As the year draws to a close, many Filipino parents look forward to a special financial boost: the 13th month pay. This benefit, mandated by law, is a welcome relief for many Filipino families, helping them meet year-end expenses, pay off debts, or prepare for the holiday season. But what exactly is the 13th month pay? How is it computed, and who is eligible to receive it? Let’s break it down in simple terms to help you understand everything you need to know especially how to compute 13th month pay.
What is the 13th month pay?
In the Philippines, the 13th month pay is an additional monetary benefit required by Presidential Decree No. 851, signed into law in 1975. Under this law, all rank-and-file employees in the private sector are entitled to receive a 13th month pay, which should be given no later than December 24 each year. This payment is meant to support employees and their families with added income during the holidays and help with the rising costs of living.
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Who is eligible to receive 13th month pay?
The law specifically covers rank-and-file employees—those whose roles are not considered managerial. To qualify, an employee must have worked at least one month within the calendar year. This means that if you or your spouse is employed in a non-managerial position, you should expect to receive this benefit.
Some employees are not covered by the 13th month pay law, however. Government employees, freelancers, contractual workers, household helpers, and certain types of commission-based or boundary-based workers are not eligible, as they are generally under different compensation structures. Similarly, managerial staff are exempt, though some companies still choose to provide it as an extra incentive.
How to compute 13th month pay?
If you’re wondering how to compute 13th month pay, it’s actually quite simple. The 13th month pay is equal to one-twelfth (1/12) of an employee’s total basic salary earned within the year. Basic salary refers to an employee’s regular earnings but does not include additional allowances, overtime pay, or benefits like holiday pay or cost-of-living allowances.
13th month pay computation example for a full year:
How to calculate 13th month pay? Suppose an employee has worked the entire year with a monthly basic salary of PHP 30,000. The computation of 13th month pay would look like this:
- Calculate the total basic salary for the year:
PHP 30,000 x 12 months = PHP 360,000
- Divide by 12:
PHP 360,000 ÷ 12 = PHP 30,000
In this case, the employee would receive PHP 30,000 as their 13th month pay.
13th month pay computation example for part-time or mid-year employees:
How to calculate 13th month pay? If an employee started mid-year or left the company before year-end, the computation of the 13th month pay is based on the months actually worked. For instance, if an employee started in July and has a monthly basic salary of PHP 30,000, the calculation would be:
- Calculate the total basic salary for the months worked:
PHP 30,000 x 6 months = PHP 180,000
- Divide by 12:
PHP 180,000 ÷ 12 = PHP 15,000
Thus, this employee would receive PHP 15,000 as their prorated 13th month pay.
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Are there any exceptions?
There are some notable exceptions in the application of the 13th month pay law:
- Government Employees: Government employees are not covered by this law, as they are under different compensation structures such as the Salary Standardization Law.
- Distressed Employers: Companies that are struggling financially can apply for exemptions, but they must file this request with the Department of Labor and Employment (DOLE).
- Employees Receiving Equivalent Benefits: If an employer already provides an equivalent or greater benefit, they may be exempt from giving a separate 13th month pay.
Is the 13th month pay taxable?
Under the current Philippine Tax Reform for Acceleration and Inclusion (TRAIN) Law, the 13th month pay and other bonuses are tax-exempt up to PHP 90,000. This means that if your 13th month pay combined with other benefits does not exceed PHP 90,000, it is tax-free. Any amount beyond this cap, however, is subject to income tax.
When should the 13th month pay be paid?
Employers are required to provide the full 13th month pay to employees by December 24 each year. Some companies choose to split this amount into two installments—one in June and the other in December—which is permitted as long as the entire amount is disbursed by the holiday deadline.
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What can you do if the pay isn’t given?
If you or your spouse doesn’t receive the mandated 13th month pay, you can file a complaint with DOLE. Employers who fail to provide this benefit may face legal consequences and could be required to pay additional sanctions.
The 13th month pay is a valuable benefit that ensures rank-and-file employees receive a financial boost as the year ends. Whether you plan to use it for holiday shopping, savings, or debt payments, understanding how it’s computed and who qualifies can help you plan your finances more effectively.
For parents, this payment can be a significant help, especially in covering the many year-end expenses that often come up for families. By knowing your rights and how the computation of 13th month pay works, you can make informed financial decisions that benefit your family’s well-being.