How to Compute the 13th Month Pay

On Dec. 16, 1975, President Ferdinand Marcos issued Presidential Decree No. 851, which obligated all employers in the Philippines to pay all “rank-and-file” employees earning less than 1000 pesos per month a 13th-month allotment on or before Dec. 24 of every calendar year. In 1986, President Corazon Aquino issued Memorandum Order No. 28, which lifted the salary cap on the 13th-month pay allotments and stated that all “non-managerial” employees were entitled to the payment. If you operate a business in the Philippines and have employees, you must properly compute the 13-month allotment and pay it on time.

Gather all employee payroll records for the calendar year. Determine if employees qualifies as “rank-and-file” employees under the law. Generally speaking, most employees that are not managers or supervisors are entitled to receive the 13th-month pay allotment. However, employers in the Philippines need not pay the allotment to household helpers or staff, employees paid purely on a commission basis, or temporary workers who are paid a fixed amount for performing specific work.

Total all amounts paid to an employee during the calendar year to determine the gross wage. Subtract any allowances paid to the employee for meals, travel, reimbursements, performance bonuses or any other miscellaneous amounts not part of an employee’s normal salary. The result of the gross wage amount less allowances is the employee’s base pay (Total Payment – Allowances = Base Pay). For example, your business paid an employee 143,500 pesos over the course of the calendar year. Deductible allowances amounted to 23,500 pesos. Therefore, the base pay would be the difference between the two amounts or 120,000 pesos (143,500 – 23,500 = 110,000).

Divide the total base pay amount by 12 (Base Pay / 12). The result is the average monthly base pay amount. Using the example amount of 120,000 pesos, the result would be 10,000 pesos (120,000 / 12 = 10,000).

Divide the average monthly payment amount by 12 (Average Monthly Base Pay / 12). The result is the 13th-month pay factor amount. Therefore, using the sample data from above, the result would be 833.33 pesos (10,000 / 12 = 833.33).

Multiply the 13th-month pay factor amount times the number of months the employee worked for the business (13th-Month Factor x Number of Months Worked). The result is the 13-month pay allotment amount owed to the employee. If the sample employee worked seven months during the calendar year, the business would owe the worker 5833.31 pesos (833.33 x 7 = 5833.31).

Pay the 13th-month payment amount to all eligible employees on or before Dec. 24.

Type a compliance report and submit to the nearest branch office for the Department of Labor and Employment. In the compliance report, include the following information: name of business, address, principal business activity, total number of employees, total number of workers eligible for the allotment, name of each employee along with the amount of 13th-month allotment paid, total amount of all 13th-month allotment payments made, and name, position and contact telephone number of person providing the report information.

Tips

  • Thirteenth-month salary payments are not Christmas bonuses under the law, although many people believe they are. The payments are mandatory, whereas the payment of Christmas bonuses is not. Under Philippines law, Christmas bonuses are only mandatory if agreed to in writing by the employer and employee and made part of the official compensation package for the employee.

Warnings

  • The Philippines Department of Labor and Employment imposes stiff fines and penalties for failure to comply with the law. Fines and penalties for non-compliance can be as much as three times the amount unpaid allotments. Penalties for late payments are often equally severe. Therefore, ensure that you compute the 13th-month allotment properly and make payment to employees on or before Dec. 24.

References

About the Author

Jeff Grundy has been writing computer-related articles and tutorials since 1995. Since that time, Grundy has written many guides to using various applications that are published on numerous how-to and tutorial sites. Born and raised in South Georgia, Grundy holds a Master of Science degree in mathematics from the Georgia Institute of Technology.