How to Compute 13th Month Pay? Complete Employer's Guide

Computing the 13th-month pay involves understanding a few important steps to ensure the payment is accurate. This payment is a benefit given to employees at the end of the year based on their basic salary earned during the year.

To compute 13th month pay understand the factors such as the employee’s full salary, any absences, salary increases, and the number of months worked must be considered. After considering these factors you can use the correct formula to calculate the 13th-month pay correctly.

This article will guide you through how to compute the 13th-month pay, who qualifies for it, and important considerations that employers and employees need to know.

Understanding the 13th-Month Pay

The 13th-month pay is extra compensation given to employees in the Philippines. It is provided once every year, usually at the end of the year. This payment is a mandatory benefit under Presidential Decree No. 851.

It aims to support employees financially during the holiday season. The 13th-month pay must be at least one-twelfth (1/12) of the employee’s total basic salary for the year. This ensures fair and equal pay for all eligible employees.

Who Can Receive the 13th-Month Pay?

The Department of Labor and Employment (DOLE) has set rules on who can receive the 13th-month pay. Only some qualify for this benefit. Below is a detailed guide to understanding who can receive the 13th-month pay:

Eligible Employees

Rank-and-File Employees: All rank-and-file employees can receive the 13th-month pay. This includes permanent, probationary, or contractual employees. They must have worked for at least one month during the year.
Private Sector Workers: Employees in private companies are covered under laws that require 13th-month pay. In the Philippines, this is stated in Presidential Decree No. 851.
Employees Paid Basic Salary: The 13th-month pay is based on the basic salary only. Other payments like overtime or allowances are not included.

Specific Cases:

Maternity Leave: Employees on maternity leave are still entitled to 13th-month pay. However, the pay is calculated only for the months they worked during the year. The maternity leave benefit from the Social Security System (SSS) is not included in the computation.
Resigned or Separated Employees: Employees who resign or are separated from the company are entitled to a pro-rated 13th-month pay. This means they will receive a portion of the 13th-month pay based on the months they worked during the year.
Temporary Layoffs or Suspensions: Employees who are on temporary layoffs or suspensions remain entitled to their 13th-month pay for the months they worked during the year. The suspension or layoff does not affect their eligibility for this benefit.

Non-Eligible Individuals

Government Employees: Employees working in government positions, whether national or local, are not entitled to 13th-month pay. These employees are usually covered by different rules such as the Salary Standardization Law.
Freelancers and Independent Contractors: People working as freelancers or independent contractors are generally not entitled to the 13th-month pay. They are not considered regular employees.
Managerial Employees: Managerial employees are also excluded from receiving 13th-month pay. These employees are responsible for higher-level decisions and management tasks, and they do not qualify for this additional benefit.
Certain Retail and Service Workers: Businesses employing fewer than ten workers may be exempt from providing the 13th-month pay in some jurisdictions.
Employers in Distress: Companies facing financial difficulties can apply for an exemption from paying 13th-month pay by proving their situation to the Department of Labor and Employment (DOLE).
Employees Receiving Equivalent Benefits: If employees already get benefits equal to or greater than 13th-month pay, they are exempt from receiving it.

Who Are Rank-and-File Employees?

Rank-and-file employees are workers who are not in managerial positions. They do not have the authority to make decisions like hiring, promoting, transferring, dismissing, rewarding, or disciplining other employees. These responsibilities are part of a managerial employee’s role.

What is Included and Not Included in the 13th-Month Pay Computation?

The 13th-month pay is calculated based on an employee’s basic salary. It is important to understand what is included and what is not in this computation. Below are the details of what is considered in the pay and what is excluded.

Included in the 13th-Month Pay

The 13th-month pay includes the following:

Basic Pay
Paid Leaves: Sick leave, maternity leave, and vacation leave

Not Included in the 13th-Month Pay

The following are not included in the 13th-month pay:

Bonuses
Incentives
Commissions
Allowances
Overtime Pay
Holiday Pay
Unpaid Leaves
Night Differential
Unused Vacation and Sick Leave

Key Factors to Consider When Calculating 13th-Month Pay

When calculating the 13th-month pay, there are a few important factors to keep in mind.

Full Salary: Check the total basic salary earned by the employee during the year.
Absences: If the employee was absent for part of the year, the pay may be adjusted based on the months worked.
Salary Increases: If the employee received a salary increase, use the updated salary to calculate the 13th-month pay.
Employment Duration: Ensure the employee worked for at least one month during the year to qualify for the benefit.

How to Compute 13th Month Pay in Philippines?

The 13th-month pay is calculated based on the total basic salary an employee has earned during the calendar year. This pay is meant to give employees additional financial support at the end of the year. Here’s how you compute it in more detail:

Formula for Calculation

The formula to compute the 13th-month pay is:

13th Month Pay = Total Basic Salary Earned During the Year ÷ 12

Example

Suppose an employee earned a total of PHP 180,000 as their basic salary for the year. The 13th-month pay calculation would be:

PHP 180,000 ÷ 12 = PHP 15,000

In this case, the employee would receive PHP 15,000 as their 13th-month pay.

How to Compute 13th Month Pay with Absences?

You can also easily calculate your 13th-month pay if you have absences. It is very easy and simple.

Formula for Calculation

The formula is simple:

13th Month Pay = (Annual Salary – Unpaid Absences) / 12

Example:

Let’s say your monthly salary is ₱20,000 and you had 2 days of unpaid absences:

Annual salary: ₱20,000 x 12 = ₱240,000
Unpaid absences: ₱20,000 ÷ 30 days × 2 days = ₱1,333
Annual salary after deductions: ₱240,000 – ₱1,333 = ₱238,667
13th-month pay: ₱238,667 ÷ 12 = ₱19,889.08

Your 13th-month pay would be ₱19,889.08. This is how you can easily compute your 13th-month pay, even with absences!

How to Compute 13th Month Pay for 3 Months?

If an employee worked only for part of the year, their 13th-month pay is calculated based on the months they actually worked. This is called pro-rated 13th-month pay.

Formula for Pro-Rated Pay

To compute the pro-rated 13th-month pay for someone who worked for 3 months, follow this formula:

Pro-Rated 13th Month Pay = (Per Month Salary × Number of Months Worked) ÷ 12

Example

If the employee earns ₱30,000 per month and worked for 3 months:

Total Basic Salary: ₱30,000 x 3 = ₱90,000
Prorated 13th-Month Pay: ₱90,000 ÷ 12 = ₱7,500

So the prorated 13th-month pay would be ₱7,500.

Important Note:

You can similarly calculate the 13th-month pay for any number of months worked during the year. The formula remains the same, just adjust the months worked.
If the employee worked a fraction of a month include that fraction in the calculation. For example, if the employee worked 3.5 months calculate for the extra half month as well.

13th-Month Pay Payment Schedule

The 13th-month pay is usually given at the end of the year. Employers must ensure it is paid on time.

Payment Deadline

The 13th-month pay must be given no later than December 24 each year.

Optional Split Payments

Some employers choose to pay the 13th-month pay in two installments. One part can be given in June and the second part before December 24. The full amount must still be paid by the December deadline.

Taxability of 13th-Month Pay

The 13th-month pay is a special benefit that is tax-free under certain conditions. Let’s look at when it is not taxable and when it becomes taxable.

Tax-Free 13th-Month Pay

The 13th-month pay is not taxable if it is PHP 90,000 or less. Employees will receive the full amount without any tax deductions. This makes it a helpful benefit for workers.

Taxable 13th-Month Pay

If the 13th-month pay exceeds PHP 90,000, only the amount over PHP 90,000 is taxable. The first PHP 90,000 remains tax-free. For example, if an employee gets PHP 100,000, only the PHP 10,000 over the limit will be taxed.

Penalties for Non-Compliance with 13th-Month Pay

Employers must ensure the 13th-month pay is given to eligible employees on time. If they fail to do so, there are serious consequences.

Administrative Penalties

Employers who do not provide the 13th-month pay by the deadline may face administrative penalties. This could include the suspension or cancellation of their business permits.

Legal Action

Employees can file complaints with the Department of Labor and Employment (DOLE) if they are not paid. They can also seek legal action through the National Labor Relations Commission (NLRC) to enforce their rights.

Penalties and Sanctions

If found guilty of non-compliance, employers can be ordered to pay the unpaid 13th-month pay. They may also face additional penalties or fines depending on the situation.

FAQs

What is the formula for 13th month pay?

The formula for calculating 13th-month pay is simple. It is the total basic salary earned during the year divided by 12.

How is 13th Month Pay Calculated with Absences?

To calculate 13th-month pay with absences, you need to deduct the unpaid absences from the total annual salary before dividing by 12.

How is 13th Month Pay Calculated if Salary Increases?

If the salary increases during the year, calculate the pay based on the total basic salary earned throughout the year including the higher salary. Divide the total salary by 12.