Business and Finance – Page 2

It is the time of the year. You anticipate receiving more money than your usual monthly salary because this is the period your company gives out the 13th month pay. As you check your payslip and scan the entries and the total amount, you think something is off. Your 13th-month pay seems a little less than what you expected. With a bit of disappointment, you wonder. How did the company compute your 13th-month pay? Did HR take into consideration your one-week leave of absence without pay? In this article, I will discuss the answer to the above questions along with many other most frequently asked questions about the 13th-Month Pay Law. Related: How To Compute Back Pay in the Philippines (With FREE Calculator) DISCLAIMER: This article has been written for general informational purposes only and is not legal advice or a substitute for legal counsel. You should contact your attorney to obtain advice with respect to any particular issue or problem. The use of the information contained herein does not create an attorney-client relationship between the author and the user/reader. At a Glance: Formula for 13th Month Pay Computation in the Philippines Total basic salary earned during the year ÷ 12 Months = Your 13th-Month Pay According to the most recent advisory issued by the Department of Labor and Employment (DOLE)1, the 13th-month pay required by law to be paid to all rank-and-file employees in the private sector shall not be less than one-twelfth (1/12) of the total basic salary earned by an employee within a calendar year. Also, the 13th-month pay the employee will receive should be proportionate to the days he/she reported for work. So if the employee couldn't work due to suspension brought about by the COVID-19 pandemic, for example, the amount of the 13th-month pay will be less. In other words, Monthly Basic Salary ≠ 13th-Month Pay To illustrate, here’s a sample computation provided by the DOLE using the basic wage (PHP 537/day) in the National Capital Region (NCR), a typical 6-day workweek which is equivalent to a monthly basic salary of PHP 14,006.75, and various scenarios that most employees can find themselves in: JanuaryNo absencePHP 14,006.75FebruaryNo absencePHP 14,006.75MarchNo absencePHP 14,006.75AprilCompany shutdownNo salaryMayCompany shutdownNo salaryJune 5 days leave with payPHP 14,006.75JulyCompany shutdownNo salaryAugustCompany shutdownNo salarySeptember 10 days leave without payPHP 8,636.75OctoberNo absencePHP 14,006.75November1 day leave without payPHP 13,469.75December No absencePHP 14,006.75Total basic salary earned for the year PHP 106,147.00 Using the formula above, we can determine that the amount of the 13th-month pay is: PHP 106,147.00 ÷ 12 months = PHP 8,845.58 (the proportionate 13th month pay) Free 13th-Month Pay Calculators Do you prefer a quick way to compute your 13th-month pay? We've got you covered! Choose from any of the two free calculators we've created below, enter the required data, and get accurate results in no time. 1. Simple 13th-Month Pay Online Calculator (No Download Required) 13-Month Pay Calculator My basic salary per month: Note: Do not put comma ( , ) when typing your salary ₱ Month Basic SalaryIn PHP DeductionDue to absences/late Salary EarnedSalary earned for the month January ₱ ₱ ₱ February ₱ ₱ ₱ March ₱ ₱ ₱ April ₱ ₱ ₱ May ₱ ₱ ₱ June ₱ ₱ ₱ July ₱ ₱ ₱ August ₱ ₱ ₱ September ₱ ₱ ₱ October ₱ ₱ ₱ November ₱ ₱ ₱ December ₱ ₱ ₱ Calculate Reset 13-Month Pay for this year: ₱ 0 The online 13th-month pay calculator above requires no download and is a great alternative to your bulky calculator. To obtain your 13th-month pay, simply enter your basic monthly salary in the fields provided in the first column. Then, in the second column, enter the total amount of deductions in the field/s corresponding to the specific month/s during which you incurred the said deductions due to tardiness or absences. You may need to know your hourly and daily rates to compute the number of deductions. Alternatively, you can just enter how much you earned (minus all the deductions) during each specific month under the "Basic Salary" column. This way, you won't have to enter anything in the "Deductions" column and get the result relatively quicker. On the other hand, if your basic monthly salary is the same throughout the year (i.e., you haven't incurred any deductions), simply enter your monthly salary in the field provided at the top (under "My basic salary per month"). Doing so will automatically insert the same amount into the corresponding "Basic Salary" field of each month. Once you've entered all the required data, click the Calculate button and our online calculator will automatically compute your 13th-month pay. 2. 13th-Month Pay Excel Calculator (FREE Download) Do you prefer a 13th-month pay calculator that you can take anywhere and work perfectly without the internet? Then this free Excel calculator is right up your alley! Simply download our free Excel template for 13th-month pay computation, click Enable Editing, and then follow the instructions to get an accurate computation of how much 13th-month pay you'll get. For a more detailed discussion of the 13th-month pay computation in the Philippines, please read further. What Is the 13th-Month Pay? Thirteenth-month pay is a benefit given to an employee comprising one-twelfth (1/12) of the employee’s basic salary within a calendar year. What Comprises a “Basic Salary”? It is important to understand what constitutes a basic salary as the computation of the 13th-month pay depends on it. Basic salary, for purposes of computing the 13th-month pay, includes all earnings of an employee paid by the employer for services rendered to the company. However, the following may NOT be included in the computation of the basic salary: Cost-of-living allowances;Profit-sharing payments;Cash equivalent of unused vacation and sick leave credits;Overtime pay;Premium pay;Night shift differential;Holiday pay;All allowances and monetary benefits which are not considered or integrated as part of the regular or basic salary of an employee. Please note, however, that if the above benefits and allowances are considered or treated as part of the basic salary, whether by the individual, collective bargaining agreement, company practice, or policy, then the same shall be included in the computation of basic salary. Supposing in your employment contract, it is stated that your basic salary is PHP 30,000 per month broken down as PHP 25,000 base pay, PHP 3,000 representing your health insurance, and PHP 2,000 representing your guaranteed share of the company profits. Ordinarily, health insurance and profit-sharing are considered non-wage benefits. However, because your contract treats these benefits as part of your salary, the computation of your 13th-month pay should factor in not just the PHP 25,000 but also the PHP 5,000 (health insurance and share of profits). The same is true when these benefits (other common perks like a dental package, paid vacation leave, stock options, and life insurance) are treated as salary per your company policy or in the Collective Bargaining Agreement (in case you are part of a company union and your union has an existing CBA with the company). Given the above, you should pay attention to your payslip and check what includes your basic salary as it will have an effect on the computation of your 13th-month pay. Less basic salary means less 13th-month pay. Is 13th-Month Pay Mandatory in the Philippines? All employers in the private sector, regardless of their financial status, are mandated to pay their employees a 13th-month pay unless there are circumstances like business closure2 that will prevent them from paying. Although the Implementing Rules and Regulations of the Presidential Decree No. 851 (1975)3 states that distressed employers suffering substantial losses are exempted from paying the 13th-month pay, this was superseded by the Memorandum Order No. 284 issued in 1986 by the late President Corazon Aquino. The said memorandum has made it official that all rank-and-file employees in the private sector will receive a 13th-month pay not later than December 24 of every year, regardless of their employers' economic situation. Take note, however, that there are certain employers who are legally exempted from paying the 13th-month pay under P.D. 851 and its Revised IRR. For more information, please check out this article. Presidential Decree (P.D.) No. 851 or the “13th-Month Pay Law” and its Implementing Rules and Regulations (IRR) P.D. No. 851 or the “13th Month Pay Law”5 is the enabling law that makes it mandatory for employers to pay their employees a 13th-month pay. The Decree was passed by then President Ferdinand Marcos on 16 December 1975. Rules and Regulations Implementing P.D. 8516 and Supplementary Rules and Regulations7 were later on issued for the interpretation, application, and implementation of the law. On 13 August 1986, President Corazon C. Aquino issued Memorandum Order No. 288 revising some of the guidelines of P.D. 851. Over the years, the Department of Labor and Employment (DOLE) has issued several Labor Advisories reminding covered employers to comply with the 13th-Month Pay Law. To ensure employers are complying with the law, they are now required to file a declaration of compliance online through the DOLE Establishment Report System (reports.dole.gov.ph) on or before January 15 of the following year9. Who Are Eligible for 13th-Month Pay? 1. Employees All rank-and-file employees in the private sector regardless of their position, designation, or employment status, and irrespective of the method by which their wages are paid. Managerial employees are NOT covered by the 13th-month pay although some companies still choose to provide the benefit. A managerial employee, as defined by law, is “one who is vested with powers or prerogatives to lay down and execute management policies and/or hire, transfer, suspend, lay-off, recall, discharge, assign or discipline employees, or to effectively recommend such managerial actions. All employees not falling within this definition are considered rank-and-file employees.” For the rank-and-file employee to be covered, he or she must have worked for at least one month during the calendar year. 2. Employers All employers must pay their rank-and-file employees 13th-month pay regardless of the number of employees they employ. How Is the 13th-Month Pay Computed? A More Detailed Discussion Amount The amount of the 13th-month pay shall not be less than 1/12 of the total basic salary earned by the employee within a calendar year. Again, certain types of earnings are not included as “basic pay” for purposes of computing the 13th-month pay (see definition of “basic salary”). For example, if you receive holiday pay, sick benefits, vacation benefits, premium for works performed on rest days and holidays, pay for regular holidays, night differential, maternity leave benefits, overtime pay, or all allowances and monetary benefits which are NOT considered or integrated as part of the regular or basic salary, these earnings will be excluded in the computation of your basic salary. Formula and computation The formula is simple. You just have to compute all your earnings (excluding earnings not considered part of your basic salary) within a calendar year and divide it by 12. The total is the corresponding 13th-month pay that must be paid to you by your employer. Total basic salary earned during the year ÷ 12 Months = Your 13th-Month Pay Thus, if you are working in NCR with a basic wage of PHP 537 (current NCR minimum wage) or a monthly salary of PHP 14,006.75 (assuming no deductions), then your 13-month pay will be PHP 14,006.75 (PHP 537*313/12 = 14006.75). 1. How To Compute 13th-Month Pay if You Have Absences Without Pay/Maternity Leave/Unpaid Leaves/Paid Leaves/Late Record Please note that your 13th-month pay is not a fixed amount equivalent to 1/12 of your monthly basic pay. It is computed based on the actual number of days you worked including leaves with pay. To illustrate, the table below shows a sample computation of the 13th-month pay from the National Wages and Productivity Commission. This is a scenario where an employee incurred no absences, has leaves but with pay, has absences without pay, was on maternity leave without pay, and was also late. Let us assume his salary is PHP 16,000 per month. 2. How To Compute 13th-Month Pay if There’s a Salary Increase or Salary Differential The salary increase will be considered when calculating the 13th-month pay, provided that the additional amount is only applied in the first month the pay increase took effect and thereafter. So for example in November you got a salary increase of PHP 1,000, your basic salary for November and December will be PHP 17,000, respectively. This amount will be added to your total basic salary earned during the year. 3. How To Compute 13th-Month Pay for Resigned Employees or Separated/Terminated Employees Resigned or separated employees are still entitled to the 13th-month pay. Sec. 6 of the Revised Guidelines on the Implementation of the 13th-Month Pay Law provides that even if you have resigned from your job or were terminated, you are entitled to the 13th month-pay in proportion to the length of time you worked during the year, reckoned from the time you started working during the calendar year up to the time you resigned or terminated from the service. For example, you worked only from January to September. Your basic income during the said period will be added and thereafter divided into 12. The amount after dividing is your proportionate 13th-month pay. 4. How To Compute 13th-Month Pay for AWOL Employees or Employees With Indefinite Leave AWOL employees and those under indefinite leave are entitled to the 13th-month pay provided these employees have worked for at least one month during a calendar year. For example, if you worked for three months and went into indefinite leave, you will be entitled to a prorated 13th-month pay. When Is the 13th-Month Pay Given? The law mandates that the 13th-month pay must be paid not later than December 24 of every year. An employer, however, may give the employees one-half (½) of the 13th-month pay before the opening of the regular school year and the remaining half on or before December 24 of every year. In most companies, the payment of 13th-month pay is split into two - one given around June and the other in December. Can an Employer Hold Your 13th-Month Pay? An employer can't hold, defer, or postpone the issuance of the 13th-month pay unless the business is struggling financially and both parties have agreed to have the 13th-month pay postponed or be given on installment. According to Labor Secretary Silvestre Bello III10, companies can talk to their employees, especially if they're unionized, to see if the latter agrees to postpone the release of the 13th-month pay or can opt for a prorated payment. As long as both parties settle on an agreement, the release schedule of the 13th-month pay can be adjusted accordingly. Does the Philippine Government Offer Financial Assistance to Employers Struggling To Pay the 13th-Month Pay? Yes. The Philippine government, through its micro-financing arm, Small Business Corporation (SB Corp.), is offering soft loans (i.e., loans with zero interest) to help small businesses pay the mandatory 13th-month pay to their employees on time. For 202111, for example, eligible businesses were the micro and small enterprises (with 20 employees or below) that had been included in the DOLE's list of companies that availed of the flexible work arrangements during the COVID-19 pandemic (from March 20, 2020, to October 15, 2021). To help more struggling businesses, the coverage was eventually increased12 from 20 employees to a maximum of 40 employees per company. A total of PHP 500 million has been allotted for the loan program, and qualified businesses can avail of the standard amount of PHP 12,000 per employee for a total loan anywhere between PHP 50,000 and PHP 200,000. To apply, eligible businesses only need to present their mayor's permit (for loans higher than PHP 50,000) or barangay business permit (for loans up to PHP 50,000). Upon the filing of the SB Corp. application form online, the loan will be processed within 7 to 10 days. The loan carries no interest and is payable in 12 months with a 3-month grace period13. Tips and Warnings For employees, ensure your 13th-month pay is correctly computed by understanding what comprises your basic pay and its inclusions and exclusions. Your HR should know the rules, and you could safely assume that the pay is computed correctly, but there is no harm in double-checking.The 13th-month pay must be paid in cash and not in kind. Hence, your employer can not give you vouchers, free membership in a gym, a Christmas food basket, free hotel accommodation, freebies, etc. instead of cash.Benefits in the form of food and year-end rewards for loyalty and service are not a proper substitute for the 13th-month pay14. Also excluded under the law are stock dividends, cost of living allowances, and all other allowances regularly enjoyed by the employee. Non-monetary benefits such as free electricity are likewise not included. Frequently Asked Questions 1. Are yayas and house helpers entitled to 13th month pay? 2. Is the family driver entitled to the 13th-month pay? 3. I have a gardener who comes to work twice a week. Is he entitled to 13th-month pay? 4. Are government employees entitled to 13th-month pay? 5. Are seafarers entitled to the 13th-month pay? 6. Are private school teachers entitled to 13th-month pay? 7. Are drivers entitled to 13th-month pay? 8. Are employees with two or more employers entitled to the 13th-month pay? 9. Am I entitled to the 13th-month pay if I am paid on a commission basis? 10. Are workers doing piece-rate or “pakyaw” entitled to the 13th-month pay? 11. Do freelancers get 13th-month pay in the Philippines? 12. Are contractual employees entitled to the 13th-month pay? 13. Are project-based employees entitled to 13th-month pay? 14. Are probationary employees entitled to the 13th-month pay? 15. Are consultants entitled to the 13th-month pay? 16. Is the 13th-month pay taxable under the TRAIN law? 17. Is the 13th-month pay the same as the Christmas bonus? 18. Are there employers exempted from paying 13th-month pay? 19. What happens if my employer refuses to pay the 13th-month pay? References