As Christmas Day looms, it’s safe to say that all employees in the Philippines anticipate getting their 13th-month pay and possibly a Christmas bonus from their employers. How does a 13th-month pay differ from a Christmas bonus? And how do you compute how much 13th-month pay an employee should get? Here is a quick guide:
What is a 13th-Month Pay?
A 13th-month pay is a mandatory benefit that all employers in the Philippines must pay to their rank-and-file employees yearly. First signed into law by former President Ferdinand E. Marcos through Presidential Decree No. 851, series of 1975, the 13th-month pay was established to “protect the level of real wages from the ravage of worldwide inflation.” Additionally, the mandatory benefit was created to:
- to compensate for the lack of an increase in legal minimum wages in the 1970s. And;
- to show concern for the plight of the working masses so that they may properly celebrate Christmas and New Year.
What is the difference between a 13th-Month Pay and a Christmas Bonus?
A 13th-month pay is mandated by Philippine law for every employer to pay each of its employees. On the other hand, a Christmas bonus is not obligatory and is under each company’s discretion to give or not give to its employees. Employers may provide a Christmas bonus as a form of appreciation for the hard work an employee has done in the company throughout the year.
Who are eligible to receive a 13th-Month Pay?
All rank-and-file employees in the private sector are entitled to receive a 13th-month pay, irrespective of the nature of the company they work for, regardless of their designation, position, or employment status, and how their wages are paid. However, it should be noted that the 13th-month pay is computed on a monthly basis, meaning employees must complete work of at least one month in the calendar year to be eligible to receive 13th-month pay.
Who are considered rank-and-file employees?
Employees who do not have managerial posts in an enterprise are considered rank-and-file employees. Posts are considered managerial for individuals who make major decisions regarding a company’s operations, such as hiring, firing, suspending, or laying employees off.
Who are not eligible to receive a 13th-Month Pay?
- Employers who are already paying their employees 13th-month pay or more in a calendar year or its equivalent at the time of issuance
- Government is not eligible to receive a 13th-month pay, except for companies operating essentially as private subsidiaries of the government
- Employees who are paid on pure commission or task basis, and those who are paid a fixed amount for performing specific work, except where the workers are paid on a piece-rate basis, in which case a 13th-month pay is required to be paid to these workers
- Those who are in the personal service of another in relation to such workers
How do I compute 13th-Month Pay?
To compute the 13th-month pay, calculate the total basic salary you have earned during the year, then divide it by 12 months.
For example, for an employee earning P14,000 per month who has perfect attendance, worked for 12 months, and never took a day off, the computation would be as follows:
P14,000 * 12 months = P168,000
P168,000 / 12 months = P14,000
Based on the computation, the employee’s 13th-month pay will be equivalent to P14,000.
How do I compute Pro-rated 13th Month Pay?
The computation above is for employees who have completed work for their company for the whole year. Employees who have worked for less than a year or less than twelve (12) months will receive a pro-rated 13th-month pay. The computation for the pro-rated 13th-month pay is as follows:
To compute your pro-rated 13th-month pay, take the amount of your basic salary per month, multiply it by the number of months you have worked for the year and then divide it by 12.
Example: an employee earning P14,000 per month but worked for only six (6) months, the computation would be as follows:
P14,000 x 6 months = P84,000
P84,000 / 12 months = P7,000
Based on the computation, the employee’s 13th-month pay will be equivalent to P7,000.
When is the deadline for paying employees the 13th-Month Pay?
For 2022, employers must pay their employees their 13th-month pay on or before December 24, 2022. Companies must report compliance with the 13th-month pay settlement with the Department of Labor and Employment (DOLE). This can be done by filing an Online Establishment Report Form on or before January 15, 2023.
Is there a penalty for companies for not paying the 13th-Month Pay?
Non-payment of the 13th-month pay is considered a money claims case. Employees may file a complaint against their employers for violation of Presidential Decree 851 at the Regional Arbitration Branch of the Department of Labor and Employment that has jurisdiction over their workplace. Employers found guilty of violating the law will face penalties and pay damages to the employees involved.
Help for the Rollout of 13th Month Pay?
As the December deadline for the 13th-month pay for all employees is fast approaching, some companies may need assistance in meeting the deadline. Contact us for assistance.
Our team of finance, accounting, and payroll professionals is ready to extend assistance to corporations who need payroll services, including the computation and filing of 13th-month pay for their employees.
Triple i Consulting is the first ISO 9001:2008 firm to offer company and business registration services in the Philippines. Armed with a team of experts decade’s worth of combined knowledge and skills in Philippine business incorporation, accounting, taxation, FDA licensing, product registration, and more. Triple i provides skilled assistance for companies in the Philippines who need help settling the 13th-month pay and more.
Contact us for help here, or fill out the form below, call us at +63 (02) 8540-9623, or email us at firstname.lastname@example.org to schedule an initial consultation with one of our payroll service professionals.