How to compute 13th Month Pay: DOLE Philippines

We are already on the month of October and after a few months, Christmas season is here again. For employees, that season sounds delightful. Aside from the enjoyable Christmas party and the series of vacations, the long awaiting 13th Month pay will finally land in our hands. For employers, this extra month pay is an additional mandated expense given to employees once or twice (installment) a year. However, some good business owners and employers see the giving of this added remuneration to employees as an appreciation and gratitude for their valuable contribution to their companies.

An employer must know how to compute the lawful amount of 13th month pays to be distributed to his employees. On the other hand, it is clever for an employee to know the computation of his thirteenth month paycheck to ensure that he is receiving it in the right amount of money. So to know what must be known, the following guidelines are presented below.

How to compute?

Section 2(a) of PD No. 851, which was issued by former president Ferdinand E. Marcos on December 16, 1975, stated that:

“thirteenth-month pay” shall mean one twelfth (1/12) of the basic salary of an employee within a calendar year.

According to the Revised Guidelines on the Implementation of the 13th Month Law issued on November 16, 1987 by then Labor Secretary Franklin Drilon:

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, nigh 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 r collective agreement, company practice or policy, the same are treated as part of the basic salary of the employees.

Based on the foregoing information, we can arrive with the following formula in computing 13th month pay:

13monthpay = total basic salary within the calendar year / 12

Is it taxable?

Thirteenth month pay and other benefits amounting to P 30,000 and below are not subject to income tax. This means, if you receive P 40,000, the P10,000 excess is already taxable.

Who are entitled?

Memorandum Order No. 28, issued by former President Corazon C. Aquino on August 13, 1986, modified Section of PD No. 851 and provided that all employers are hereby required to pay all their rank-and-file employees a 13th month pay not later than December 24 of every year.

Before its modification by the aforecited Memorandum Order, P.D. No. 851 excludes from entitlement to the 13th month pay those employees who were receiving a basic salary of more than P1,000.00 a month. With the removal of the salary ceiling of P1,000.00, all rank and file employees are now entitled to a 13th month pay regardless of the amount of basic salary that they receive in a month if their employers are not otherwise exempted from the application of P.D. No. 851. Such employees are entitled to the benefit regardless of their designation or employment status, and irrespective of the method by which their wages are paid, provided that they have worked for at least one (1) month during a calendar year.

Who are considered rank-and-file employees?

According to the Labor code, all employees not falling within the definition of a managerial employee are considered rank-and-file employees. A managerial employee is one who is vested with powers of 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.

How about resigned and separated employees?

An employee who has resigned or whose services were terminated at any time before the time for payment of the 13th month pay is entitled to this monetary benefit in proportion to the length of time he worked during the year, reckoned from the time he started working during the calendar year up to the time of his resignation or termination from the service. Thus, if he worked only from January up to September his proportionate 13th month pay should be equivalent of 1/12 his total basic salary he earned during that period.

The payment of the 13th month pay may be demanded by the employee upon the cessation of employer-employee relationship. This is consistent with the principle of equity that as the employer can require the employee to clear himself of all liabilities and property accountability, so can the employee demand the payment of all benefits due him upon the termination of the relationship.

When to pay?

The required 13th month pay shall be paid not later than December 24 of each year. An employer, however, may give to his employees one half (½) of the required 13th month pay before the opening of the regular school year and the other half on before the 24th of December of every year. The frequency of payment of this monetary benefit may be the subject of agreement between the employer and the recognized/collective bargaining agent of the employees.

Who are considered exempted employers?

The following employers are still not covered by P.D. No. 851:

a.  The Government and any of its political subdivisions, including government-owned and controlled corporations, excepts those corporations operating essentially as private subsidiaries of the Government;

b.  Employers already paying their employees a 13th month pay or more in a calendar year or its equivalent at the time of this issuance;

c.  Employers of household helpers and 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 where the workers are paid on piece-rate basis in which case the employer shall grant the required 13th month pay to such workers.

As used herein, workers paid on piece-rate basis shall refer to those who are paid a standard amount for every piece or unit of work produced that is more or less regularly replicated, without regard to the time spent in producing the same. 

The term “its equivalent” as used on paragraph (b) hereof shall include Christmas bonus, mid-year bonus, cash bonuses and other payments amounting to not less than 1/12 of the basic salary but shall not include cash and stock dividends, cost of living allowances and all other allowances regularly enjoyed by the employee, as well as non-monetary benefits. Where an employer pays less than required 1/12th of the employees basic salary, the employer shall pay the difference.

References:

DOLE: Frequently Asked Questions

BIR: Tax Info

Lawphil: PD 851

ChanRobles: Revised Guidelines on the implementation of the 13^th month pay law

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