You’ve probably heard people talking excitedly about their 13th month pay as the year comes to an end—but what exactly is it, and how is it computed? Whether you’re an employee wondering how much you’ll receive or an employer aiming to stay compliant, understanding how to compute 13th month pay is a must. Let’s break it down together—minus the legal mumbo-jumbo.
Legal Basis and Global Context
Origin and Legal Mandate
The 13th month pay is legally mandated in the Philippines under Presidential Decree No. 851, signed in 1975. It requires all employers to provide this benefit to their employees—usually not later than December 24 each year.
Global Practices
Though it’s a big deal in the Philippines, similar concepts exist elsewhere:
- In Latin America, a 13th and even a 14th salary is common.
- Some European countries offer year-end bonuses, although they’re often performance-based.
Eligibility for 13th Month Pay
Who Is Entitled?
If you’re a rank-and-file employee and you’ve worked for at least one month in a calendar year, you’re entitled to a 13th month pay. This includes:
- Full-time workers
- Part-time workers
- Probationary employees
Who Is NOT Entitled?
- Managerial staff (those with policy-making powers)
- Freelancers and consultants
- Government employees, unless specified otherwise
Special Cases
Even if you’ve resigned or were terminated, you’re still entitled to a pro-rated 13th month pay.
When Is 13th Month Pay Given?
Employers are required to release the 13th month pay on or before December 24. However, some companies give it in two halves: one in June or July, and the rest in December.
How to Compute 13th Month Pay
Basic Formula
Here’s the most straightforward formula:
13th Month Pay = Total Basic Salary Earned During the Year ÷ 12
What Counts as “Basic Salary”?
Only the following are included:
- Regular monthly salary
- Paid leaves (if converted to cash)
- Holiday pay (if not categorized separately)
What Does NOT Count?
- Overtime pay
- Night differential
- Allowances (transport, meals, etc.)
- Bonuses
- Commissions
Computation Examples
Example 1: Full Year of Service
Let’s say you earn ₱20,000 monthly and have worked the entire year.
₱20,000 x 12 months = ₱240,000
₱240,000 ÷ 12 = ₱20,000
Example 2: Less Than 12 Months
Worked from January to August?
Monthly Salary = ₱15,000
₱15,000 x 8 months = ₱120,000
₱120,000 ÷ 12 = ₱10,000
Example 3: Resigned Employees
Worked from January to April with ₱18,000/month?
₱18,000 x 4 = ₱72,000
₱72,000 ÷ 12 = ₱6,000
Common Misconceptions
“It’s a Bonus”
Nope. It’s not a bonus—it’s mandatory by law (in countries like the Philippines).
“It’s Always Tax-Free”
Only if it’s below the taxable threshold (₱90,000 in PH as of 2023). Anything above that? It’s taxable.
Deductions and Tax Implications
Tax Exemptions
In the Philippines, the first ₱90,000 of combined 13th month pay and other bonuses is tax-free.
When Is It Taxable?
If the amount exceeds ₱90,000, only the excess is taxed.
Other Deductions
Employers should not deduct:
- SSS
- PhilHealth
- Pag-IBIG
From the 13th month pay. It’s gross and non-deductible.
Employer Responsibilities
Employers must:
- Compute and release pay correctly
- Submit a compliance report to the DOLE
- Face penalties if they fail to pay on time
Employee Rights and What to Do If Not Paid
If you don’t receive your 13th month pay:
- Speak to your HR first
- If unresolved, file a complaint at the DOLE Regional Office
- Provide payslips and proof of employment
13th Month Pay vs Christmas Bonus
Mandatory vs Optional
- 13th Month Pay = Mandatory
- Christmas Bonus = Employer’s discretion
You may receive both if you’re lucky—but don’t mix them up!
13th Month Pay Calculator Tools
There are many online tools like:
- DOLE’s Online Calculator
- HR software portals
Just plug in your total basic salary and months worked.
Importance for Budgeting and Financial Planning
How to Use Your 13th Month Wisely
Instead of blowing it all on gifts:
- Save at least 30%
- Pay off debts
- Invest in insurance or mutual funds
- Allocate a small portion for year-end fun
Think of it as a reward and a reset.
Special Cases
Maternity Leave
You’re still entitled—just based on the months you were present and paid.
Paternity Leave
Covered months still count toward the computation.
Leave Without Pay
These do not count in the computation since no basic salary was earned.
Conclusion
Computing your 13th month pay isn’t rocket science—it’s just basic math and a clear understanding of what counts. Whether you’re an employee eagerly waiting for your payout or an employer trying to meet compliance, knowing the ins and outs of this mandatory benefit helps avoid confusion and conflict.
So next time someone asks, “How much is your 13th month pay?”, you’ll not only know—but you’ll be able to explain it like a pro.
FAQs
1. Is 13th month pay given to freelancers?
No. Freelancers are not considered employees under labor laws and are not entitled to this benefit.
2. Does maternity leave affect 13th month pay?
Only the months where no salary was received are excluded. Paid maternity leave months still count.
3. Is 13th month pay always equal to one full salary?
Not necessarily. It depends on how many months you’ve worked in the calendar year.
4. Can my employer delay my 13th month pay?
Only under special government-approved circumstances. Otherwise, it’s illegal to delay it beyond December 24.
5. Is it possible to get 13th month pay twice a year?
Yes, many employers divide it into two payouts midyear and year-end.