Thirteen Month Pay In The Philippines

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What is 13th Month Pay in the Philippines?

13th month pay in the Philippines is a statutory annual employee benefit that every employer is bound by Filipino law to provide to their full-time rank-and-file employees, in addition to their yearly salaries.

This benefit was legalized in 1975 by Presidential Decree No. 851 to support Filipinos and Filipino families through the Christmas period. Although the original legislation has undergone several amendments since it was first implemented, the fundamental framework of the law has remained the same.

Private sector employees covered by the 13th month pay in the Philippines benefit receive additional annual compensation on top of their annual salary. Every employee under the jurisdiction of Filipino law is entitled to it. This law provides an extra layer of safety net to all private-sector employees during the holiday season.

How to Calculate the 13th Month Salary in the Philippines?

In simple terms, the thirteenth month pay equals one-twelfth the annual salary earned by an employee in the same calendar year.

The formula below is how the law prescribes the 13th month pay in the Philippines to be calculated:

Total basic salary earned in a financial year ÷ 12 = Thirteen Month Pay

Basic salary here refers to all the remuneration an employee receives minus non-integrated benefits or allowances like Cost of Living Allowance (COLA), remuneration against unused leaves, overtime, etc. Benefits and allowances included in the basic pay are counted when calculating the thirteenth month pay.

Let us understand this with an example. Employee A’s monthly basic salary is P10,000. In a particular calendar year, A’s monthly earnings have been as follows:

Month Leaves Monthly basic salary
January No absence P10,000.00
February 1 paid leave P10,000.00
March No absence P10,000.00
April 2 paid leaves P10,000.00
May No absence P10,000.00
June On unpaid leave P0.00
July No absence P10,000.00
August No absence P10,000.00
September No absence P10,000.00
October 2 paid leaves P10,000.00
November No absence P10,000.00
December No absence P10,000.00
Total basic salary earned in this calendar year P110,000.00

Employee A’s thirteenth month pay is:

110,000 ÷ 12 = P9,166.66

For employees who have less than 12 months of work at the time of the calculation of the 13th month benefit, the basic pay for the number of months of employment is counted. So, if someone has worked for three months in a company, then their thirteenth month pay will be calculated like this:

(Monthly basic pay earned x 3 months) ÷ 12 = Thirteenth Month Pay

DOLE Guidelines on Your 13th Month Pay in the Philippines

The Department Of Labour and Employment(DOLE) is the Filipino government body responsible for the overall legislation, administration, and implementation of labor and employment laws in the Philippines. The agency is also responsible for ensuring gainful employment, protecting workers’ and employee rights, and safe and productive working conditions in the Philippines.

DOLE mandates the obligatory aspect of the thirteenth month pay and details aspects such as coverage, amount, time of the payment, etc.

The guidelines specified by DOLE are:

  • The provision of the 13th month pay Philippines covers every private sector rank-and-file employee irrespective of their designation, position, employment status, or method by which their salaries are paid.
  • The minimum thirteenth month pay is at least one-twelfth of the basic salary earned by an employee.
  • The payment has to be made latest by the 24th December of each year.
  • No exemptions or requests for deferment are entertained. Every private-sector employer must comply.

The Philippines takes the 13th month pay seriously as DOLE guidelines require employers to submit a compliance report each year as proof that they are fulfilling their statutory obligations. This report must be submitted no later than 15th of January of the following year and include:

  • The company name
  • The company address
  • The principal business
  • Total number of employees
  • Total workers benefitted
  • Thirteenth month pay granted to each employee
  • Total benefits offered
  • The identification and contact details of the person providing the information on the company’s behalf.

When is the 13th Month Pay Given in the Philippines?

The Filipino Labour law is very particular about administering the thirteenth month pay to employees. As mentioned earlier, the law mandates that employers in the Philippines must disburse the thirteenth month pay on or before Christmas Eve each year.

Most employers in the Philippines dole out the thirteen month benefit well in advance to clear their accounts in time. Some choose to pay the benefit across the year in two prominent half-yearly installments – one in June and the other in December. However, employers need to be mindful to clear the entire thirteenth month pay amount for each employee before the 24th of December to ensure 100% compliance with the Filipino and avoid any troubles with the authorities.

Who is Qualified For a 13th Month Pay in the Philippines?

Perhaps the best feature of the 13th month pay in the Philippines is that it  applies to employees on an extremely wide basis. Technically, every rank-and-file private sector employee in the Philippines is entitled to this. It means all regular employees of a privately-owned company, who have worked for at least a month in a calendar year are entitled to receive the thirteenth month pay.

The major identifier of a rank-and-file employee is that this employee does not fulfill managerial roles. A managerial employee is one who holds power to implement strategic and management-level policies in a company. These employees can execute managerial level duties such as hiring, transferring, or even terminating employment within a company.

A rank-and-file employee does not possess such autonomy and does not fall within the managerial employee definition. Such employees are the ones who are eligible and statutorily entitled to the 13th month pay in the Philippines.

As mentioned above, employees who have not worked in the company for all of the 12 months of the calendar year are also entitled to receive this benefit, even if that amounts to one-twelfth of a single month’s basic pay.

Moreover, the thirteenth month pay benefit is also applicable to employees who resign or whose employment is terminated during a calendar year.

Taking employee A’s example again, let us consider that A was employed at a firm from the 1st of January to the end of July. During this period, A earned the following monthly salaries:

Month Leaves Monthly basic salary
January No absence P10,000.00
February 1 paid leave P10,000.00
March No absence P10,000.00
April 2 paid leaves P10,000.00
May No absence P10,000.00
June On unpaid leave P0.00
July No absence P10,000.00
Total basic salary earned in this calendar year P60,000.00

In this case, Employee A’s thirteenth month pay will be calculated upon these seven  months only, using the formula below:

(Monthly basic pay earned x 7 months) ÷ 12 = Thirteenth Month Pay

Or, P60,000 ÷ 12 = P5,000

Who Aren’t Eligible to Receive Their 13th Month Pay in the Philippines?

While the thirteen month benefit is extended to every rank-and-file employee of the private sector in the Philippines, the same is not true for government employees. Presidential Decree No. 851 exempted employees of any political subdivisions or government body from receiving the thirteenth month pay. Further, employees who cater to multiple employers are also not covered by the legislation. The same holds true for government employees working part-time with private sector employers.

As mentioned above, private sector employees who are in an administrative or managerial post in that they hold power to influence or implement managerial decisions such as hiring, termination, etc., are also exempt from this compulsory benefit.

What is the Minimum Amount of Your 13th Month Pay?

The law states that an employee’s 13th month pay in the Philippines should be at least one-twelfth of the base salary. As mentioned above, benefits or allowances not included in the basic pay structure are not included in the calculation of the thirteenth month pay. The final value of the thirteen month benefit is subject to the months served and to the number of unpaid leaves availed by the employee in the same calendar year.

Taxable Threshold of the 13th Month Pay in the Philippines

All employers in the Philippines have certain non-taxable benefits at their disposal that can be considered when computing payrolls. One of these is the Income-tax exemption threshold, wherein employees in the Philippines can avail a tax exemption on their income regarding annual benefits or allowances up to a total value of P90,000.

Earlier, this ceiling was P82,000, but Philippine’s 2018 Income Tax reform bill called Tax Reform for Acceleration and Inclusion (or TRAIN) raised the threshold to the current P90,000.

When this threshold is applied to the thirteenth month pay, it means if this benefit combined with other benefits received by an employee in a calendar year does not exceed P90,000, then the total combined amount will be exempted from the income tax payable by the employee.

However, if the total value of benefits combined or any benefit in particular, including the 13th month pay in the Philippines, exceeds P90,000, the excess amount is added to the employee’s salary and subject to taxation. How this tax is deducted is left to the employer’s prerogative. Hence, many employers deduct the taxable amount at source from the employee’s compensation.

The tax percentage applicable on the excess amount of the benefits is the same as the normal income tax rate. Like most countries, employees with different salaries are put into different tax brackets in the Philippines. So, an employee’s tax on the excess amount of benefits is calculated by the tax percentage of the tax bracket they fall in.

For example, employees whose annual salary is P250,000 or below pay zero income tax. Hence, they pay zero income tax on the excess amount from benefits. Employees who earn an annual salary between P250,000 and P400,000 are charged income tax of 20%. For them, the tax percentage charged on the excess amount from benefits is also 20%.

Conclusion

Essentially, the 13th month pay in the Philippines is not a bonus. As mandated by law, companies offer this unique benefit to their employees. While many bonuses and schemes rolled out by a company, including discretionary Christmas bonuses or vacation allowances, are subjective to the employer, they aren’t enforced by law.

The thirteen month benefit is a statutory obligation that every private-sector employer must comply with irrespective of company strength, size, or turnover. Thus, it cannot be paid in lieu of or supplement any other discretionary bonus.

Naturally, foreign employers setting up a business in the Philippines should stay updated with its strict labor laws to design the perfect payroll and compensation scheme for employees. Multiplier can make this process much easier for you.

Multiplier is a PEO solution that supports businesses by managing employment contacts, determining and providing payroll in local currencies, enforcing local taxation laws within the company, and managing compliance with local labor laws. With Multiplier, an employer never has to worry about legal hindrances in the growth of his business.

Frequently Asked Questions

Q. Which employers are exempted from the thirteen month benefit obligation?

Employers who are exempt from paying thirteen month benefits to their employees include –

  • Distressed employers who have the prior authorization of exemption from the Secretary of Labour.
  • Employers of people who are not eligible to receive the benefit.
  • Employers of people who are paid on commission or on a project basis and those paid a fixed amount for a specific work, without any added benefits or allowances.
  • The Government, its agencies and bodies, and political subdivisions. This also includes GOCC (Government-Owned and Controlled Companies) except private subsidiaries.
Q. Does the thirteen month pay calculation account for maternity leaves?

Maternity leaves are not counted in the thirteen month pay calculation. For example, if an employee misses a month of work due to her pregnancy, that month’s basic pay, although paid by the employee, is excluded from the total basic salary earned in that calendar year.

So, the computation formula for such an employee having a 100% attendance rate in all the other months will be –

(Monthly basic salary x 11 months) / 12 = Thirteen Month Pay

Q. What is the thirteenth month pay equivalent for government employees?

Although government employees do not receive a thirteen month pay, they receive a mid-year bonus around June or July and a year-end bonus around November or December. This year-end bonus is often referred to as the 14th month pay. Each of these bonuses amounts to a single month’s basic salary of the government employee.

Hiring and onboarding using Multiplier ensures you hire remote talent with locally compliant, fool-proof job contracts, offer emphatic benefits and disburse salaries accurately with absolutely nil errors in payrolls.