#1. What is “13th month pay”?
It is a mandatory benefit provided to employees pursuant to Presidential Decree No. 851 (PD No. 851) which requires employers to grant 13th month pay to all its rank and file employees. PD No. 851 further provides that the Christmas season is an opportune time for society to show its concern for the plight of the working masses so they may properly celebrate Christmas and New Year.
#2. Bonus is different from 13th month pay
Bonus is an amount granted to an employee in excess of what the law requires as a reward or incentive for achieving a goal and/or contributing to the success of the employer’s business. Unlike 13th month pay, a bonus is given out of the employer’s generosity and is not a demandable and enforceable obligation, unless when it has been made part of the wage or made the subject of an express agreement.
#3. When should the 13th month pay be paid?
It should be paid not later than December 24 of each year. An employer, however, may give to his employees one-half of the 13th month pay before the opening of the regular school year and the other half on or before the 24th day of December of every year.
#4. Who are covered or entitled to the 13th month pay?
All rank-and-file employees who have worked for at least one (1) month during the calendar year, are entitled to receive 13th month pay regardless of the nature of their employment and irrespective of the methods by which their wages are paid.
#5. Who are rank-and-file employees?
All employees not considered managerial employees are considered rank-and-file employees. A managerial employee is one who is vested with powers or prerogatives to lay down and execute management policies and/or to hire, transfer, suspend, lay-off, recall, discharge, assign or discipline employees, or to effectively recommend such managerial actions.
#6. Are there employers who are exempted from paying 13th month?
Yes. The following employers are exempted from paying 13th month pay under PD 851:
a) The government and any of its political subdivisions, including government-owned and controlled corporations, except those corporations operating essentially as private subsidiaries of the Government;
b) Employers who are already paying their employees 13th month pay or more in a calendar year or its equivalent at the time of the issuance of PD 851;
c) Employers of persons in the personal service of another in relation to such workers; and
d) 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 those workers who are paid on piece-rate basis, in which case the employer shall grant such workers the required 13th month pay.
#7. How is 13th month pay computed?
The minimum 13th month pay required by law shall not be less than one-twelfth of the total basic salary earned by an employee within a calendar year.
#8. What does “basic salary” comprise of?
The “basic salary” of an employee for the purpose of computing the 13th month pay shall include all remunerations or earning paid by this employer for services rendered but does not include allowances and monetary benefits which are not considered or integrated as part of the regular or basic salary, such as the cash equivalent of unused vacation and sick leave credits, overtime, premium, night differential and holiday pay, and cost-of-living allowances. However, these salary-related benefits should be included as part of the basic salary in the computation of the 13th month pay if by individual or collective agreement, company practice or policy, the same are treated as part of the basic salary of the employees.
#9. 13th Month Pay for Certain Types of Employees
(a) Employees Paid by Results. — Employees who are paid on piece work basis are by law entitled to the 13th month pay. Employees who are paid a fixed or guaranteed wage plus commission are also entitled to the mandated 13th month pay, based on their total earnings during the calendar year, i.e., on both their fixed or guaranteed wage and commission.
(b) Those with Multiple Employers. — Government employees working part time in a private enterprise, including private educational institutions, as well as employees working in two or more private firms, whether on full or part time basis, are entitled to the required 13th month pay from all their private employers regardless of their total earnings from each or all their employers.
(c) Private School Teachers. — Private school teachers, including faculty members of universities and colleges, are entitled to the required 13th month pay, regardless of the number of months they teach or are paid within a year, if they have rendered service for at least one (1) month within a year.
#10. Are resigned or separated/terminated employees entitled to 13th month pay?
Yes. An employee who has resigned or whose services were terminated at any time before the time for payment of 13th month is still entitled to the benefit.
#11. How much is the 13th month pay of a resigned or separated/ terminated employee?
The 13th month pay of a resigned or separated/terminated employee is in proportion to the length of time he or she has worked during the year, reckoned (a) from the time she has starting working during the calendar year or (b) the time the last 13th month pay was given, up to the time of his/her resignation or separation/termination from the service. Thus, if he/she worked only from January to September, his/her 13th month pay shall be equal to 1/12 of his total basic salary earned during that period
#12. Are maternity leave benefits included in the computation of 13th month pay?
No. Maternity leave benefits are not included in the computation of 13th month pay.
To illustrate, assuming that a female employee is receiving a monthly salary of P10,000.00 and was on maternity leave from June 1 to July 31, 2020:
P8,333.33 is the proportionate 13th month pay of a female employee who was on maternity leave from June 1 to July 31, 2020.
#13. Is 13th month pay taxable?
In the Philippines, employees are entitled to an exemption from income tax in relation to benefits/allowances up to the total value of Ninety Thousand Pesos (₱90,000.00) each year. This means that if the total value of the 13th Month Pay benefit combined with any other allowances or benefits received by an employee during the year, does not exceed ₱90,000, such benefits/allowances will be exempt from income tax.
However, the value of any such benefits or allowances over and above the ₱90,000 will be subject to income tax for the relevant year and should be deducted at source by the employer (i.e. the excess will be subject to income tax).