What is 13th 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.
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 13th 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 13th month payout required by law shall not be less than 1/12 of the basic salary earned by an employee within a calendar year.
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 13th 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 13th 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 13th month pay to such workers.
Time of payment
The required 13th 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 13th month pay before the opening of the regular school year and another half on or before the 24th 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.
Jhoe is a graduade of BS Accountancy from Jose Rizal University. With 14 years of experience handling various Accounting, Finance and HR works. He specializes in APAC payroll, Compensation and Benefits, Purchasing and Cash Management. He is currently working as the HR, Payroll and Office Administrator of a Software Development firm in Makati, CBD.