Biz Hack: How to Compute for the 13th Month Pay 

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The Christmas season is the time when everyone looks forward to giving and receiving gifts, attending parties or family reunions, and preparing food for Noche Buena. Another thing that many Filipinos are looking forward to, especially the employees, is their 13th month pay. This is typically given to private sector employees at the end of the year. 

Tax services in Manila reiterated that business owners are required to provide this to their employees. It’s not just an ordinary bonus out of the kindness of the heart. The 13 month pay is required by law. Learn more about it below.

What is 13th Month Pay?

Private employees look forward to this because 13th month pay is an extra month of monetary compensation given to rank-and-file employees who have worked for the entire year. This kind of employee benefit is mandated by the Philippine government under Presidential Decree No. 851. 

The amount every employee receives depends on their salary and how long they have worked for the entire year. According to DOLE or the Department of Labor and Employment, rank-and-file employees belonging to the private sector have the right to receive their 13th month pay given that they have worked for at least a month in a year. Hence, employers must allot a budget for this in their accounting of expenses.

What About Employees Who Have Not Given 1 Year Tenure?

For employees who have worked for less than 12 months, their 13th month pay will be prorated. According to accounting services in the Philippines, if you are an employee who has worked for a certain company for less than 12 months, you still have the right to receive your 13th month pay. It’s just that your 13th month pay will be prorated based solely on the months you have worked for the company.

When Do Employees Receive This Much-Awaited Pay?

Employees should receive their 13th-month pay on or before December 24 of the year. Most of the time, employees receive it in the first week of December. In other cases, some employees receive theirs on the week of Christmas or on the day before Christmas day. According to tax and audit services in the Philippines, some employers choose to divide the 13th month pay in two, with the first half given in June and the other half in December. This makes it lighter on the employer’s pocket, especially with many employees.

Some are confused with the difference between the 13th-month pay and the Christmas bonus. If you are one of them, the difference between the two is that 13th month pay is mandated by law while the Christmas bonus is not. Receiving a Christmas bonus will depend on the initiative of your employer. A Christmas bonus also does not need to be in the form of cash but can be in the form of grocery items or gift certificates. 

How Do You Compute For 13th Month Pay?

If you are an employee, it’s important to know that the 13th month pay will only cover your basic salary as an employee. The basic salary is all the earnings you have received from your employer for the services you have rendered to the company. 

The computation will not include bonuses, commissions, allowances, incentives, unpaid leaves, night differential,  unused vacation or sick leave credits,  and holiday pay. However, if the mentioned benefits are treated as part of the employee’s agreement with the employer, then they should be included in the computation.

The computation for the 13th month pay is based on 1/12 of the employee’s total basic salary in a year. To put it simply, get the total amount of your basic salary for the entire year and divide it by 12. 

DOLE provides a simple formula for the computation of the 13th-month pay:

*Total Basic Salary Earned For the Year ÷ 12 months = 13th Month Pay

What Happens If Employers Don’t Give the 13th Month Pay?

Employers will be subjected to administrative cases if they fail to give their rank-and-file employees their 13th month pay. This pay is pursuant to Presidential Decree 851. The purpose of this mandate is to provide Filipinos with more discretionary money to celebrate their Christmas and New Year.  

There is also a new memorandum that requires employees to provide the employees their 13th month pay on or before December 24, 2022. If the employer fails to give the 13th pay on time or does not give it at all, the employees can take legal action against the employer.

The law requiring employers to provide 13th month pay to their employees exists in the Philippines so that the working Filipino class can enjoy their Christmas and New Year celebrations. If you’re a business owner who needs help with correct computations, don’t hesitate to reach out to us. We offer accounting services in Pasig.