What is 13th Month and How To Compute It

What is 13^th month pay

Under Presidential Decree No. 851, 13th Month Pay is required by law and will be entitled to employees working in the Philippines. This is regardless of the amount of the basic salary (See: Memorandum Order No. 28, on the removal of the salary ceiling, 13 August 1986), regardless of employment status, and method by which the employee collects his/her compensation.

photo credit to USPUG

Presidential Decree No. 851 is fundamentally a Government implementation of monetary assistance equivalent to the monthly basic salary received by an employee. The 13th Month Pay computation is pro rata, it is based on how many months within the calendar year that the employee has worked for the employer.

The term ’13th Month Pay’ denotes the one twelfth (1/12) of the employee’s basic salary within a calendar year. The computation is derived from the 12 months of one calendar year.

How to compute the 13th Month Pay

• Basic formula: (Basic pay) ÷ 12 * (Number of Months worked within the Calendar Year)
• Commonly used formula by companies: (Basic pay for the whole year, less unpaid leaves and tardiness) ÷ 12 months

Basic pay defined

The basic pay of an employee, for purposes of computing 13^th month shall include all remuneration or earnings paid by his employer for services rendered.

It does not include allowances and monetary benefits which are not considered integrated as part of regular or basic salary, unless otherwise part of personal or collective agreement, company practice or policy.

What is the minimum payout

The minimum 13^th month payout required by law shall not be less than 1/12 of the basic salary earned by an employee within a calendar year.

Qualifier

An employee must have worked for the employer at least one month during the calendar year, provided that the employer is covered and is not stated in Section 3 of the decree.

The following are exempted from paying 13^th month pay:

• The government and any of its political subdivision, including government-owned and controlled corporations, except those corporations operating essentially as private subsidiaries of the government.
• Employers already paying their employees a 13^th month pay or more in a calendar year or its equivalent at the time issuance of Presidential Degree 851.
• Employers of household helpers and persons in the personal service of another in relation to such workers; and
• Employers of those who are paid on purely commission, boundary, or task basis, and those who are paid a fixed amount for performing specific work, irrespective of the time consumed in the performance thereof, except where the workers are paid on piece rate basis in which case the employer shall grant the required 13^th month pay to such workers.

Time of payment

The required 13^th month pay shall be paid not later than December 24 of each year.

An employer, however, may give one half (1/2) of the required 13^th month pay before the opening of the regular school year and another half on or before the 24^th of December every year.

The frequency of payment of this monetary benefit may be the subject of agreement between the employer and the collective bargaining agent of the employees.

About the author:

Jhoe is a graduate of BS Accountancy from Jose Rizal University in year 2004. A consistent dean’s lister and active in non-scholastic organizations like JRU- Martial Arts Club. As a working student, he worked with pharmaceutical manufacturing firms and Pest Control and Fumigation Company.

He has more than 14 years of experience handling various accounting and admin works such as Office Administration, Procurement, Billing and Collection and Payroll and Benefits Administration. He worked with prestigious BPO as a pioneer team such as Teletech, Offshoring.com and Contactcenter.com and represented the company in Call Center Association of the Philippine Procurement Council in year 2009 to 2010. He is presently the Payroll and Office Administrator for a newly established Integrity and Compliance Software Development firm in the Philippines, and handling a wide range of HR, Payroll and Office Admin works.

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