Deductions for Tardiness in 13th-Month Pay Computations (Philippine Context)

Executive summary

In the Philippines, the 13th-month pay is a statutory benefit for rank-and-file employees, computed as at least one-twelfth (1/12) of the basic salary earned within the calendar year. Tardiness affects the 13th-month pay only insofar as it reduces the “basic salary earned.” If minutes/hours of lateness are unpaid (i.e., “no work, no pay”), the year-to-date basic salary is lower, and the 13th-month pay decreases pro-rata. Employers may not impose separate “penalties” or “fines” by docking the 13th-month pay. Paid time (e.g., covered by leave credits or flex-time) does not reduce the 13th-month pay.

Legal foundations at a glance

Coverage. Rank-and-file employees in the private sector are entitled to 13th-month pay, regardless of employment status (probationary, regular, casual), provided they have worked at least one month in the calendar year.
Minimum amount. Not less than 1/12 of the basic salary earned within the calendar year.
Deadline. Payable not later than December 24 each year (or pro-rated upon separation).
Definition of “basic salary.” Generally excludes cash benefits not integrated into the basic pay, such as overtime, premium pay, holiday pay, night shift differential, and allowances—unless a company policy or CBA expressly integrates them into basic pay.
Wage-deduction rules. Deductions from wages are strictly limited to those required by law, with the employee’s written authorization for the employee’s benefit, or those allowed by regulations. Arbitrary penalties that diminish statutory benefits are prohibited.

Practical takeaway: You don’t “deduct tardiness from the 13th-month pay.” Instead, you compute 13th-month pay from the actual basic salary earned—which may already be lower because unpaid tardiness reduced daily/hourly wages during the year.

How tardiness interacts with “basic salary earned”

1) Unpaid tardiness (no work, no pay)

If company policy/timekeeping results in wage deductions for lateness (e.g., rounding to the nearest 30 minutes, hourly deductions), those deductions reduce monthly payroll wages. Since the 13th-month pay is based on actual basic wages paid/earned, the lower year-to-date basic salary automatically means a lower 13th-month pay.

Lawful approach: Treat lateness as unpaid time under a clear, written policy communicated to employees. The effect on 13th-month pay is indirect (via lower wages), not a separate penalty.

2) Tardiness covered by paid time

If the minutes/hours late are covered by available paid leave (e.g., VL/SL converted, personal time, authorized flex-time) or if company policy does not dock pay for occasional lateness, then basic salary is not reduced; thus, the 13th-month pay is unaffected.

3) “Penalties” or “fines” charged against the 13th-month pay

Employers cannot take the computed 13th-month pay and then subtract a tardiness “penalty” from it. Statutory benefits cannot be diminished by punitive offsets. The correct method is to apply the timekeeping rules when wages are earned, not at year-end against the benefit itself.

Step-by-step computation framework

Establish the earnings base. Identify the employee’s basic salary each payroll period (monthly/daily/hourly), excluding non-integrated benefits.
Apply timekeeping. For each payroll period, subtract unpaid lateness/absences from payable hours/days. Paid leave or authorized grace periods remain included.
Sum up the year-to-date basic salary earned. Add the actual basic salary paid/earned from January 1 to December 31 (or up to the separation date).
Compute the 13th-month pay. 13th-month pay = (Total basic salary earned in the year) ÷ 12. (A CBA or company policy may grant more than the statutory minimum, but not less.)

Worked examples

Example A: Monthly-paid employee with unpaid lateness

Monthly basic salary: ₱30,000
Timekeeping: Over the year, a total of 8 hours were unpaid due to lateness. Hourly rate (assuming 313 factor is not used here; use company’s official divisor—commonly 22 days/month × 8 hours = 176 hours): ₱30,000 ÷ 176 = ₱170.45/hour
Annual unpaid lateness: 8 × ₱170.45 = ₱1,363.60
Annual basic salary earned: (₱30,000 × 12) − ₱1,363.60 = ₱358,636.40
13th-month pay: ₱358,636.40 ÷ 12 = ₱29,886.37

Example B: Same employee, but lateness covered by leave

No reduction to monthly wages; annual basic = ₱360,000
13th-month pay: ₱360,000 ÷ 12 = ₱30,000 (no change)

Example C: Daily-paid employee

Daily rate: ₱800; 261 actual working days in the year (varies by calendar)
Unpaid lateness/undertimes equivalent to 2 full days lost
Annual basic salary earned: (261 − 2) × ₱800 = ₱206,400
13th-month pay: ₱206,400 ÷ 12 = ₱17,200

Tip: Use the company’s official divisors (e.g., 313/312/261/22×8) consistently with payroll practice and policy. Document these in the handbook.

Payroll and policy mechanics you must get right

Clarity and communication. The handbook or policy should spell out timekeeping rules (rounding, grace periods, undertime, partial-day docking), how these affect pay, and, by extension, the 13th-month computation.
Consistency and non-discrimination. Apply the same rules to similarly situated employees to avoid disputes and unfair labor practice claims.
No punitive offsets from statutory benefits. If an employer wants to discipline habitual tardiness, use progressive discipline (written warnings, suspension consistent with due process), not financial penalties against the 13th-month pay.
Integration rules. If a CBA or written policy integrates certain items (e.g., fixed allowances) into basic salary, then they become part of the base for 13th-month pay. Otherwise, exclude them.
Minimum wage compliance. Docking unpaid tardiness should not mask systemic practices that push effective compensation below legal minima over time. Keep documentation clean.
Tax treatment. The 13th-month pay (together with other 13th-month/Christmas bonuses and similar benefits) is income tax-exempt up to the statutory cap in force (e.g., ₱90,000 under TRAIN, subject to any later amendments). Amounts beyond the cap are taxable.

Special situations

Separated employees (resignation/termination). Compute pro-rata based on basic salary earned from January 1 up to separation. Unpaid tardiness in that period still reduces the base.
New hires mid-year. Pro-rate based on the period actually worked; unpaid tardiness during those months reduces the base as usual.
Flexible/remote work. If work hours are output-based and no docking occurs for late log-ins, there is no impact on basic salary earned; if the arrangement remains time-based and docking occurs for partial hours not worked, the impact is the same as for on-site timekeeping.
Commission or piece-rate components. Only the portion classified as basic salary forms part of the base. Pure commissions or productivity pay that are not integrated into basic pay are excluded from the 13th-month base; any unpaid tardiness that reduces the basic component reduces the 13th-month pay. (A CBA or company policy may be more generous.)

Compliance checklist for HR & Payroll

Identify the base ☐ Confirm which pay items are basic vs non-basic under your policies/CBA.
Timekeeping policy ☐ Written rules on lateness, undertime, rounding, and grace periods ☐ Statement that unpaid tardiness reduces payroll for that period (not a year-end penalty)
Computation notes ☐ Keep a monthly ledger of unpaid tardiness/undertime that affected wages ☐ Sum year-to-date basic salary earned (after unpaid time) ☐ Divide by 12 for the statutory 13th-month pay minimum
Documentation & due process ☐ Avoid “fines” taken from 13th-month pay ☐ Use progressive discipline for habitual tardiness ☐ Retain acknowledgments of policies and any written authorizations for lawful deductions
Cut-off and payout ☐ Confirm the cut-off period (usually Jan 1–Dec 31) ☐ Pay not later than Dec 24 (or pro-rate on separation)
Tax & reporting ☐ Apply the exemption cap; tax any excess ☐ Reflect amounts properly in payslips and annual reporting

Sample policy language (for employee handbook)

13th-Month Pay Base and Tardiness The Company grants 13th-month pay in accordance with law, computed at not less than one-twelfth (1/12) of the employee’s basic salary earned within the calendar year. For this purpose, “basic salary” excludes overtime, premium pay, night differential, holiday pay, and allowances unless expressly integrated into basic salary by Company policy or a collective bargaining agreement.

Unpaid tardiness or undertime reduces the basic salary for the affected payroll period pursuant to our timekeeping rules; consequently, the 13th-month pay—being computed on actual basic salary earned—may proportionately decrease. The Company does not impose penalties or fines by deducting from the 13th-month pay. Instances of habitual tardiness are addressed through the Company’s disciplinary procedures in accordance with due process.

Frequently asked questions

Q1: Can we subtract ₱X from an employee’s computed 13th-month pay as a “tardiness penalty”? A: No. Apply timekeeping rules at the time wages are earned; do not penalize a statutory benefit.

Q2: We round lateness to the nearest 30 minutes and dock pay. Is that allowed? A: If the policy is reasonable, written, communicated, and consistently enforced, docking unworked time is generally permissible—and it will indirectly reduce the 13th-month pay via a lower earnings base.

Q3: Do grace periods affect the computation? A: If the grace period is paid, there’s no reduction to basic salary; hence, no effect on the 13th-month pay.

Q4: What if an allowance is “fixed” every month—does it enter the base? A: Only if expressly integrated into basic salary by policy/CBA. Otherwise it remains excluded.

Q5: Does approved paid leave (VL/SL) reduce the 13th-month pay? A: No. Paid leave counts toward basic salary earned.

Bottom line

You don’t dock the 13th-month pay for tardiness.
You do compute the 13th-month pay from actual basic wages earned, which may be lower if unpaid tardiness reduced payroll during the year.
Keep policies clear, apply them fairly, and document everything. If you choose to be more generous than the statutory minimum, reflect that in your CBA or handbook and apply it consistently.