Everything You Need to Know About 13th-Month Pay in the Philippines

by | Jan 3, 2022 | Employee Benefits And Compensation

The most extended yuletide season in the world is in the Philippines. Filipinos start to prepare for the holidays at the start of September. You will feel the positive Christmas atmosphere on the radio, in stores, malls, and other places. Indeed, this celebration is a big thing for Filipinos, and they’re good at it. 

Of course, Christmas celebrations need additional funds so that families can enjoy and share gifts. Hence, the unique 13th-month pay for Filipino employees. 

Under Presidential Decree No. 851 Section 1, all employers shall pay all their employees receiving a basic salary of not more than P1,000 a month a thirteenth-month pay not later than December 24 of every year. The Philippines is not the only country with this law: Malaysia, Singapore, Japan, China, Hong Kong, Taiwan, and Vietnam also have it. In addition, most countries in Latin America mandate the 13th-month pay, also in Europe and Africa.

It should not be mistaken as a bonus because, unlike 13th-month pay, a bonus is given out of the employer’s generosity and is not a demandable and enforceable obligation.

Due to the COVID-19 pandemic, many employers in the Philippines believed they would be exempt from the 13th-month obligation. However, the Department of Labor and Employment (DOLE) released an advisory that 13th-month pay will remain with no adjustments or exceptions.

Every year, full-time rank-and-file employees in the Philippines are entitled to a 13th-month pay as a statutory benefit. In addition, employees with at least one month of employment service are entitled to a payment equal to one-twelfth of their basic wage for the calendar year.

Most Filipinos are looking forward to this payout since some companies release this as early as November. The 13th-month pay is tax-exempt up to a limit of PHP 90,000 under the new TRAIN law of 2018. 

If you’re planning to expand your business in the Philippines, you should know about the guidelines of the 13th-month payout. 

What is a basic salary?

According to the Department of Labor, “Basic salary” includes all remunerations or earnings paid by an employer to an employee for services rendered but does not include allowances and monetary benefits. Therefore, these 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, including 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 income. If by an individual or collective agreement, company practice, or policy, the same is treated as part of the employees’ basic salary.

For example, an employee receives Php 20,000 as a basic salary and Php 5,000 de minimis benefits. When they compute the 13th-month pay, they will only include the basic salary for the computation.

When should you give the 13th-month pay?

As mandated by law, it should be given no later than December 24, just in time for Christmas. Therefore, most companies include this payout on their December 15 payroll. However, some cases exist where organizations have separate agreements with their employees to give it earlier.

How to compute the 13th-month pay?

Now here comes the math behind it. First, DOLE stated that the 13th-month pay should not be less than 1/12 of the total basic salary earned by an employee within a calendar year.

Hence, (25,000) x (12 months) / 12

300000 / 12

John’s 13-month pay is Php 25000.

On the other hand, if an employee hasn’t served the entire calendar year, they will get a prorated 13th-month payout. So, for example, an employee only serves six months this year with a Php 25,000 basic salary.

(25,000) x (6 months) divided by 12
150000 divided 12 equals Php 12500

Although these examples seem uncomplicated, it’s a significant challenge for HR practitioners.

What about separated, terminated, resigned employees?

The simple answer is YES – they’re still entitled to the 13th-month pay benefit. This 13th-month is included in their last pay or separation pay most of the time. It’s also equal to 1/12 of employees’ total basic salary earned during the period that they’ve worked during that year.

There are many things a business needs to consider when planning to expand globally. Of course, like the 13th-month pay in the Philippines, every country will have specific labor laws and regulations for compliance. But the good thing is there are Employer of Record (EOR) providers like Employ to help you explore international markets. Employ is an EOR provider based in Southeast Asia and expands its global reach in Europe, Australia, and Africa. Discover more about our EOR services by reaching out today.

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