In the Philippine labor landscape, the "13th Month Pay" is not a mere Christmas bonus or a discretionary gift from an employer; it is a mandatory statutory benefit. Governed primarily by Presidential Decree No. 851 (P.D. 851) and its Implementing Rules and Regulations, this benefit is designed to provide workers with additional monetary resources to manage the increased expenses of the holiday season.
I. Legal Basis and Definition
Under P.D. 851, all employers are required to pay their rank-and-file employees a 13th month pay regardless of the nature of their employment and irrespective of the method by which their wages are paid.
The benefit is defined as one-twelfth (1/12) of the basic salary earned by an employee within a calendar year.
II. Who are Entitled?
The entitlement is broad, covering almost all employees in the private sector. To be eligible, an employee must meet two primary criteria:
- Status: Must be a rank-and-file employee. Managerial employees (those with the power to lay down policies, hire, transfer, suspend, or discipline) are not legally entitled to 13th month pay under P.D. 851, though many employers grant it as a matter of company policy or contract.
- Service Period: Must have worked for at least one (1) month during the calendar year.
Inclusion of Various Employment Types:
- Regular, Casual, and Probationary Employees: All are entitled.
- Fixed-term or Project-based Employees: Entitled regardless of the duration of the project, provided they served for at least one month.
- Resigned or Terminated Employees: An employee who resigned or whose services were terminated at any time before the payment of the 13th month pay is entitled to a portion of the benefit in proportion to the time they worked during the year.
III. What is Included in "Basic Salary"?
The computation is strictly based on the "Basic Salary." According to the Department of Labor and Employment (DOLE), this includes all remunerations or earnings paid by an employer for services rendered.
| Included in Computation | Excluded from Computation |
|---|---|
| Total basic earnings for the year | Cost of Living Allowance (COLA) |
| Paid sick, vacation, and maternity leaves | Overtime pay |
| Night shift differential | |
| Holiday pay | |
| Profit-sharing payments | |
| Unused vacation/sick leave cash conversions |
Note: If these exclusions (like allowances) are integrated into the basic salary by individual or collective agreement, they must be included in the computation.
IV. The Formula for Computation
The standard formula is the total basic salary earned during the calendar year divided by 12.
Illustrative Example:
If an employee earns a basic monthly salary of ₱20,000 and worked for the full 12 months without any unpaid absences:
- Total Basic Salary: ₱240,000
- Computation:
If an employee earns ₱20,000 but only worked for 6 months (e.g., hired in July):
- Total Basic Salary: ₱120,000
- Computation:
V. Deadline for Payment
The law mandates that the 13th month pay must be paid not later than December 24 of every year.
However, an employer may give one-half of the 13th month pay before the opening of the regular school year (usually June) and the remaining half on or before December 24. Failure to pay on time constitutes a labor standards violation.
VI. Exempted Employers
While the law is near-universal, specific entities are exempted from P.D. 851:
- The Government: National government, its political subdivisions, and GOCCs (they receive a "Mid-year" and "Year-end" bonus under different civil service laws).
- Employers of Household Helpers: Note: This was the original exemption. However, under Republic Act No. 10361 (Domestic Workers Act or Batas Kasambahay), domestic workers are now legally entitled to 13th month pay.
- Employers paying equivalent benefits: Those already paying a 13th month pay or its equivalent (e.g., Christmas bonus, mid-year bonus) that is equal to or greater than 1/12 of the basic salary.
VII. Taxability
Under the TRAIN Law (Republic Act No. 10963), 13th month pay and other "extra" benefits (like productivity incentives and Christmas bonuses) are tax-exempt up to a ceiling of ₱90,000. Any amount exceeding this threshold is subject to income tax.
VIII. Non-Diminution of Benefits
The principle of "Non-Diminution of Benefits" applies here. If an employer has historically included allowances or overtime in the 13th month computation, or has provided a "14th month pay" as a matter of established company practice, they cannot unilaterally withdraw or reduce these benefits if they have ripened into a company policy.