The 13th Month Pay, which is an obligatory benefit, is meant to provide employees with some financial support during the holidays. It was approved under Presidential Decree No. 851, and it grants an additional salary equivalent to a month’s pay each year.
Eligibility Criteria
The 13th-month pay is mandated for all rank-and-file employees in the private sector who have worked at least one month during the calendar year. This applies to every position, designation, or other employment status and whether or not the employee receives the payment through any method.
However, the following categories of employees are typically excluded from enjoying this benefit: government employees, employees in private subsidiaries of the government, and those working under government-owned and controlled corporations (GOCC). Other categories exempted from this payment are commission-based employees, freelancers, contractual employees, household helpers, and persons in personal service.
Computation of the 13th Month Pay
The 13th Month Pay is computed as one twelfth (1/12) of an employee’s total basic salary earned within the calendar year. The formula is as follows:
13th Month Pay = Total Basic Salary Earned During the Year ÷ 12
Example 1: Employment for the entire year
- If an employee has a monthly basic salary of ₱20,000 and has worked the entire year:
- ₱20,000 × 12 months = ₱240,000
- ₱240,000 ÷ 12 = ₱20,000
- Thus, the 13th Month Pay would be ₱20,000.
Example 2: Employment for Part of the Year
- For one who started in July with a 20,000 peso monthly salary:
- ₱20,000 x 6 months = ₱120,000
- ₱120,000 ÷ 12 = ₱10,000
- Thus, prorated 13th month pay would be ₱10,000.
It should be noted that the computation should use only the base salary, which excludes overtime pay, allowances, and other monetary benefits.
Schedule of Payment
Employers are required to give the 13th Month Pay to all employees entitled to it on or before December 24 in any given year. This way, employees should receive this benefit right before the holidays. Most employers, however, make the disbursement in one lump sum; nevertheless, they have the option to pay in installments.
Tax Implication
According to the Bureau of Internal Revenue (BIR) rules, the 13th Month Pay is to be taxable only beyond the amount of ₱90,000. Therefore, this cap of tax exemption can affect the whole structure of an organization in designing compensation and bonuses.
How to Claim the 13th Month Pay
Eligible employees will not be asked to perform any action to claim the 13th Month Pay, as the payment should be made by employers due to laws that mandate the automatic disbursement of this benefit. In case an employer does not give the 13th Month Pay by December 24, employees should first talk to the employer or the human resource department to discuss the matter. If this does not resolve the issue, the employee can file a complaint with the Department of Labor and Employment (DOLE) to take the appropriate action.
Conclusion
The 13th Month Pay stands as a foundational entitlement for qualified employees in the Philippines, giving them additional financial support during the holiday season. Both employers and employees should learn the eligibility and computation methods and the requirements to ensure compliance and promote fair labor practices.