For many employees, especially in countries like the Philippines, the 13th month pay is a much-anticipated benefit that provides financial relief toward the end of the year. It serves as an additional income that can be used for holiday expenses, savings, or to pay off debts. Understanding how to compute the 13th month pay is essential for both employees and employers to ensure compliance with labor laws and to manage expectations. Whether you’re new to the workforce or an HR professional needing a refresher, this topic will guide you step-by-step through the correct method of computing the 13th month pay using a simple, clear approach.
What Is 13th Month Pay?
The 13th month pay is a form of monetary benefit typically mandated by law in some countries, especially in Southeast Asia. It is a separate payment made by an employer to an employee, usually around December. This pay is not a bonus or incentive it is considered a statutory benefit and is calculated based on the employee’s basic salary.
Legal Background
In the Philippines, the 13th month pay was institutionalized under Presidential Decree No. 851, which requires all employers to provide this benefit to their rank-and-file employees, regardless of their position or the nature of their employment, as long as they have worked for at least one month during the calendar year.
Who Is Entitled to 13th Month Pay?
Before computing, it’s important to know who qualifies:
- All rank-and-file employees who have worked for at least one month during the calendar year.
- Employees with regular, probationary, or contractual status, as long as they are not in a managerial role.
- Even employees who resigned or were terminated are entitled to a prorated 13th month pay.
What Is Included in the Computation?
The 13th month pay is computed based only on the employee’s basic salary. It does not include the following:
- Overtime pay
- Night differential
- Holiday pay
- Allowances and other monetary benefits not considered part of the basic salary
However, if allowances are regularly paid and are considered part of the employment contract, they may be counted as part of the basic salary depending on the company policy.
How to Compute 13th Month Pay
The formula to compute the 13th month pay is straightforward:
13th Month Pay = (Total Basic Salary Earned for the Year) ÷ 12
Step-by-Step Example
Let’s walk through an example to make things clearer.
Example:
Let’s say an employee earns a basic monthly salary of PHP 20,000 and has worked from January to December without any unpaid leaves.
- Total Basic Salary for the year: PHP 20,000 Ã 12 = PHP 240,000
- 13th Month Pay = PHP 240,000 ÷ 12 = PHP 20,000
In this case, the employee would receive a 13th month pay of PHP 20,000 in December.
Prorated Computation
If an employee has not worked the full 12 months, the computation is adjusted based on the number of months worked.
Example for Resigned Employee:
Suppose an employee worked from January to June with a monthly salary of PHP 18,000.
- Total Basic Salary: PHP 18,000 Ã 6 = PHP 108,000
- 13th Month Pay = PHP 108,000 ÷ 12 = PHP 9,000
The employee would be entitled to PHP 9,000 as prorated 13th month pay.
Frequently Asked Questions
Is 13th Month Pay Taxable?
In some countries, like the Philippines, the 13th month pay is not taxable if it does not exceed a certain threshold (PHP 90,000 as of recent tax codes). Any amount above that threshold may be subject to income tax depending on local laws.
When Is 13th Month Pay Given?
The 13th month pay should be given no later than December 24 of every year. Employers may opt to release it earlier or in two installments half in June and half in December, depending on the company’s discretion.
How Is Partial Month Work Counted?
If an employee only worked part of a month, the salary for that partial month is also included in the computation, as long as it was for regular work days and not unpaid leave. The amount earned is added to the total basic salary for the year.
Important Notes for Employers
Employers should keep the following in mind to ensure compliance and avoid legal issues:
- Maintain accurate payroll records showing basic salary paid each month
- Ensure timely payment by or before December 24
- Compute correctly for resigned, terminated, or newly hired employees
- Provide clear payslips or breakdowns showing how the 13th month pay was calculated
Special Situations
Employees with Variable Pay
For employees whose salary changes during the year, such as those who receive mid-year raises or demotions, the actual monthly basic salaries must be added up for the months worked and then divided by 12.
Example:
- JanuaryJune: PHP 15,000 Ã 6 = PHP 90,000
- JulyDecember: PHP 18,000 Ã 6 = PHP 108,000
- Total = PHP 198,000
- 13th Month Pay = PHP 198,000 ÷ 12 = PHP 16,500
Newly Hired Employees
New employees who joined mid-year are entitled to a prorated 13th month pay based on the number of months they worked.
Employees on Maternity or Sick Leave
Only the portion of the salary actually paid by the employer is counted. Government benefits like SSS or PhilHealth reimbursements are not included in the computation.
Understanding how to compute the 13th month pay is not only crucial for compliance but also important for employee satisfaction and trust. With a simple formula and careful consideration of monthly earnings, employers can ensure accurate payments while employees can better anticipate their year-end finances. Whether you’re receiving the full amount or a prorated share, the 13th month pay remains a valuable benefit that supports workers during the holiday season and beyond.