Section 1 of Presidential Decree No. 851 is modified by Memorandum Order No. 28, s. 1986 to the extent that all employers are hereby required to pay all their rank-and-file employees a 13th month pay not later than December 24 of every year.
This article will help you to understand the following:
- Employees Entitlement to 13 month Pay
- 13th Month Pay Computation
- How to compute 13th month pay for resigned employee?
- Is 13th month pay taxable?
Who is entitled to 13th month pay?
All rank-and-file employees are entitled to the 13th-month pay regardless of the nature of their employment and irrespective of the methods by which they are paid provided they worked for at least one month during a calendar year. This means that probationary, project and contractual employees are also entitled to the 13th-month pay.
How to compute 13th month pay?
The basis in computing the 13th month pay is the employee’s basic salary. The following items are not included in the computation of the 13th-month pay unless these salary-related benefits are treated as part of the basic salary of the employee, through individual or collective bargaining agreement, company practice or policy.
|Cost of Living Allowance||Not Included|
|Overtime Pay||Not Included|
|Night Differential||Not Included|
|Holiday Pay||Not Included|
|Premium Pay||Not Included|
|Unused Paid Leave converted to Cash||Not Included|
|Maternity Leave*||Not Included|
*Maternity leave is not included as Maternity Benefit is paid by SSS, the employee essentially has no compensation income from the company.
The 13th month pay is computed based on 1/12 of the total basic salary earned during the year.
Example of 13th-month pay computation
|Mar||1 day leave with pay||P11,372.33|
|Jun||2 days leave with pay||P11,372.33|
|Aug||2 days leave with pay||P11,372.33|
|Sep||on maternity leave||no salary|
|Oct||on maternity leave||no salary|
|Dec||5 days leave without pay||P9,192.33|
|Total Salary for the Year||P111,543.33|
|13th Month Pay||P111,543.33 / 12||P9,295.28|
How to compute 13th month pay for resigned employee?
An employee who separated from the company, by resignation or termination, is still entitled to the 13th-month pay in proportionate to the employee’s length of service. In other words, 13th-month pay is computed on a pro-rata basis.
An employee was hired on 1 January 2015 and effectively resigned on 1 March 2016. Assuming that the employee earn a monthly basic salary of PHP 12,000, the employee shall be entitled to 13th month pay equivalent to:
|Total Months Worked||2 months|
|13th Month Pay||(2/12) X P12,000||P2,000|
*Illustration is based on perfect attendance with no deduction. Please check below example on how to compute 13th-month pay.
13th Month Pay Tax Computation
Under Republic Act No. 10653, 13th month pay and other benefits such as productivity incentives and Christmas bonus are non-taxable. However, the total exemption amount shall not exceed Php 82,000. Any amount in excess thereof may be subjected to tax.
For more information about the 13th month pay, please refer to Presidential Decree No. 851