13th-Month Pay Law in the Philippines

June 2nd 2024

The 13th-month pay is deeply embedded in Philippine labor practices. It is a crucial aspect of employee compensation that significantly impacts both employers and employees. Understanding the 13th-month pay law ensures compliance with legal requirements and upholds the principles of fair labor practices.

This guide provides a thorough exploration of the 13th-month pay in the Philippines.

This Article Covers:

Understanding the 13th-Month Pay Law in the Philippines
13th-Month Pay Eligibility in the Philippines
Calculation of 13th-Month Pay in the Philippines
Payment of 13th-Month Pay in the Philippines
Taxation of 13th-Month Pay in the Philippines
Distinguishing 13th-Month Pay from Other Bonuses in the Philippines
Penalties for Non-Compliance of 13th-Month Pay in the Philippines
13th-Month Prorated Pay
Resignations and Terminations
Special Cases Regarding 13th-Month Pay in the Philippines

Understanding the 13th-Month Pay Law in the Philippines

What is 13th-month pay in the Philippines?

The 13th-month pay in the Philippines is a statutory benefit that every employer must provide their employees in addition to their regular monthly salary. The benefit is intended to provide financial support to employees, especially during the holiday season.

Is the 13th-month mandatory in the Philippines?

Yes, under Presidential Decree No. 851 or the 13th-Month Pay Law, all private sector employers are required to provide their rank-and-file employees with a 13th-month pay. The decree ensures that all employees, regardless of the nature of their employment and irrespective of the methods by which their wages are paid, receive the benefit.

Why is the 13th-month pay mandated in the Philippines?

The 13th-month pay is mandated in the Philippines primarily to help employees manage their expenses during the holiday season and to promote the welfare of workers by providing additional financial support. Moreover, the 13th-month pay law was implemented to address economic disparities and improve the living standards of employees, particularly those who earn lower wages.

Who introduced the 13th-month pay law?

The 13th-month pay law was introduced by President Ferdinand E. Marcos through Presidential Decree No. 851, which was signed on December 16, 1975. This decree aimed to provide financial assistance to workers, especially those in the rank-and-file category, to ensure they have additional funds during the Christmas season.

13th-Month Pay Eligibility in the Philippines

Who is entitled to 13th-month pay in the Philippines?

All rank-and-file employees in the Philippines are entitled to 13th-month pay, provided they have worked for at least one month during the calendar year. This entitlement is mandated regardless of the nature of their employment and the method by which their wages are paid.

Who is eligible for 13th-month pay in the Philippines?

Eligibility for the 13th-month pay extends to all rank-and-file employees who have rendered at least one month of service within a calendar year. This benefit applies to employees in the private sector, including those paid on a monthly, daily, or piece-rate basis.

Are there exemptions to the 13th-month pay?

Yes, Presidential Decree No. 851 outlined specific 13th-month pay exemptions. These are the employers who are exempted from the 13th-month pay requirements:

  • Government Employers: This includes all government branches and agencies. Employees in these sectors are covered by different compensation schemes, including year-end bonuses and other financial incentives.
  • Employers Providing Equivalent Benefits: Private sector employers who offer their employees bonuses or incentives that meet or exceed the value of the 13th-month pay are exempt from providing an additional 13th-month pay salary. This ensures that employees are not receiving double benefits and that employers who practice generous compensation are recognized.
  • Household Employers: Employers who hire household helpers or personal service workers are not required to provide 13th-month pay. These workers are governed by separate rules under the Domestic Workers Act (Batas Kasambahay), which includes different provisions for their compensation and benefits.

Calculation of 13th-Month Pay in the Philippines

How much is 13th-month pay in the Philippines?

The amount of the 13th-month pay in the Philippines is computed as one-twelfth (1/12) of the total basic salary an employee has earned within the calendar year. This additional compensation is designed to provide financial support to employees, especially during the holiday season.

The formula to calculate the 13th-month pay is straightforward:

13th-month pay = Total basic annual salary earned / 12

What earnings are included in the calculation?

The “basic salary” includes all remunerations or earnings paid by an employer to an employee for services rendered. Specifically, the following are included in the 13th-month pay computation:

  • Basic Salary: The fixed remuneration paid to an employee for their services rendered. It does not include additional forms of compensation such as allowances or benefits.
  • Cost-of-living (COLA): In some cases, COLA is included in the computation of the 13th-month pay if integrated into the employee’s basic pay structure.
  • Salary-Related Benefits: If by individual or collective bargaining agreement, or company practice or policy, certain salary-related benefits are treated as part of the basic salary, they are included in the computation. This includes allowances and other benefits regularly integrated into the basic salary.

What earnings are excluded from the calculation?

Certain earnings and allowances are not included in the computation of the 13th-month pay. These exclusions ensure that only the basic salary is used as the basis for calculation. Excluded earnings include:

  • Overtime Pay: Additional pay for hours worked performed beyond the regular working hours.
  • Holiday Pay: Extra compensation for working on regular holidays, special non-working days, or rest days.
  • Night Shift Differential: Additional pay for work performed during night hours.
  • Bonuses and Incentives: Additional bonuses (e.g., performance bonuses, productivity incentives) that are not part of the basic salary.
  • Commissions: Payments made based on sales or other performance metrics.
  • Profit Sharing: Any share of the company’s profits given to employees.
  • Allowances: These are extra payments given to employees for specific purposes, such as transportation or meal allowances, and are not part of the basic salary unless specified by company policy.

Payment of 13th-Month Pay in the Philippines

When is the 13th-month pay given in the Philippines?

Employers are required to pay the 13th-month pay on or before December 24 of each year. This schedule ensures that employees have the financial resources to celebrate the holiday season. While some companies choose to distribute the 13th-month pay earlier (November or early December), the legal deadline is set no later than December 24.

What happens if the employer misses the payment deadline?

Failure to pay the 13th-month pay on or before the December 24 deadline can have significant legal and financial repercussions for employers. Employees can file a complaint with the Department of Labor (DOLE), which investigates the matter. If the employer is found to have violated the law, they may face administrative penalties.

Taxation of 13th-Month Pay in the Philippines

Is 13th-month pay taxable?

In the Philippines, the 13th-month pay is generally exempt from income tax, but this exemption only applies to a certain threshold. If the 13th-month pay and other benefits exceed this threshold, the excess amount is subject to income tax.

What is the tax exemption threshold for 13th-month pay?

The tax exemption threshold for the 13th-month pay is PHP 90,000, which means the combined total of the 13th-month pay and other non-taxable benefits received by an employee within a calendar year is exempt from income tax up to PHP 90,000.

How is 13th-month pay taxed if it exceeds the exemption limit?

According to the Philippine tax code, if the 13th-month pay and other bonuses exceed the PHP 90,000 tax exemption threshold, the excess amount is subject to income tax. For example, an employee receives a 13th-month pay of PHP 70,000 and other bonuses amounting to PHP 50,000. The total benefits received would be:

Total Benefits = PHP 70,000 + PHP 50,000 = PHP 120,000

Next, apply the PHP 90,000 exemption:

Excess Amount = PHP 120,000 – PHP 90,000 = PHP 30,000

The excess PHP 30,000 will be subject to income tax. In the Philippines, income tax rates are progressive, which means higher income is taxed at higher rates.

Distinguishing 13th-Month Pay from Other Bonuses in the Philippines

What is the difference between the 13th-month pay and the Christmas Bonus?

13th-month pay and Christmas are both forms of additional compensation given to employees, but they differ in terms of legal requirements, calculation, and purpose.

13th-Month Pay Christmas Bonus
Legal requirement; statutory benefit mandated by Presidential Decree No. 851. Voluntary benefit; employer’s discretion based on their policies, financial capacity, or part of an employment contract
Calculated as one-twelfth of an employee’s total basic annual salary earned. Varies; it can be a fixed amount, a percentage of the salary, or based on company performance or other criteria.
All rank-and-file employees who have worked for at least one month. Determined by the employer; may be given to all employees or only to a certain group.

Are employers required to give both 13th-month pay and a Christmas Bonus?

No, employers are not required to give both 13th-month pay and Christmas bonuses. They are only legally obligated to provide the 13th-month pay as mandated by Presidential Decree No. 851. The Christmas bonus, on the other hand, is purely optional and given at the employer’s discretion.

Penalties for Non-Compliance of 13th-Month Pay in the Philippines

What are the penalties for not paying the 13th-month pay?

Employers in the Philippines are legally required to provide 13th-month pay to their rank-and-file employees. Failure to comply with this mandate can result in significant penalties and legal repercussions as outlined by the Department of Labor and Employment (DOLE).

According to the DOLE guidelines on 13th-month pay, employers who fail to pay the 13th-month pay by the December 24 deadline can face administrative penalties imposed by DOLE. If the employer delays the payment of the 13th-month pay, DOLE may require the employer to pay interest on the overdue amount.

In severe cases of non-compliance, DOLE can recommend the suspension or cancellation of the employer’s business permits or licenses until the 13th-month pay is duly paid.

What legal actions can employees take if they do not receive the 13th-month pay?

Employees can file complaints with DOLE or the National Labor Relations Commission (NLRC) and may seek civil action to recover unpaid wages. These measures ensure that employees receive the financial benefits they are legally entitled to, promoting fair labor practices in the workplace.

13th-Month Prorated Pay

Can the 13th-month pay be prorated?

Yes, the 13th-month pay can be prorated for employees who did not work a full year. This ensures that employees who have worked for less than 12 months still receive a fair portion of the benefit based on the duration of their employment.

How is the prorated 13th-month pay calculated for employees who did not work a full year?

The prorated 13th-month pay is calculated based on the number of months an employee has worked during the calendar year.

Prorated 13th-month pay = (Total basic salary earned during the year / 12)

Here is the step-by-step guide to calculating the prorated 13th-month pay:

  • Calculate the total basic salary the employee earned during the months they worked in the calendar year.
  • Divide the total basic salary by 12 to find the prorated 13th-month pay.

For example, an employee has a basic monthly salary of PHP 30,000 and has worked for 6 months in the calendar year.

Total Annual Basic Salary = Monthly salary x Months worked = 30,000 x 6 = PHP 180,000

Prorated 13th-Month Pay = Total annual basic salary / 12 = PHP 15,000

Therefore, the prorated 13th-month pay for an employee who worked for 6 months with a monthly salary of PHP 30,000 would be PHP 15,000.

If an employee has worked for a fraction of a month, that fraction should be included in the calculation. For instance, if an employee worked 6.5 months, you would include the 0.5 months worked.

Resignations and Terminations

Do employees who resign still receive 13th-month pay?

Yes, employees who resign are still entitled to receive 13th-month pay. According to the DOLE guidelines on 13th-month pay, an employee who has resigned before the end of the calendar year is entitled to receive a prorated 13th-month pay. Prorated means the employee will receive an amount proportionate to the months they have worked during the year up to their resignation.

How is the 13th-month pay handled upon termination of employment?

When an employee’s employment is terminated due to resignation, retirement, dismissal, or any other reason, the employer must pay based on the actual period the employee has worked during the calendar year.

Employers should follow the formula:

Prorated 13th-month pay = Total basic salary / 12

The 13th-month pay is calculated based on the basic salary earned by the employee to the date of termination. For example, if an employee resigns after working eight months and has earned a total basic salary of PHP 80,000 during their employment period, their 13th month pay would be:

Prorated 13th-month pay = 80,000 / 12 = 6,666.67

Since the employee did not complete the entire year, they will receive a prorated 13th-month pay. Employers must provide the 13th-month pay for terminated employees on or before the date of their final settlement.

Special Cases Regarding 13th-Month Pay in the Philippines

Are contractual employees entitled to 13th-month pay?

Yes, contractual employees are entitled to 13th-month pay in the Philippines. The law, specifically Presidential Decree No. 851, mandates that all rank-and-file-employees, regardless of their employment status, are entitled to 13th-month pay.

This benefit includes those with fixed-term contracts, probationary contracts, project-based contracts, or any other form of contractual employment. As long as these employees have worked for at least one month within the calendar year, they are eligible to receive 13th-month pay. This provision ensures that even those not in permanent positions are accorded the same year-end financial benefit as regular employees, fostering fair treatment across different employment types.

How is the 13th-month pay calculated for seasonal employees?

For seasonal employees, the 13th-month pay is calculated based on the total basic salary earned during their period of employment within the calendar year. Seasonal employees who are employed for a specific period or season (e.g., agricultural workers, retail employees during peak seasons) will receive a prorated 13th-month pay.

This means that if a seasonal employee worked for three months and earned a total of PHP 30,000, their 13th month pay would be PHP 2,500.

Are managerial employees entitled to 13th-month pay?

No, managerial employees are not entitled to the 13th-month pay under Presidential Decree No. 851. The 13th-month pay law specifically mandates the 13th-month pay for rank-and-file employees, who are those employees not vested with managerial powers and functions.

By definition, a managerial employee has the authority to hire, transfer, suspend, lay off, recall, discharge, assign, or discipline employees or to responsibly direct them. Managerial employees typically receive other forms of compensation and benefits. These include profit-sharing schemes, higher base salaries, and other incentives that reflect their higher responsibilities and contributions to the company. This exclusion is rooted in the understanding that managerial employees receive higher compensation than rank-and-file employees.

What are the 13th-month pay guidelines for government employees?

Government employees, including those working for government-owned and controlled operations (GOCCs), are not covered by the 13th-month pay mandated under Presidential Decree No. 851. Instead, employees receive different forms of year-end bonuses and incentives. These include:

  • Year-End Bonus: Government employees receive a year-end bonus equivalent to one month’s basic salary. This bonus is usually disbursed in two installments, half at mid-year and the other half at the end of the year.
  • Cash Gift: Alongside the year-end bonus, government employees receive a cash gift, the amount of which is predetermined and fixed by government regulations. This cash gift is also given towards the end of the year.

These bonuses are designed to provide government employees with additional financial support, similar to the private sector’s 13th-month pay.

Learn about Labor Laws in the Philippines through our detailed guide.

Important Cautionary Note

This content is provided for informational purposes only. While we make every effort to ensure the accuracy of the information presented, we cannot guarantee that it is free of errors or omissions. Users are advised to independently verify any critical information and should not solely rely on the content provided.