Thirteenth month pay is a source of excitement for thousands of workers in the Philippines every December. But it’s not just a generous Christmas bonus from employers; it’s a mandatory payment enforced by law.
If you’re planning to hire talent or build out a team in the Philippines, understanding your obligations as an employer is crucial. You need to know what 13th month pay is, who’s eligible for it, and how to calculate it. Otherwise, you risk non-compliance.
This article answers all your questions about 13th month pay law in the Philippines and provides you with a hassle-free alternative to managing compliance on your own.
What Is 13th Month Pay Law in the Philippines?
13th month payis a government-mandated form of compensation in the Philippines given to employees at the end of the year. While it may seem like a Christmas bonus, 13th month pay isn’t a discretionary benefit; it’s part of employment law, so employers are obliged to pay it.
Employers must pay 13th month salary to eligible employees by December 24 of each year. It’s typically paid in one lump sum, but employers can choose to pay it in two installments instead, usually in June and December. If they fail to pay the 13th salary on time or at all, employees can take legal action against them.
The 13th month pay law was introduced in 1975 as part of President Ferdinand Marcos’ Presidential Decree No. 851. It aimed to resolve issues related to minimum wage, which no longer matched the cost of living. It’s been part of Philippine law since.
While the Philippines is often considered one of the first countries to mandate 13th month pay, the concept was introduced in Europe well before the 1970s. It’s now commonplace across the globe, both as a mandatory law and as a customary tradition.
13th Month Pay Vs. Christmas Bonus
There is a legal difference between 13th month pay and a Christmas bonus in the Philippines. The 13th month salary is a mandatory payment, enforced by Philippine law, whereas a Christmas bonus is an amount given to an employee in excess of what the law requires as a reward or incentive for their performance. Some employers may provide both types of payments in December.
Who’s Eligible for 13th Month Pay in the Philippines?
According to the Department of Labor and Employment (DOLE) guidelines, all private-sector “rank-and-file” employees are eligible for the 13th month pay benefit as long as they’ve worked for at least one month during the calendar year.
“Rank-and-file” includes all workers who are not in managerial positions, so those who have the authority to hire, discipline, and discharge employees aren’t entitled to 13th month pay.
As long as the above conditions are met, employees must receive 13th month pay, even if they’ve resigned or been terminated before the time of the payment.
Currently, there’s no entitlement to 13th month pay for government employees. This includes employees of government-owned and controlled corporations but excludes corporations “operating essentially as private subsidiaries of the Government.”
Computing statutory 13th month pay in the Philippines is fairly straightforward. You just need to know the employee’s basic salary and then divide it by 12.
Basic salary includes all regular earnings paid to an employee, excluding allowances and monetary benefits that aren’t considered to be part of regular pay. For example, sick leave, overtime, and holiday pay aren’t included in 13th month pay calculations, nor are maternity leave benefits.
Here’s the Philippines’ 13th month pay formula to help you out:
Total basic salary per annum (minus unpaid absences) / 12 = 13th month pay
For example, if an employee earns PHP 240,000 per year and hasn’t taken any unpaid days off, their 13th month pay would be PHP 20,000 (240,000 ÷ 12 = 20,000).
However, computation of 13th month pay in the Philippines is a little different if an employee joins or leaves the company part way through the year. In this case, you would compute 13th month pay by dividing accrued salary to date by 12, not the total annual salary.
Let’s use the example of the employee above who earns PHP 240,000 per year, and let’s say they will have only been working for the company for exactly four months by December 31. First, multiply their basic monthly salary by the number of months worked (PHP 20,000 x 4 = PHP 80,000), then divide that figure by 12 (PHP 80,000 ÷ 12 = PHP 6,666.67). That’s their pro-rata 13th month pay.
Is 13th Month Pay Taxable in the Philippines?
Yes, 13th month pay is taxable in the Philippines if it exceeds PHP 90,000 (~$1714). If an employee’s 13th month pay is below the threshold, they will receive the salary in full, tax-free.
Prior to 2018 and the signing of the Tax Reform for Acceleration and Inclusion (TRAIN) law, the threshold was PHP 82,000. The TRAIN law lowered personal income tax and raised consumption tax.
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