When should employees receive their 13th-month pay? Learn all about this mandated benefit, including its coverage and exemptions.
The Christmas season to New Year is a busy but usually fun-filled time. In Filipino culture, fun-filled usually means festivities and food, lots and lots of food. Preparing food for the whole family, traditionally extended, can be costly. Getting financial support for these family celebrations allows for more breathing room for your budget and is always welcome. This financial support comes in the form of the 13th-month pay for private employees.
What is the 13th-month pay?
The 13th-month pay or 13-month salary is a form of compensation that is usually given as an end-of-the-year benefit. It is mandated by the law in the Philippines under Presidential Decree No. 851. It is an additional compensation given to the company’s rank-and-file employees once every year, not later than December 24. Some employers provide this pay in two releases, half around mid-year and the other half in December.
The primary purpose of the 13th-month benefit is to help rank-and-file employees. Usually, these employees’ minimum wages no longer satisfy the cost of living. And since it is given during December, they mainly spend it for Christmas and New Year celebrations.
What is the 13th-month pay law?
The 13th-month pay law or Presidential Decree No. 851 was signed by former President Ferdinand Marcos in 1975. This mandated all employers to give their employees a 13th-month pay before December 25. Employees initially eligible for this pay are those earning no more than Php 1000 per month. The law states that the employee shall receive one-twelfth (1/12) of their basic salary for the whole calendar year.
Later, the rules for implementing the 13th-month law were later improved. Furthermore, it was amended by a memorandum signed by former President Corazon Aquino in 1986. The amendment removed the ceiling salary for the rank-and-file employees to receive the 13th-month pay.
Lastly, another provision of the law was passed with the signing of the Tax Reform for Acceleration and Inclusion (TRAIN) law in 2017 by former President Rodrigo Duterte. The TRAIN law increased tax exemption ceiling for the 13th-month pay from Php 82,000 to Php 90,000.
Is 13th-month pay the same as the Christmas bonus?
The 13th-month pay is sometimes confused with the Christmas bonus, but there is a clear distinction between them. The pay is mandatory to be given by employers to their qualified employees serving in the private sector. Employers who fail to release the 13th-month to their employees before December 25 can be persecuted by the law. Meanwhile, the Christmas bonus is a monetary benefit given to all types of employees. It is outside of what is required by the law at the employers’ discretion.
Who is eligible for the 13th-month pay?
The Department of Labor and Employment (DOLE) has issued guidelines about the issuance and qualifications for the 13th-month salary eligibility. The guidelines state that all rank-and-file employees of the private sector are eligible to receive the 13th-month pay. Provided that they have worked with their company for at least one month within a calendar year.
Eligible employees who resigned or were discharged before the release of the 13th-month pay can still receive this benefit. Their 13th-month salary is usually given on the last day of work or with the release of their back pay.
Rank-and-file employees are those who are not in managerial positions. In other words, they are of no authority to hire, reprimand or discipline, and terminate other employees. Managerial employees are not eligible for the 13th-month benefit.
Government employees are also not eligible for the 13th-month salary. This includes those hired by government-owned and controlled corporations. However, it excludes those employed under corporations operating essentially as private subsidiaries of the government.
Managerial employees may receive 13th-month pay only when their employers choose to give it to them. However, it is not mandatory and not covered by the law. Government employees may receive the pay only if they also work in the private sector (maybe as part-time).
If government employees don’t generally get 13th-month benefit, what do they get?
Mid-year bonus, 14th-month pay, and Cash Gifts
Government employees are granted a mid-year bonus that is equal to one month of the employee’s basic salary. The mid-year bonus is usually given around June to July. They are also granted a 14th-month pay.
The 14th-month pay, also called the year-end or Christmas bonus, is a cash benefit given to employees of government agencies amounting to a monthly basic salary given no earlier than the 15th of November. Employees who have worked for at least four (4) months within a calendar year are eligible to receive the year-end bonus, regardless if they are still working with the government agency, retired, or separated from work.
In addition to the Christmas bonus, employees of government agencies also receive a cash gift. The cash gift is a cash benefit amounting to Php 5,000. Employees hired by government agencies are also entitled to receive a Productivity Enhancement Incentive (PEI).
The mid-year bonus, 14th-month pay, and cash gift are mandated by Republic Act No. 11466 or Salary Standardization Law and released based on the guidelines provided by Budget Circular No. 2016-4, while the Productivity Enhancement Incentive is mandated by Executive Order No. 201.
13th-month pay computation
The computation involved in determining the 13th-month salary is relatively easy. The only factor needed is the employee’s total basic salary. The formula for the 13th-month salary computation is:
13th-Month Pay = Annual Total Basic Salary / 12
The total basic salary or annual salary does not include unpaid absences, overtime pay, holiday pay, night shift differential, allowances, and monetary benefits such as the cash equivalent of unused vacation and sick leave credits. It also means that all deductions have been removed from the total. This formula only applies if the employee has worked for an entire year or 12 months.
For example, let’s take an employee (let’s name him Joe) with a basic monthly salary of Php 16,500. If Joe has no absences or deductions for the entire year, he will receive Php 16,500 as his 13th-month pay. Assuming Joe does not have perfect attendance and has incurred a total of Php 7,643.00 worth of deductions, his 13th-month pay computation is:
[(Php 16,500 x 12) – Php 7,643.00] / 12
This means that Joe’s total basic salary is Php 190,357.00 We divide Php 190,357 by 12 and we get Php 15,863 and that is the amount of Joe’s 13th-month benefit.
But what if the employee has not worked for the whole year?
Pro-rated 13th-month pay
Employees who have not worked for the entirety of the calendar year get a so-called pro-rated 13th-month pay. The computation for this is slightly different from the normal 13th-month pay. To compute pro-rated 13th-month pay, the factors needed are the number of months worked and the basic salary of the employee for one month. The formula for the pro-rated 13th-month pay is as follows:
[(monthly basic salary x number of months worked) – total deductions] / 12 = pro-rated 13th-month pay
Let’s look at another employee (Jane) as an example. Let’s say that Jane has only worked from August to November and her basic monthly salary is Php 15,000. If Jane has no deduction for the entirety of her work, her pro-rated 13th-month pay can be computed as (Php 15,000 x 4) / 12, and we get Php 5,000. If Jane has unpaid absences with deductions amounting to Php 6,480.50, we can compute her pro-rated 13th-month pay as [(Php 15,000 x 4) – Php 6,480.50]/ 12, and we get Php 4,459.96.
Is 13th-month pay taxable in the Philippines?
The 13th-month benefit is usually exempt from taxes except when it goes over Php 90,000. The guidelines for applying taxes on the 13th-month credit were first outlined under Section 32 of the National Internal Revenue Code or NIRC. Section 32 specifies that 13th-month amount exceeding Php 82,000 must be taxed and considered as part of the employee’s total earnings for that calendar year.
However, Section 32 of NIRC was later on amended by the provisions of the TRAIN law or the Republic Act No. 10963 in the first month of 2018. TRAIN law states that the 13th-month pay is not to be subjected to taxes unless it exceeds the set limit amount of Php 90,000. A 13th-month pay exceeding the set limit must be included in the computation of the gross income of the employee for that calendar year.
Can employers be exempted from paying the 13th-month benefit?
The 13th-month salary is mandatory by law, however, there are companies or agencies exempt from paying this salary to their employees.
This includes all departments, agencies, and any political subdivision. It also includes all government-owned and controlled corporations that do not operate as private subsidiaries of the government.
Employers already paying 13th-month pay
Employers who are already paying their employees the 13th-month pay or more per calendar year are exempted from paying the 13th-month benefit.
Household Workers Employers
The employers of household helpers and persons in the personal service of another relating to such workers are also exempt from paying the 13th-month benefit.
Employers paid on commission, boundary, or task
Employers who are paid solely on commission, boundary, or task basis, and those who are paid a fixed amount for the performance of a specific task, regardless of the hours consumed in the performance of said task, are exempt from paying the 13th month.
Frequently asked questions about 13th-month benefit
When is the 13th-month pay given to employees?
According to the guidelines released by the Department of Labor and Employment, the 13th-month benefit must be released to eligible employees no later than the 24th of December each year. Some companies give half of the 13th-month credit during mid-year and the other half in December, while some give it as one lump sum around November to December.
Can supervisors and managers get the 13th-month pay?
According to Presidential Decree No. 851, employers are only mandated to give the 13th-month pay to rank-and-file employees. Employees holding managerial positions with the authority to hire, pass disciplinary actions, and terminate other employees are not entitled to the 13th-month benefit. However, it is up to the company if they choose to grant the 13th-month salary to employees with managerial positions.
Is maternity leave included in computing the 13th-month pay?
Maternity leaves are not credited for the computation of the 13th-month amount. Likewise, sick leaves, paternity leaves, holiday pay, premium pay, allowances, overtime, and night differentials are not included in the computation of the 13th-month salary.
What happens if I resign or get terminated before the release of the 13th-month credit?
Employees who are eligible for the 13th-month benefit are still entitled to receive them even if they are separated from work due to resignation or termination. As long as the private employee has worked for at least one month, they are entitled to receive the 13th-month credit.
If I get separated from work, when can I get my 13th-month credit?
Eligible employees who have been separated from work usually receive their 13th-month credit along with their final or back pay. It might take some time before it is released after the resignation has been filed. It is better to ask about the company’s policy regarding this matter to be sure.
It’s already December 25 and I haven’t received my 13th-month pay yet. What should I do?
If you think your employer really has no intention of releasing your 13th-month pay, you may contact DOLE through their hotlines or fill out their online query form. Not giving employees their 13th-month benefit on or before December 24 is punishable by the law.
Always credit 13th-month benefits on time
Enroll your company in an automated payroll for accurate and timely 13th-month benefit credit.