## 13th Month Pay Computation: Explaining the Common Formulas Used with Sample Computations

13^{th} month pay shall mean one twelfth (1/12) of the basic salary of an employee within a calendar year. *(See Guide on Employee Compensation and Benefits Vol. 2, 2 ^{nd} Edition, by Atty. Elvin B. Villanueva citing Section 2, Rules and Regulations Implementing Presidential Decree No. 851)*.

This shall apply only to rank-and-file employees. A rank-and-file employee must have worked for at least one (1) month to enjoy the 13th-month pay benefit. As clearly stated by law, except as provided in Section 3 of the rules, all employees of covered employers shall be entitled to 13th-month pay benefit regardless of their position, designation or employment status, and irrespective of the method by which their wages are paid, provided that they have worked for at least one month during the calendar year.

The thirteenth-month pay shall not be less than one-twelfth (1/12) of the total basic salary earned by an employee in a calendar year.

Unfortunately, not all employers follow the legal formula in computing it. This leads to several approaches that are usually used by employers. Employers who think in simplistic way is to assume that 13th month is just the extra one month income for the year.

In this post, two common approaches will be compared.

One formula is monthly salary x no. of mos. of service / 12 . Another is total basic salary earned (TBSE) during the calendar year / 12. Thus:

13^{th} month pay = monthly salary x no. of mos. of service / 12

13^{th} month pay = TBSE / 12

The first approach is service-based while the second approach is income-based.

When the amount to be computed pertains exactly to the full period of calendar year the computation is straight forward. For instance, the monthly salary of rank-and-file X in NCR is PhP15,000.00. He was hired January 2018. Assuming the total basic salary earned (TBSE) during the year 2019 is PhP180,000.00.

Now, let us compute X’s 2019 13^{th} month pay using the different approaches:

Using the first approach

13^{th} month pay = monthly salary x no. of mos. of service / 12

= PhP15,000.00 x 12 / 12

= PhP180,000.00 / 12

= PhP15,000.00

Using the 2^{nd} approach:

13^{th} month pay = TBSE / 12

= PhP180,000.00 / 12

= PhP15,000.00

As can be observed, the results are the same.

However, it is not always that employees’ 13^{th} month pay is computed at full year. There are times when employees serve for less than 12 months and 13^{th} month pay has to be computed accordingly. For example, the same employee X, how should 13^{th} month pay be computed if X has served only for 5 months during the year and earned a total of PhP75,000.00?

13^{th} month pay = monthly salary x no. of mos. of service / 12

= PhP15,000.00 x 5 / 12

= PhP75,000.00 / 12

= PhP6,250.00

Using the 2^{nd} approach:

13^{th} month pay = TBSE / 12

= PhP75,000.00 / 12

= PhP6,250.00

Now, things get tricky when there are absences without pay. In the first approach, some employers get confused. Let us try using the two approaches when X, for instance, has 5 absences for the year 2019 without pay.

Before proceeding, the first thing to know is how much should be deducted for the 5 days of absences without pay? Rank-and-file employees are usually daily rate workers. This means that they are paid daily although the payout is given on the 15^{th} and 30^{th} of the month for purposes of administrative feasibility. It is administratively inefficient if workers are made to lineup every day just so they could be given their daily pay.

Employers that are not familiar with the use of factors and divisors would simply divide the monthly salary by 26. The 26 days is used because they assume that employees do not work on a Sunday or there is one rest day per week. Hence, there are 4 Sundays or rest days in a month. Thus, 30 days less 4 days equals 26 days.

Although this mindset is not accurate considering that there are months with 31 days and February with either 28 or 29 days. Now, let us follow this line of reasoning in computing our sample absences.

So, PhP15,000.00 / 26 = PhP576.923077. This is above minimum in NCR which is currently at PhP537.00. This is where employers following this approach make crucial mistake. For the five days of being absent without pay, they tend to deduct from the 13^{th} month pay the amount equivalent to employee’s absences. Thus, they would compute to total amount as PhP576.923077 x 5 = PhP2,884.61538 or PhP2,884.62 (rounded-off).

Then, proceeding to the erroneous first approach in computing 13^{th} month pay:

13^{th} month pay = monthly salary x no. of mos. of service / 12 – absences

= PhP15,000.00 x 5 / 12 – PhP2,884.61538

= PhP75,000.00 / 12 – PhP2,884.61538

= PhP6,250.00 – PhP2,884.61538

= PhP3,365.38462

Why is this erroneous? The amount deducted is the full amount and not proportionate. The employee was in fact already deducted this amount in the pay period corresponding to his absences. Hence, there is over-deduction.

The amount of PhP2,884.61538 should be divided by 12 considering that this deduction should only pertain to the 1/12 portion of the year for purposes of 13^{th} month pay. Thus: PhP2,884.61538 / 12 = PhP240.384615. Hence, the correct amount to be deducted based on this first approach should only be PhP240.384615.

Thus, the better computation using the erroneous first approach for the same 5 months of service, should be:

13^{th} month pay = monthly salary x no. of mos. of service / 12 – absences

= PhP15,000.00 x 5 / 12 – PhP240.384615

= PhP75,000.00 / 12 – PhP240.384615

= PhP6,250.00 – PhP240.384615

= PhP6,009.62 (rounded-off)

The difficulty and inaccuracy of the first approach which is service-based, is shown in such situation.

This is where the correct method using the 2^{nd} approach which is income-based, prove to be more accurate:

Since X has 5 absences during the 5-month period, his income suffers deduction of PhP2,884.61538. Thus, his TBSE should be PhP75,000.00 minus PhP2,884.61538 = PhP72,115.3462.

13^{th} month pay = TBSE / 12

= PhP72,115.3462 / 12

= PhP6,009.62

The same situation arises when computing the 13^{th} month pay of an employee who resigned before the end of the calendar year. In any case, the better method would be the second approach which is income-based. It is easier and simpler.

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