Philippines 13th Month Pay: Law and computation

What is 13th month pay?

13th month pay is one of the mandatory benefits in the Philippines. The 13th month pay shall mean not less than one-twelfth (1/12) of the total basic salary earned by an employee within a calendar year.

According to Presidential Decree No. 851, otherwise known as the “13th Month Pay Law”, all employers are required to pay their rank-and-file employees thirteenth-month pay, regardless of the nature of their employment and irrespective of the methods by which their wages are paid, provided they worked for at least one (1) month during a calendar year within a company.

Based on PD No. 851, basic salary shall “include all remunerations or earnings paid by an employer to an employee for services rendered”.

Not included in the computation of 13th month are the following:

1. Cost of living allowance (COLA)

2. Cash equivalent of unused vacation and sick leave credits

3. Overtime Pay

4. Premium Pay

5. Night Differential Pay

6. Holiday Pay

7. Allowances

8. Profit Sharing payments

9. Monetary benefits which are not considered or integrated as part of the regular or basic salary

Formula and Computation of 13th Month Pay

Total Basic Salary Earned during the Year / 12 months = Proportionate 13th month Pay

Illustration: Using a monthly basic salary of P 50,000 with a 313-day factor in a year.

13th Month Pay would be P 545,965.34 / 12 months= 45,497.11

Salary Differential Computation:

Note: The maternity leave is not included in the computation of 13th month pay because the female employee has no earnings from the company for the said period, but the Salary Differential is part of basic salary and included in the computation of 13th month pay as per Department Advisory No. 01-2019 of DOLE.

The 13th month pay is not taxable if it will not exceed the P 90,000 ceiling. If it exceeds, then the excess portion shall be subjected to tax.

Distribution of 13th Month Pay

13th month pay shall be released to the employees not later than December 24 of every year. Any employee who has been separated or resigned from the Company shall be entitled to 13th month pay. However, the release of the 13th month pay shall be included in the computation of the employee’s last pay after determining his separation date from the company as this will be computed on a pro-rata basis.

If the employer fails to pay on time or at all, the employees can take legal action against them.

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