In the Philippines, the 13th month pay is not just a bonus it is a mandatory benefit under the law. Every rank-and-file employee is entitled to receive it, regardless of the nature of their employment, provided they have worked for at least one month during the calendar year. This extra pay is especially welcomed during the holiday season, as it often arrives before Christmas. Understanding how to compute the 13th month pay correctly ensures employees receive what they deserve, while also helping employers comply with legal requirements.
What Is 13th Month Pay?
The 13th month pay is a monetary benefit equivalent to one-twelfth (1/12) of an employee’s basic salary within a calendar year. It is distinct from bonuses and is mandated by Presidential Decree No. 851. All employers in the private sector are required to pay this to all rank-and-file employees, whether they are permanent, contractual, or probationary.
Legal Basis and Coverage
The 13th month pay law was enacted to uplift the welfare of Filipino workers. Here are key legal points:
- Only rank-and-file employees are covered (not managerial staff).
- Employee must have worked at least one month in a year to be eligible.
- It must be paid not later than December 24 of each year.
- Failure to pay is a labor law violation, subject to penalties.
How to Compute 13th Month Pay
Basic Formula
The simplest formula to calculate the 13th month pay is:
13th Month Pay = Total Basic Salary Earned During the Year ÷ 12
Step-by-Step Guide
Let’s break it down further so it’s easy to follow:
- Step 1: Identify the employee’s total basic salary earned for the year.
- Step 2: Exclude allowances, overtime, holiday pay, and other monetary benefits that are not part of basic salary.
- Step 3: Divide the total basic salary by 12.
Example Calculation
Suppose an employee earns a monthly basic salary of â±20,000 and worked from January to December. The total basic salary earned for the year is â±240,000.
Using the formula:
â±240,000 ÷ 12 = â±20,000
The employee will receive â±20,000 as 13th month pay.
For Employees Who Didn’t Work the Full Year
If an employee only worked part of the year, the computation should be prorated:
Suppose the same employee worked for only 6 months (July to December), their total basic salary earned would be â±120,000.
â±120,000 ÷ 12 = â±10,000
The employee will receive â±10,000 as 13th month pay.
What Is Considered Basic Salary?
To compute 13th month pay properly, it’s essential to define what is included in basic salary.
- Included: Monthly wage, regular working days’ salary
- Excluded: Overtime pay, holiday pay, night differential, leave conversions, commissions, and allowances
However, if these extra payments are included regularly in the employment contract as part of the basic salary, they may be considered in the computation.
When Should It Be Paid?
According to the Department of Labor and Employment (DOLE), 13th month pay must be paid no later than December 24 each year. Employers can choose to give it earlier or in two installments one in June and another in December.
Payment in Installments
- First half: Given around mid-year (e.g., June), computed from January to June earnings
- Second half: Given before December 24, computed from July to December earnings
Frequently Asked Questions (FAQs)
Do resigned or terminated employees get 13th month pay?
Yes. Resigned or terminated employees are still entitled to receive 13th month pay based on the total basic salary they earned while still employed during the year. The amount is prorated accordingly.
Is 13th month pay subject to tax?
Under the TRAIN law, 13th month pay is tax-exempt up to â±90,000. Any amount exceeding this threshold will be taxed based on the regular income tax rate.
What happens if an employer fails to pay the 13th month pay?
Failure to provide 13th month pay is a labor violation. Employees can file a complaint with DOLE, and employers may be subjected to fines, back pay, and other penalties.
Special Cases
Part-Time Employees
Part-time workers are entitled to 13th month pay, but it is based on their actual basic salary earned. The same 1/12 formula applies.
Household Helpers
Kasambahays or domestic workers are also entitled to 13th month pay under the Domestic Workers Act (Republic Act No. 10361).
Commission-Based Employees
If an employee is paid purely on commission or ‘no work, no pay’ basis, they may not qualify unless their structure includes a basic salary component.
Employer Best Practices
To ensure smooth operations and compliance, employers should:
- Maintain accurate payroll records
- Compute 13th month pay regularly each month to avoid last-minute rush
- Communicate with employees about their expected payout
- Stay updated on DOLE advisories or policy changes
The 13th month pay is more than just a statutory obligation it reflects a company’s commitment to its workforce. Understanding how to compute the 13th month pay in the Philippines benefits both employees and employers. It ensures transparency, strengthens labor relations, and fosters trust. Whether you are a business owner, HR personnel, or employee, taking time to learn the correct computation method can go a long way in promoting fairness and financial well-being in the workplace.