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December 15, 2022
15 min Read
Flona

13th-Month Pay Computation Guide in the Philippines

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For many Filipinos, the 13th-month pay is a big deal.

It’s a much-needed resource to bolster everyone’s Christmas holidays war chest. After all, December is known to be the most expensive month of the year. Decorations, vacations, gifts – the 13th-month pay is the key to them all.

But more realistically–despite being less exciting–this extra pay can also be a much-needed resource for many people to catch up on their bills and necessities.

Regardless of your reasons, it's likely that you're also looking forward to your 13th-month pay. So, how is the 13th-month pay computed in the Philippines?

To help you prepare better for the upcoming holidays, here's our full 13th-month pay computation guide in the Philippines.

What is the 13th-Month Pay?

 

In the Philippines, all rank-and-file non-government employees, regardless of their tenure, are entitled to receive a 13th-month pay. It's an additional month’s worth of salary that employees are legally entitled to receive.

According to the Department of Labor and Employment (DOLE), the 13th-month compensation is given to any employee who has worked for at least one month within the current calendar year.

The amount of the 13th-month pay should be equivalent to one twelfth (1/12) of their basic salary or total basic salary plus commissions and other monetary earnings, excluding overtime pay, night shift differential, and premium pay.

The 13th-Month Pay Law

The 13th-month pay is a government-mandated employee benefit under Presidential Decree No. 851. It was first introduced in 1975 by then-President Ferdinand E. Marcos Sr.

The PD states that all private sector employees receiving at least 1,000 PHP each month are entitled to receive this bonus.

It's considered a form of social welfare not only to employees, but also to their households. With this extra cash, you can rest assured that your family is taken care of and will have the funds to enjoy the holiday season.

For employees, it’s an extra reward for their hard work throughout the year. It's a kind of bonus from employers – but only if they meet certain conditions.

13th-Month Pay vs. 14th-Month Pay

Some employees are luckier than most: instead of just a 13th-month pay, they also get a 14th-month pay.

Like the name implies, it's similar to the 13th-month pay, but it's given after 10 months of service instead of 12.

The two payments are different, and they should not be confused – other than the fact that they're both additional salary bonuses that you receive at the end of each year.

As of this writing, the 14th-month pay is completely voluntary, with employers giving it at their own discretion.

However, in 2019, Senator Vicente 'Tito' Sotto proposed a bill that would require all companies in the private sector to provide 14th-month pay to their employees, as long as they worked for at least one month within the calendar year.

If the bill passes, 14th-month pay will now become a legal requirement. It will be given every November, while the 13th-month pay will be given in June nstead.

Unfortunately, the bill is still pending, and a similar house bill was filed in August 2022 by Kabayan Representative Ron Salo.

In an interview, the Department of Labor stated that they're still in consultation with both labor and management over the viability of the 14-month pay to employees.

Until then, only the 13th-month pay remains a compulsory and legal benefit for all private employees.

The Technicalities of the 13th-month Pay

 

Now that we know the basics, let’s dive into the details of the 13th-month pay.

Eligibility for 13th-month pay

Regardless of the nature of their employment or how they receive their pay, all rank-and-file employees who have worked for at least one month in a company are entitled to a 13th-month pay.

It's also important to remember that workers who quit, were fired, or were separated from their individual firms are still entitled to their 13th-month salary, as long as they worked for at least a

On the other hand, government workers are not eligible for a 13th-month pay, although they do receive something in kind, often called a “year-end bonus.”

Freelancers, household helpers, and commission-based employees are also exempted from receiving this type of incentive, although they may receive other year-end bonuses at the discretion of their employers.

Date for release of the 13th-month pay

The 13th-month salary is required by law to be given to employees on or before December 24 of each year. Employees often get their 13th-month salary in the last week of November or the first week of December. Some may also receive it the week or the day before Christmas.

13th-month pay amount

Department of Labor and Employment regulations states that an employee's 13th-month compensation shall equal at least one-twelfth (1/12) of their annual basic wage. Simply add up your annual income, divide it by 12, and you will get the answer to how much you will be paid in the 13th month.

Basically, you can follow this formula:

13th-month pay = Total basic annual salary ÷ 12 months

Inclusions and exclusions from calculation

The 13th-month pay doesn't include the employee's entire income. The only income types included in its calculation are:

  • Paid leaves (sick leave, vacation leaves, maternity leaves)
  • Basic pay

The monetary equivalent of unused vacation and sick leave credits, overtime pay, premium pay, night difference pay, holiday pay, and cost-of-living allowance are items that are not included in the calculation of this incentive.

However, if under the employee's contract or agreement, these perks are regarded as a component of the base pay, they must be taken into account when calculating the employee's 13th-month pay.

Other types of income not included in its calculation are the following.

  • Allowances
  • Commissions
  • Other bonuses
  • Overtime
  • Incentives
  • Unpaid absences
  • Night differentials
  • Holiday pay
  • Unused leave credits

What is a prorated 13th-month pay?

Keep in mind that this annual benefit does not necessarily mean that you’re going to get the equivalent of your monthly wage -- especially in some situations.

Your compensation for the 13th month will be prorated if you haven't worked for at least 12 months this year. Its calculation will thus only take into account the months you actually worked for your company or agency.

Proration is when the months that you haven’t worked for the company is exempted from the calculation, but the overall computation is still divided by 12.

Employees employed by a business in the middle or near the end of the year, as well as those whose work is temporarily interrupted due to business shutdown during the epidemic, are often subject to the prorated 13th-month pay calculation.

The following sections will talk about specific examples, but first, we need to talk about your base pay because it’s the foundation of your 13th-month pay calculation.

Explaining Your Base Pay

For the purpose of calculating the 13th-month pay, the term "basic salary" refers to all compensation given to an employee by their employer for services rendered to the business.

However, the following cannot be taken into account when determining the basic salary:

  • Allowances (cost of living, uniform, transport, etc.)
  • Profit-sharing payments (dividends, commissions, etc.)
  • Cash equivalent of unused leave credits
  • Overtime pay
  • Premium pay
  • Night shift differentials
  • Holiday pays
  • All other monetary payments not included in your base pay agreement,

If any in the items listed above are included in your base pay agreement in your employment contract, then it means that it should be included in the calculation.

Let’s look at an example.

Base pay inclusion example

For example, say that your employment contract specifies that your base pay is PHP 30,000 per month, which is divided into PHP 25,000 base pay, PHP 3,000 for health insurance, and PHP 2,000 for a guaranteed percentage of company profits.

Profit-sharing and health insurance are typically regarded as non-wage perks -- which means that normally they wouldn't be counted for your 13th-month pay.

However, because these perks are considered to be under the base pay in your contract, they should be included in addition to the PHP 25,000 when calculating your 13th-month pay, which means that your employer should calculate PHP 30,000 as your base pay.

The same is true if your company's policy or the Collective Bargaining Agreement treats these benefits (other typical perks like a dental package, paid vacation time, stock options, and life insurance) as compensation (in case you are part of a company union and your union has an existing CBA with the company).

Thus, when calculating your 13th-month pay, make sure to examine what constitutes your base pay and whether your employee has included everything in their calculations.

Calculating the 13th-month Pay

Knowing the concept of the thirteenth-month pay is great, but knowing the actual calculations will allow you to apply the knowledge in your own situation. To help you calculate your mandated year-end pay, let's look at a few calculation examples.

Regular Thirteenth-month Pay

Your 13th-month pay is going to be based on how much you earn every month. Let’s say that you got hired at the beginning of the year and your term reached the end of the year.

In this case, a table of your employment status would look like this.

Month

Status

Basic Salary

January

No absence

₱14,006.75

February

No absence

₱14,006.75

March

No absence

₱14,006.75

April

No absence

₱14,006.75

May

No absence

₱14,006.75

June

No absence

₱14,006.75

July

No absence

₱14,006.75

August

No absence

₱14,006.75

September

No absence

₱14,006.75

October

No absence

₱14,006.75

November

No absence

₱14,006.75

December

No absence

₱14,006.75

TOTAL BASIC ANNUAL SALARY

₱168,081.00

Since the formula to determine your 13th-month salary is as follows:

13th-month pay = Total basic annual salary ÷ 12 months

Then, using the values in the table, we’ll arrive at the following equation.

13th-month pay = ₱168,081.00 ÷ 12 months

In this case, your thirteenth month's pay will be equal to exactly what you will receive on a monthly basis.

However, things aren’t always so clear-cut. In the following scenario, let’s look at what will happen if your months are somewhat irregular, leading you to use the prorated 13th-month pay formula.

Prorated Thirteenth-month Pay,

In this case, you aren’t always present throughout the whole year, and there are some months when the company shut down, or when you took a leave of absence without pay.

Your salary between January and December will still be counted, but only the actual amount you received in base pay in that month. This means that you will have a lower total basic annual salary, which means a little lower thirteenth-month pay.

Let’s see how in the formula below.

Month

Status

Basic Salary

January

No absence

₱14,006.75

February

No absence

₱14,006.75

March

No absence

₱14,006.75

April

5 days leave with pay

₱14,006.75

May

Company shutdown

No salary

June

Company shutdown

No salary

July

Company shutdown

No salary

August

Company shutdown

No salary

September

10 days leave without pay

₱8,836.75

October

1 day leave without pay

₱13,469.75

November

No absence

₱14,006.75

December

No absence

₱14,006.75

TOTAL BASIC ANNUAL SALARY

₱106,347.00

Since there are months where you did not work for the company, you are receiving no base pay in that month, which means that you don’t have

13th-month pay = Total basic annual salary ÷ 12 months

In this case, your 13th-month pay is equal to the following formula.

13th-month pay = 106,347.00  ÷ 12 months

13th-month pay = 8,862.25

As you can see, you will receive a lower 13th-month pay because you received a lower base salary overall.

For Salary Increases

When determining the 13th-month pay, the salary increase will be taken into account as long as the extra money is solely used in the first month after the pay rise went into effect and afterward.

For instance, if you received a PHP 1,000 salary rise in November, your basic pay in November and December will be up by PHP 1,000.

Your total basic wage for the year will be increased by this sum.

Let’s look at this example.

Month

Status

Basic Salary

January

No absence

₱14,006.75

February

No absence

₱14,006.75

March

No absence

₱14,006.75

April

No absence

₱14,006.75

May

No absence

₱14,006.75

June

No absence

₱14,006.75

July

No absence

₱14,006.75

August

No absence

₱15,006.75

September

No absence

₱15,006.75

October

No absence

₱15,006.75

November

No absence

₱15,006.75

December

No absence

₱15,006.75

TOTAL BASIC ANNUAL SALARY

₱173,081.00

In this case, your formula will then become:

13th-month pay = 173,081.00 ÷ 12 months

Which means that your 13th-month pay is equal to ₱14,423.42.

Other Things You Need to Know About the Thirteenth Month Pay

We’ve talked all about the specifics of your most-awaited thirteenth-month pay! But that’s not all. As simple as it may seem, there are a lot more details that you should be aware of, which we’ll talk about below.

Let’s talk about other things you need to know about this incentive.

What happens if employees fail to provide a 13th-month pay?

If an employer doesn't pay the 13th-month benefit, administrative charges may be brought against them.

The nearest DOLE office will accommodate employees who seek to file charges against employers who fail to provide a 13th-month pay.

This financial incentive is in accordance with Presidential Decree (PD) 851, which previous President Ferdinand Marcos issued on December 16, 1975, and which Corazon Aquino later revised, which means that it’s mandated by law.

Failure to follow the law will reap clear consequences.

13th-month wage arrears are handled as money claims cases. Employers who are found to have broken the law will be punished, potentially with damages.

Employers must provide Proof of Compliance with P.D. 851 by no later than January 15 of each year to the DOLE Regional Office that is closest to them.

Is the 13th-month pay the same as my Christmas Bonus?

In addition to receiving their 13th-month pay, many employees also receive a "Christmas bonus." However, since there is no legal requirement for it; doing so is entirely up to the employer's discretion.

This can take different forms because it doesn't always come in cash. Employers frequently give Christmas bonuses in the form of gift cards, groceries, or even cash, making them non-taxable.

Will your 13th-month pay be taxed by the government?

The 13th-month pay, as stated in the Republic Act 10653, is not subject to tax, only when the gross benefits received by employees of public and private companies do not exceed ₱82,000. Every employer is required to make a report of compliance to the nearest DOLE regional office no later than January 15 of each year.

Can your employers hold your 13th-month pay for any reason?

Unless the company has financial difficulties and both parties have agreed to have the 13th-month pay delayed or distributed in installments, an employer cannot withhold, suspend, or postpone the release of your 13th-month pay.

Employers might approach their staff, particularly if they are unionized, to ask whether they would like a prorated payment or to delay the delivery of the 13th-month pay.

The 13th-month salary release plan can be changed as necessary as long as both sides agree. If not, the business cannot legally hold or delay the 13th-month pay.

What if the business is struggling? Will the 13th-month pay still be required?

Yes, your company should still make preparations to give you your 13th-month pay even if their books are struggling.

There are government programs offering financial assistance to small businesses so that they can provide their employees’ thirteenth-month pay. The government’s small business micro-financing firm, SB. Corp lends zero-interest loans designed to help small businesses make payments to their employees.

Last year, micro and small firms (with 20 or fewer employees) who were listed on the DOLE's list of businesses that took use of flexible work arrangements during the COVID-19 epidemic qualified as eligible businesses for this loan and was able to borrow from the allotted PHP 500 million budget for this initiative.

The coverage was later increased from 20 employees to a maximum of 40 employees per firm to assist additional failing enterprises.

Other Need-to-Knows

Here are other best practices and necessary information about your 13th-month pay.

  • Be sure. If you're an employee, make sure your 13th-month pay is calculated correctly by knowing what goes into your basic pay and what is included and excluded from it. You could reasonably assume that the pay is computed correctly and that your HR is aware of the rules, but it doesn't hurt to double-check.
  • Only accept cash. This monetary reward is required to be made in cash alone, not in any other kind of benefit or perks. As a result, your company is prohibited from offering you alternatives to cash, such as gift cards, free gym memberships, Christmas food baskets, free hotel stays, etc.
  • No suitable replacement. Food perks and year-end honors for fidelity and service are not suitable replacements for the 13th-month salary. Stock dividends, cost of living adjustments, and any other benefits that the employee habitually receives are also prohibited under the legislation. Free electricity and other non-cash perks are also excluded.

FAQs

How is the 13th-month pay computed in the Philippines?

The thirteen-month pay is calculated by adding up all of the base pay that you got throughout the year, and then dividing it by 12.

Though this does not necessarily mean that you will get a 13th-month pay equal to a month’s salary because your base pay can change every month depending on absences, company closures, pay differentials and raises, and the like. We tackled how you can compute your 13th-month pay extensively in this article.

How is the 13th-month bonus calculated?

The 13th-month pay can be called by different names, including the 13th-month bonus. However, keep in mind that your company may use different terminologies, which might state a difference between the two.

As mentioned above, a 13th-month pay is calculated by the formula:

Total annual base pay ÷ 12 months.

How do you divide the 13th month?

Regardless of how much base pay you got within the year, you get your thirteenth-month calculation by dividing your total annual base pay by twelve.

This doesn’t mean that you will automatically get a 13th-month pay equal to one month of base pay, because your base pay can change depending on absences, leaves, differentials, and more.

Everything You Need to Know About Calculating Your 13th-month Pay

The holidays are getting nearer and nearer, and it’s becoming ever-important to manage your money carefully.

One way of doing this is by knowing just how much 13th-month pay you have coming in within the few months. Once you know that, you can better allocate your resources to fit your needs.

However, it can be a bit confusing to calculate your 13th-month pay, especially if you’re a new employee. To help you, we’ve made this article.

Now, you know what the 13th-month pay is, how it’s calculated, and the most important things that you need to know about this type of incentive. With this kind of knowledge, you can better prepare for your holiday future!

Flona
Flona / Customer Support Team @GMO

A Boss Level Tech nerd. Her interests range from all things web hosting to swiping food from the pantry. As she says, free food is the best food. You can't out nerd her and your food is definitely not safe when she's around.

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