January 20, 2013
The 13th Month Pay Law of 1987 defines 13th month pay as “1/12 of the basic salary of an employee within a calendar year.”
How is basic salary on which the 13th month pay is based defined?
The basic salary of an employee for the purpose of computing the 13th month pay shall include all remunerations or earnings paid by this 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 113th 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.
Who are entitled to receive 13th month pay?
All rank and file employees are now entitled to a 13th month pay regardless of the amount of basic salary that they receive in a month if their employers are not otherwise exempted from the application of P.D. 851, otherwise known as the 13th Month Pay Law. Such employees are entitled to the benefit regardless of their designation or employment status, and irrespective of the method by which their wages are paid, provided that they have worked for at least one month during a calendar year.
Who are considered rank-and-file employees?
According to the Labor code, all employees not falling within the definition of a managerial employee are considered rank-and-file employees. A managerial employee is one who is vested with powers of prerogatives to lay down and execute management policies and/or to hire, transfer, suspend, lay-off, recall discharge, assign or discipline employees, or to effectively recommend such managerial actions.
How do we compute the 13th month pay?
The revised guideline says that “The “basic salary” of an employee for the purpose of computing the 13th month pay shall include all remunerations or earning paid by this 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.”
Based on the foregoing information, we can arrive with the following formula in computing 13th month pay:
13monthpay = total basic salary within the calendar year / 12
What is the minimum amount of the 13th month pay?
The minimum 13th month pay required by law shall not be less than one-twelfth of the total basic salary earned by an employee within a calendar year. For the year 1987, the computation of the 13th month pay shall include the cost of living allowances (COLA) integrated into the basic salary of a covered employee pursuant to Executive Order 178.
When must it be paid?
The required 13th month pay shall be paid not later than December 24 of each year. An employer, however, may give to his employees one half (½) of the required 13th month pay before the opening of the regular school year and the other half on before the 24th of December of every year. The frequency of payment of this monetary benefit may be the subject of agreement between the employer and the recognized/collective bargaining agent of the employees.
Is 13th month pay taxable?
Thirteenth month pay and other benefits amounting to P 30,000 and below are not subject to income tax. This means, if you receive P 40,000, the P10,000 excess is already taxable.
Are employees who have recently resigned entitled to the 13th month pay?
An employee who has resigned or whose services were terminated at any time before the time for payment of the 13th month pay is entitled to this monetary benefit in proportion to the length of time he worked during the year, reckoned from the time he started working during the calendar year up to the time of his resignation or termination from the service. Thus, if he worked only from January up to September his proportionate 13th month pay should be equivalent of 1/12 his total basic salary he earned during that period.
The payment of the 13th month pay may be demanded by the employee upon the cessation of employer-employee relationship. This is consistent with the principle of equity that as the employer can require the employee to clear himself of all liabilities and property accountability, so can the employee demand the payment of all benefits due him upon the termination of the relationship.
Who are exempted from payment of 13th month pay?
Although P.D. 851, as amended by Memorandum Order No. 28, requires all employers to pay all their rank and file employees a thirteenth month pay, the rule is subject to certain exceptions. Excluded from the coverage, under Section 2 of the law, are “employers already paying their employees a thirteenth month pay or more in a calendar year or its equivalent at the time of the issuance of the law.” What the law wants to prevent is the imposition of a “double burden” upon the employer who is already paying the equivalent of a 13th month pay. The law exempts from the payment of the 13th month pay employers who are already giving its equivalent. Otherwise, the goal of uniformly providing employees with additional income will not be met. Another inequity will result; while most employees will be paid thirteen (13) months salary, some by virtue of P.D. No. 851, will be receiving salary for fourteen (14) months.