dole.gov.ph/faqs-on-13th-month-pay