How to Compute 13th Month Pay in the Philippines: An Ultimate Guide

Last Updated on 05/11/2020 by FilipiKnow

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 the 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.

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.

 

Table of Contents

At a Glance: Formula for Computing 13th-Month Pay in the Philippines.

how to compute 13th month pay 1

 

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”1 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. 8512 and Supplementary Rules and Regulations3 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. 284 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.

 

What is the 13th-month pay?

Thirteenth-month pay means 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 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, then 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, 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.

 

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.

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 are required to pay their rank-and-file employees 13th-month pay regardless of the number of employees they employ.

 

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 being given around June and the other in December.

 

How is the 13th-month pay computed?

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 a “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

 

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 that 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.

how to compute 13th month pay 2

 

2. How to compute 13th-month pay if there’s a salary increase or salary differential.

The salary increase will be taken into account 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 then 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 was 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 as well 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 after, you will be entitled to a prorated 13th-month pay.

 

Tips and Warnings.

  • For employees, make sure that 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 is required to be paid in cash and not in kind. Hence, your employer can not give you vouchers, free membership in a gym, 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 pay5. 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.

  1. Official Gazette of the Republic of the Philippines. Presidential Decree No. 851, s. 1975 (1975).
  2. Rules and Regulations Implementing Presidential Decree No. 851 (1975).
  3. Supplementary Rules and Regulations Implementing P.D. No. 851 (1976).
  4. Revised Guidelines on the Implementation of the 13th Month Pay Law (1986).
  5. Framanlis Farms Inc. vs. Minister of Labor, et al., G.R. No. 72616-17 (Supreme Court of the Philippines 1989).

Atty. Kareen Lucero

Kareen Lucero is a lawyer previously doing litigation before working for different agencies in the government and for a multinational corporation. She has traveled to 52+ countries including a 3-month solo backpacking in South East Asia and more than 1 year of solo traveling across four continents in the world. As part of giving back, she is passionate about sharing her knowledge of law and travel. She is currently doing consulting work for a government agency.

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