13TH MONTH PAY, CONCEPTS, PRINCIPLES AND COMPUTATION
13th month pay is one of the mandatory benefits that employers should give their employees. This means one twelfth (1/12) of the basic salary of an employee within a calendar year.
The post is based on the book Guide on Employee Compensation and Benefits Volume 2, Second Edition by Atty. Villanueva.
The “basic salary” of an employee for the purpose of computing the 13th month pay shall include all remunerations or earning paid by his employer for services rendered but does not include allowances and monetary benefits which are not considered or integrated as part of the regular or basic salary, such as the cash equivalent of unused vacation and sick leave credits, overtime, premium, night differential and holiday pay, and cost-of-living allowances.
However, these salary-related benefits should be included as part of the basic salary in the computation of the 13th month pay if by individual or collective agreement, company practice or policy, the same are treated as part of the basic salary of the employees.
It covers only rank-and-file employees. This means that supervisors and managerial employees are not entitled to the benefit. The benefit applies regardless of their position, designation or employment status, and irrespective of the method by which their wages are paid. Extras, casuals, employees paid on piece-work and seasonal employees are entitled to 13th-month pay. But OFWs are not entitled unless provided in the contract.
For an employee to be entitled, he must have worked for at least one (1) month during a calendar year.
Minimum 13th-month pay amount is one-twelfth (1/12) of the total basic salary earned within a calendar year. Premium pay is not included in the 13th-monthy pay computation. Only basic salary. Except:
- When it comes to salary-related benefits
- If agreed upon in the Collective Bargaining Agreement (CBA)
- If the benefits are given due to company practice or policy
COLA is not also included.
Sample computation (without absences):
Basic Monthly Salary: PhP13,093.83 (PhP502 x 313/ 12)
No. of years in service: 1 year
PhP13,093.83 / 12 = PhP1,091.15
PhP1,091.15 x 12 = PhP13,093.83
Sample computation (with absences):
Basic Monthly Salary: PhP13,093.83
No. of years in service: 1 year
No. of unauthorized absences during the calendar year: 10 days
Factor/Divisor: 313
Daily rate: PhP502 ( note: this is the basic daily rate in NCR without COLA)
No. of Absences: 10 days
Month Absences Basic Salary Earned
January none PhP 13,093.83
February 2 PhP 12,089.83
March none PhP 13,093.83
April 2 PhP 12,089.83
May none PhP 13,093.83
June none PhP 13,093.83
July 1 PhP 12,591.83
August none PhP 13,093.83
September 3 PhP 11,587.83
October none PhP 13,093.83
November 2 PhP 12,089.83
December none PhP 13,093.83
TOTAL PhP140,518.13
PhP140,518.13 / 12 = PhP11,709.84
His 13th month pay with ten (10) absences is PhP11,709.84.
The thirteenth-month pay shall be paid not later than December 24 of every year.
Commission that is in the nature of profit sharing is not part of 13th-month pay computation. Conversely, those which are regularly received should form part of the pay. The employer should pay the difference for any amount given less than the mandate of the law.
Payment above the minimum does not exempt employer from paying the 13th-month pay.
Separated employees who are covered and qualified are entitled to 13th-month pay pro-rata. Overload pay should not form part of the 13th-month pay of teachers. Unless it forms part of the school policy.
13th-month pay is part of the retirement benefits under Article 302 (formerly 287) of the Labor Code.
Get an updated and re-numbered copy of Labor Code 2018 Edition by Atty. Villanueva
13th-month pay is exempted from tax.
Sample computation of prorated 13th month pay (retrenched employee):
Basic Monthly Salary (no COLA): Php13,093.83
Service: Six (6) months
Separation mode: retrenchment
The proportionate 13th-month pay shall be computed as follows:
(Monthly salary x 6) / 12 = Proportionate 13th-month pay
(Php13,093.83 x 6) / 12 = Php6,546.92
Take note that the above computation yields the same result as the following method:
1/12 x No. of months of service
Thus:
[Php13,093.83 / 12] x 6
Php1,091.15 x 6
Php6,546.92
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