In the Philippines, the "13th month pay" is not just a holiday tradition; it is a mandatory statutory benefit. Rooted in social justice, this benefit aims to provide employees with additional liquidity to celebrate the festivities and meet the financial demands of the year-end season.
Here is a comprehensive breakdown of the legal framework, eligibility, and computation of the 13th month pay under Philippine law.
1. Legal Basis
The 13th month pay is primarily governed by Presidential Decree No. 851 (P.D. 851), issued in 1975. While it originally applied only to employees earning below a certain salary threshold, Memorandum Order No. 28, issued by President Corazon Aquino in 1986, removed that salary cap, effectively making the benefit mandatory for all rank-and-file employees regardless of their salary rate.
2. Who is Entitled?
The law is broad in its inclusivity. To be entitled to the 13th month pay, an employee must meet the following criteria:
- Rank-and-File Status: Only rank-and-file employees are legally entitled to this benefit. Under the Labor Code, managerial employees (those with the power to lay down policy or hire/fire/discipline) are not mandated by law to receive it, though many employers grant it as a matter of company policy or collective bargaining.
- Length of Service: The employee must have worked for at least one (1) month during the calendar year.
- Employment Status: It applies regardless of the employee's designation (permanent, probationary, or contractual) and the method by which their wages are paid (daily, monthly, or piece-rate).
3. Who is Exempt?
Certain employers are not legally required to pay the 13th month pay under P.D. 851:
- Distressed Employers: Those currently authorized by the Secretary of Labor to be exempt due to heavy financial losses.
- The Government: Employees of the government and its political subdivisions (they receive a "Year-End Bonus" instead, governed by civil service rules).
- Employers of Household Helpers (Kasambahay): While previously exempt under P.D. 851, they are now entitled to 13th month pay under the Republic Act No. 10361 (Batkas Kasambahay).
- Commission-Only Employees: Those paid purely on a commission, boundary, or task basis (with no fixed basic salary).
4. How is it Computed?
The 13th month pay must not be less than 1/12 of the total basic salary earned by an employee within a calendar year.
What is included in "Basic Salary"?
- Total amount paid by an employer for services rendered.
- Includes paid leaves (Sick Leave, Vacation Leave, Maternity Leave if company-paid).
What is excluded from "Basic Salary"?
Unless otherwise stipulated in a contract or Collective Bargaining Agreement (CBA), the following are typically excluded:
- Overtime pay
- Night shift differential
- Holiday pay
- Unused vacation/sick leave credits converted to cash
- Cost of Living Allowance (COLA)
The Formula:
Example: If an employee earns ₱20,000 per month and worked for the full 12 months without unpaid absences:
If the same employee only worked for 6 months:
5. Deadlines and Compliance
- Deadline: Employers must pay the 13th month pay on or before December 24 of every year.
- Compliance Report: Employers are required to submit a compliance report to the nearest Department of Labor and Employment (DOLE) Regional Office not later than January 15 of the following year.
- Resigned/Separated Employees: An employee who resigned or was terminated before the time of payment is still entitled to a pro-rated 13th month pay, covering the period they worked during that calendar year.
6. Taxability
Under the TRAIN Law (Republic Act No. 10963), 13th month pay and other "other benefits" (such as productivity incentives and Christmas bonuses) are tax-exempt up to a maximum threshold of ₱90,000. Any amount exceeding this threshold is subject to income tax.
Summary Table
| Feature | Details |
|---|---|
| Minimum Service | 1 month within the calendar year |
| Recipients | All rank-and-file employees |
| Deadline | December 24 |
| Tax Exemption | Up to ₱90,000 (combined with other bonuses) |
| Pro-rated Pay | Applicable to resigned or terminated employees |
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