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 thirteenth-month pay for private employees, regardless of employment status.
What is the 13th-month pay?
The 13th-month pay, also known as the 13th-month salary, is a mandatory form of compensation in the Philippines, mandated by Presidential Decree No. 851. This benefit is provided to rank-and-file employees and serves as an important financial assistance at the end of the year.
Key points about the 13th-month pay include:
Year-End Benefit:
- The 13th-month pay is typically given as an end-of-the-year benefit to eligible employees.
- It is designed to provide financial support during the holiday season, particularly for expenses related to Christmas and New Year celebrations.
Mandated by Law
- Presidential Decree No. 851 requires employers in the Philippines to provide the 13th-month pay to their rank-and-file employees.
- This legal mandate ensures that eligible employees receive this additional compensation.
Payment Deadline
- The law specifies that the 13th-month pay must be paid not later than December 24 each year.
- Some employers choose to provide this benefit in two releases, with half given around mid-year and the other half in December.
Calculation
- The 13th-month pay is typically calculated as 1/12th of the employee’s total basic salary earned within the calendar year.
- Bonuses, allowances, and other benefits are not included in the computation, ensuring that it is based on the core salary.
Employee Support
- The primary purpose of the 13th-month benefit is to provide financial assistance to rank-and-file employees, many of whom may find their regular salaries insufficient to cover the cost of living.
- It plays a significant role in helping employees meet their year-end expenses, including holiday festivities and obligations.
What is the 13th-month pay law?
The 13th-month pay law, officially known as Presidential Decree No. 851, was introduced by former President Ferdinand Marcos in 1975. This landmark legislation has played a crucial role in ensuring fair compensation practices and providing financial support to employees in the Philippines.
1. Mandatory Benefit:
- The 13th-month pay law mandates that all employers in the Philippines must grant their employees this pay before December 25 each year.
- This benefit is designed to alleviate financial burdens and provide additional income during the holiday season.
2. Historical Evolution:
- The law initially applied to employees earning up to Php 1,000 per month, entitling them to receive one-twelfth (1/12) of their basic salary for the entire calendar year.
- In 1986, former President Corazon Aquino signed a memorandum that removed the salary ceiling, making rank-and-file employees of all income levels eligible to receive the 13th-month pay.
3. Amendments and Tax Reform:
- The law underwent further modifications with the passage of the Tax Reform for Acceleration and Inclusion (TRAIN) law in 2017.
- The TRAIN law raised the tax exemption ceiling for the 13th-month pay from Php 82,000 to Php 90,000, benefiting a broader range of employees.
4. Significance:
- The law ensures that employees receive an additional financial benefit to help cover year-end expenses, such as holiday festivities and obligations.
- Compliance with this law is essential for employers to avoid legal penalties and promote fair labor practices.
Is 13th-month pay the same as the Christmas bonus?
No, the 13th-month pay and the Christmas bonus are not the same, and there are distinct differences between them.
The 13th-month pay is a mandatory benefit in the Philippines, requiring employers in the private sector to provide it to eligible employees. Employers must give them out before December 25 each year. Furthermore, failing to do so can subject employers to legal consequences for non-compliance.
In contrast, the Christmas bonus is not “a demandable and enforceable obligation” under Philippine law. It is a voluntary benefit or bonus offered by employers to their employees during the holiday season, typically as a goodwill gesture. Unlike the 13th-month pay, there is no legal requirement for employers to provide Christmas bonuses.
This fundamental distinction highlights that while the 13th-month pay is mandatory and subject to legal obligations, the Christmas bonus is discretionary and provided at the employer’s choice. Employees should be aware of these differences to manage their expectations regarding year-end compensation.
Who can receive 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.
Rank-and-file employees
Rank-and-file employees of the private sector in the Philippines are eligible to receive the 13th-month pay if they have worked with their company for at least one month within a calendar year. This benefit extends to all employees who do not hold managerial positions, meaning they lack the authority to hire, reprimand, discipline, or terminate other employees.
Contractual employees, relievers, seasonal workers, and temporary workers are also entitled to the 13th-month pay as stipulated in the Labor Code or their employment contracts. This ensures that various categories of employees receive this mandated year-end compensation, promoting fair labor practices.
Discharged employees
What if an employee has resigned? 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.
However, those who have worked for less than a year in the company will only receive pro-rated pay. Moreover, the pay will be based on the number of months of their employment with the company.
Can government employees get a 13th-month pay?
Unlike private sector employees, government employees are 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
To determine your 13th-month pay, you only need the employee’s total basic salary. The formula for computing the 13th-month pay is:
13th-Month Pay = Annual Total Basic Salary Earned/ 12
By dividing the annual total basic salary by 12, you can easily obtain the 13th-month salary amount.
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.
Are monetary benefits included in the 13th-month pay computation?
Unless stated in the employee’s Collective Bargaining Agreement (CBA), allowances and other monetary benefits are not part of the computation. In other words, only the basic pay will be calculated.
Other monetary benefits generally excluded in the pay computation are as follows:
- Night Shift Differential
- Premium Pay
- Cost of Living Allowances (COLA)
- Profit-Sharing Payments
- Unused Vacation and Sick Leave Cash Equivalent
- Holiday Pay
- Other Allowances and Monetary Benefits
But what if the employee worked for less than a year?
Pro-rated 13th-month pay
Employees who have worked for less than a calendar year get a pro-rated 13th-month pay. The computation for this is slightly different from the normal 13th-month pay.
To compute pro-rated 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?
In the Philippines, the 13th-month pay is typically exempt from taxes, except when it exceeds Php 90,000. Originally governed by Section 32 of the National Internal Revenue Code (NIRC), any amount exceeding Php 82,000 was subject to taxation and considered part of the employee’s total earnings for the year.
However, with the amendment introduced by the TRAIN law (Republic Act No. 10963) in January 2018, the 13th-month pay is no longer taxed unless it surpasses Php 90,000. If it does exceed the set limit, the amount exceeding Php 90,000 must be included in the employee’s gross income for the 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.
Government
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?
No, maternity leaves, along with sick leaves, paternity leaves, holiday pay, premium pay, allowances, overtime, and night differentials, are not considered when computing 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’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.
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