How to Compute 13th Month Pay for 2021: Guide for Employers
As the year ends, employees are looking forward to receiving their 13th Month Pay to have extra spending power this holiday season.
The past couple of years have been difficult for most businesses because of all the government restrictions brought about by the pandemic. However, the Department of Labor and Employment (DOLE) Secretary Silvestre Bello III reminded employers of their lawful duty to pay their employees a 13th Month Pay.
To help businesses, on October 26, 2021, DOLE released an advisory on the computation of the 13th Month Pay. Here are some essential things you need to know.
What is 13th Month pay?
It is a mandatory benefit to employees under Presidential Decree No. 851 (PD 851). The decree requires employers to grant this benefit to all their rank-and-file employees.
Since its proclamation in 1975, it has expanded its coverage to benefit more workers. As a result, this now covers qualified individuals who worked for the company for at least one month during the calendar year.
It is not to be confused with a bonus, which rewards their employees for a fruitful year and is not mandatory, unlike the 13th Month Pay. However, employers are obligated to pay this out if it is part of the employee's wage or if both parties have an express agreement.
According to the law, employers should release it on or before December 24.
Who is entitled to receive 13th Month Pay?
All non-management employees are entitled to the 13th Month Pay if they worked in the company for at least a month. Those who resigned or were terminated may still be entitled to it, provided they fulfill this criterion.
To make a clear distinction, the Labor Code provides various definitions for managerial employees, according to:
Labor Code Book 3, Title I
Labor Code Book 5, Title I
Omnibus Rules Representing Labor Book , Book Three
Therefore, those who don't fall under this definition are entitled to receive a 13th Month pay according to law.
Who is exempted from paying the 13th Month Pay?
The goal of PD 851 was to give the low salaried rank-and-file employees in the private sector a chance to enjoy a festive holiday season. Because of this, certain employers are exempt from providing the 13th Month Pay. These are:
The government and any of its political subdivisions.
Government-controlled owned and controlled corporations except if they are operating as private subsidiaries.
Employers who are already paying their employees 13th-month pay or its equivalent.
Employers of persons in the personal service of another in relation to such workers. Essentially, those who hire family drivers, service providers, or people who do work but not on a regular basis. This previously included those who fall under the definition of a "kasambahay" until the "Kasambahay Law" passed in 2013, which extended this benefit to them.
Employers who are paid purely on commission, boundary, or task basis, and those who are paid a fixed amount for a job. However, workers paid on a piece-rate basis are entitled to the benefit.
DOLE requires employers to submit a 13th Month Pay Report on or before January 15 to ensure that they comply with their legal obligation.
2021 Computation for 13th Month Pay
The updated guidelines used the basic minimum wage in Metro Manila (Php 537) and a six-day workweek to provide a sample computation. The sample monthly basic salary came out as Php 14,006.75 (Php 537.00 multiplied by 313 working days, divided by 12 months).
The computation takes into consideration the said forced work stoppages due to government restrictions or otherwise, as well as the full utilization of commonly allowable leaves with pay and personal leaves without pay.
| January | No absence | Php 14,006.75 |
|---|---|---|
| February | No absence | Php 14,006.75 |
| March | No absence | Php 14,006.75 |
| April | Company shutdown | No Salary |
| May | Company shutdown | No Salary |
| June | 5 Days leave with pay | Php 14,006.75 |
| July | Company shutdown | No Salary |
| August | Company shutdown | No Salary |
| September | 10 days leave without pay | Php 8,836.75 |
| October | No absence | Php 14,006.75 |
| November | 1 day leave without pay | Php 13,469.75 |
| December | No absence | Php 14,006.75 |
| Total basic salary earned for the year | Php 106, 147.00 |
Php 106, 147.00 (basic salary earned for the year) ÷ 12 months = Php 8,845.58 (proportionate 13th month pay)
Inclusions and exemptions
The 13th Month Pay is computed based on the basic salary of an employee. It does not include:
Allowances or other monetary benefits such as cash equivalent of unused vacation and sick leave credits
Overtime, premium, night differential
Holiday pay
Profit-sharing schemes,
Cost of Living Allowance (COLA)
It also should not include deductions from tardiness, absences, or unpaid leaves, if any.
However, if these monetary benefits are part of the basic salary according to the employment contract, then they should be included in the computation.
Additionally, maternity leave benefits are not included in the computation of the benefit.
Resigned or Terminated Employees
An employee who worked for the company for at least one month during a calendar year is still entitled to a prorated 13th-Month pay.
Taking the earlier table as an example, if the employee’s resignation takes effect by the end of August, then his basic salary earned for the year is Php 56,027.00. By using the same formula, the employee must receive a 13th-month pay of Php 4,668.92.
Is the 13th Month Pay Taxable?
In 2018, the Tax Reform Acceleration and Inclusion Law (TRAIN Law) raised the tax-exempt benefits ceiling to Php 90,000.
As a result, the 13th Month Pay will not be taxable if it is not over Php 90,000. However, any amount that exceeds the tax-exempt ceiling becomes part of an employee's personal income tax for the calendar year.
For example, an employee receiving a 13th-Month Pay of Php 70,000 can receive it tax-free. If the company awards the employee a Christmas bonus of Php 30,000, then the excess Php 10,000 will be taxable.
The employer must adequately deduct taxable values before awarding their employees' full benefits. You can check out more information about withholding tax compensation here.
The 13th-Month Pay may seem like a financial burden in these trying times, but it will ultimately benefit your employees. Similar to spending for work-from-home arrangements, these expenditures can be seen as investments in the people who help drive your company’s success.
With a new year coming, you can also invest in the right people to grow your business by attracting them with insights from our three-part Decoding Global Talent report.
Then explore our extensive database of quality candidates through Talent Search. Check out the Insights page for more helpful tips and inspirations!