Absences Deductible from 13th-Month Pay in the Philippines A comprehensive legal guide
1. What the law actually says
Presidential Decree (PD) 851 – the 13th-Month Pay Law – requires all covered employers to pay every rank-and-file employee “one-twelfth (1/12) of the basic salary earned within a calendar year.”
Implementing Rules and Regulations (IRR) of PD 851 (1975, as amended) define basic salary as the compensation or earnings an employee actually receives for services rendered including:
- regular day wages
- cost-of-living allowances integrated into the basic wage by law or wage order
- piece-rate earnings
Excluded are:
- overtime, night-shift differential, holiday or rest-day premiums
- allowances and fringe benefits (e.g., transport, meals, representation)
- cash‐gift, productivity or incentive bonuses, and other payments not part of the regular wage
Department of Labor and Employment (DOLE) Advisories (e.g., Labor Advisory No. 23-20 series, No. 28-21, No. 24-22) consistently reiterate the above definition and remind employers that only wages actually earned and paid form the base of computation.
Implication: The law itself does not speak of “deducting” absences from the 13th-month pay. It merely requires that the fraction be applied to salary that was in fact earned. Unpaid absences lower the earned salary; paid absences do not.
2. Principles behind “deductibility”
| Question | Guiding principle |
|---|---|
| Is there a separate deduction? | No. The employer does not subtract anything from a full 13th-month pay; the employee’s 13th-month pay grows naturally out of the year’s paid wages. |
| Why does an absence sometimes “reduce” the benefit? | If the day was “no-work, no-pay”, no wage was earned, so the yearly pay pot is smaller. The 1/12 formula then yields a smaller amount. |
| Can an employer charge disciplinary deductions against the 13th-month pay? | Generally no. Section 113 of the Labor Code limits deductions to those (a) authorized by law, (b) the employee has consented to in writing, or (c) the employer is allowed to do so by a CBA or similar. A penalty for absence is never automatically deductible. |
| Is partial service (new hire or resignation mid-year) treated like an absence? | The computation follows the same rule: count only the months in which the employee actually earned pay. |
3. Paid vs. unpaid absences
| Type of Day | Wage earned? | Included in “basic salary earned”? | Effect on 13th-month pay |
|---|---|---|---|
| Vacation leave with pay | Yes | Yes | No reduction |
| Sick leave with pay | Yes | Yes | No reduction |
| Service incentive leave (Art. 95 Labor Code) | Yes | Yes | No reduction |
| Maternity, paternity, solo-parent, or parental leave benefits (if company-paid) | Yes | Yes | No reduction |
| SSS-maternity benefit (company does not advance wage) | No company wage (benefit is SSS) | No | Reduction occurs |
| Leave without pay (LWOP) / AWOL | No | No | Reduction occurs |
| Strike or lock-out days (no work, no pay) | No | No | Reduction occurs |
| *Suspension days (disciplinary) ** | No | No | Reduction occurs |
| Special non-working holiday (if unpaid by mutual agreement) | No | No | Reduction occurs |
| Quarantine leave where company did not advance pay | No | No | Reduction occurs |
* If suspended without pay; if the suspension is served but the CBA guarantees wage continuity, it is treated as paid leave.
4. Detailed computation walkthrough
Scenario: Maria earns ₱650 per day, works Monday-Friday. She took five (5) paid service-incentive leave days and was absent without pay on three (3) other days. How much 13th-month pay does she get?
Compute basic salary actually earned There are 261 scheduled workdays in 2025 (52 weeks × 5 days).
- Days paid = 261 – 3 unpaid absences = 258
- Basic salary earned = 258 days × ₱650 = ₱167,700
Apply the 1/12 formula
- 13th-month pay = ₱167,700 ÷ 12 = ₱13,975
Observation: The five paid leave days did not reduce the benefit, because Maria still received wages for them.
5. Jurisprudence & administrative rulings
| Case / issuance | Key takeaway |
|---|---|
| National Labor Union vs. NLRC (G.R. 69805, 30 March 1988) | The 13th-month pay is “a direct proportion of the basic salary actually received.” |
| Sime Darby Pilipinas vs. NLRC (G.R. 119205, 30 April 1997) | Overtime, holiday premiums and similar allowances are excluded from the base. |
| DOLE Handbook on Workers’ Statutory Monetary Benefits (latest edition) | Reiterates: paid leaves count; unpaid absences reduce the amount. |
| Labor Advisory No. 28-20 (during the COVID-19 pandemic) | Clarified that periods of temporary closure with “no-work, no-pay” will proportionately reduce 13th-month pay because no wages were earned. |
6. Frequently-asked questions
| FAQ | Clarification |
|---|---|
| Can an employer offset the cost of an employee’s unpaid leave by lowering the 13th-month pay? | They do not offset; they simply compute on actual wages paid. |
| If the company has a paid time-off (PTO) policy instead of specific leave types, do PTO days count? | Yes, provided the days are paid. |
| Does SSS-paid maternity leave count? | Only the wage portion funded by the employer is counted. SSS reimbursement is a social benefit, not basic pay. |
| How are daily-paid workers treated? | Sum all wages they actually received (including paid rest days if any); divide by 12. |
| What if the company advanced the ECQ lockdown wages and was later reimbursed by the government? | Because the worker received those wages from the employer, they are part of basic salary and should remain in the 13th-month computation. Reimbursement does not matter. |
| Can taxes or SSS loans be deducted from the 13th-month pay itself? | Only lawful deductions (with employee consent or by law, e.g., withholding tax) may be applied. |
7. Compliance timeline & penalties
Payment deadline – on or before 24 December every year.
Reporting – employers must submit a “Compliance Report on Payment of 13th-Month Pay” to the nearest DOLE field office not later than 15 January of the following year.
Sanctions – failure to pay, or under-payment through improper “deductions,” constitutes illegal withholding of wages (Labor Code Art. 116) and exposes the employer to:
- money claims and attorney’s fees
- administrative fines under the Labor Code
- potential criminal liability if bad faith is proven
8. Best-practice checklist for employers
- Maintain accurate daily time records to distinguish paid from unpaid absences.
- Integrate leave policies: be explicit which leaves are paid and which are LWOP.
- Document disciplinary suspensions specifying whether wages are withheld.
- Communicate computation sheets to employees for transparency.
- Secure written authorization before deducting anything other than statutory withholding tax.
- Keep an audit trail for DOLE inspections: payroll, payslips, and leave ledgers.
9. Key takeaways
- “Deductible absences” is really a shorthand for unpaid days that shrink the salary base.
- Paid leaves – whether statutory or company-granted – do not affect the 13th-month pay.
- Employers cannot penalize absenteeism by directly slicing the 13th-month benefit; they may only reflect lower earned wages.
- Transparent payroll systems and clear leave policies prevent disputes and costly money-claim cases.
10. Final word
The heart of the 13th-month pay law is fairness: employees share in company earnings in proportion to the actual work compensated during the year. Understanding which absences translate to “no work, no pay” – and therefore reduce the computed benefit – ensures lawful compliance, avoids DOLE findings, and fosters industrial peace.