13th Month Pay
▪ P.D. 851 is the legal basis for 13th month pay.
▪ The 13th month pay is given to rank-and-file employees.
▪ The benefit consists of additional pay based on total basic salary earned during the year divided by 12 months or number of months in the service in case of employees who have exited.
▪ The benefit is non-taxable if total bonuses do not exceed limit provided for by law.
13th month pay is an additional pay given to rank-and-file employees, regardless of the nature of their employment and irrespective of the methods by which their wages are paid, provided they worked for at least one (1) month during a calendar year. (pp. 37 to 41, 2020 DOLE-BWC Handbook on Workers’ Statutory Monetary Benefits, henceforth “DOLE-BWC Handbook”)
a. Paid not later than December 24
The 13th month pay should be given to the employees not later than December 24 of every year. (Ibid.)
It is without prejudice to the employer dividing the amount, i.e. paying half before opening of the regular school year and the remaining balance on/before December 24. (Ibid.)
b. Managerial employees
Managerial employees are those who are vested with powers or prerogatives to lay down and execute management policies and/or to hire, transfer, suspend, layoff, recall, discharge, assign, or discipline employees, or to effectively recommend such managerial actions. (Ibid.)
c. Rank-and-file employees
Rank-and-file employees are defined as those who are not managerial employees as earlier. (Ibid.)
3. Covered and Exempted employers
GENERAL RULE: All employers are required to pay 13th Month Pay. (13th Month Pay Law; DOLE-BWC Handbook)
EXCEPTIONS: The following employers are exempted from paying 13th Month Pay:
1) The government and any of its political subdivisions, including government-owned and controlled corporations, except those corporations operating essentially as private subsidiaries of the government;
2) Employers who are already paying their employees thirteenth- month pay or more in a calendar year or its equivalent at the time of the issuance of P.D. 851;
3) Persons in the personal service of another in relation to such workers; and,
4) Employers of those who are paid on purely commission, boundary or task basis, and those who are paid a fixed amount for performing specific work, irrespective of the time consumed in the performance thereof – except those workers who are paid on piece-rate basis, in which case their employer shall grant them thirteenth-month pay. (DOLE-BWC Handbook)
a. The term “its equivalent”
The term “its equivalent” as used in No. 2 above shall include Christmas bonus, midyear bonus, cash bonuses, and other payments amounting to not less than one-twelfth (1/12) of the basic salary but shall not include cash and stock dividends, cost of living allowance, and all other allowances regularly enjoyed by the employee, as well as non-monetary benefits. (Ibid.)
4. The Computation
a. The benefit
The 13th month pay shall not be less than one-twelfth (1/12) of the total basic salary earned by an employee in a calendar year. (Ibid.)
b. Basic salary earned
The term “basic salary” shall include all remunerations or earnings paid by his or her employer for services rendered. It 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 shift differential and holiday pay, and cost of living allowance (COLA). (Ibid.)
However, these salary-related benefits should be included as part of the basic salary in the computation of the 13th month pay if these are treated as part of the basic salary of the employees, through individual or collective agreement, company practice or policy. (Ibid.)
Thus, the 13th month pay is proportionate if the covered employee does not have a complete attendance on/before December 24, the last day of paying the 13th month pay. (Ibid.)
Total basic salary earned during the year / 12 months = proportionate 13th month pay
5. Conditions for entitlement
The only condition for entitlement: the rank-and-file employee should have at least thirty (30) calendar days of service. (Ibid.)
6. Certain types of employees
13th month pay is required to be paid to employees who are paid on a piece-rate, those paid a fixed or guaranteed wage plus commission (based on earnings during the calendar year), those with multiple employers. (Ibid.)
Resigned, terminated, or separated employees are entitled to their proportionate 13th month pay. (Ibid.)
7. Not included as regular wage
13th month pay is not included as regular wage for purposes of determining overtime and premium payments, fringe benefits, contributions to the State Insurance Fund, Social Security System, National Health Insurance Program, and private retirement plans. (Ibid.)
8. Non-taxable if total bonuses do not exceed limit
13th month pay and other benefits, such as productivity incentives and Christmas bonus, not exceeding Ninety Thousand Pesos (₱90,000.00) are exempt from taxation. (BIR Revenue Regulations No. 11-2018, Amending Certain Provisions of Revenue Regulations No. 298, as Amended, to Implement Further Amendments Introduced by Republic Act No. 10963)
9. Employment contract, company policies, CBA
The above discussion may be superseded by any stipulation favorable to the employee via an employment contract, company policies, collective bargaining agreement, or analogous thereto.
▪ Presidential Decree No. 851, a.k.a. 13th Month Pay Law
▪ Implementing Rules and Regulations (IRR) of P.D. 851
▪ Section 32 B, Chapter VI of R. A. No. 8424 (National Internal Revenue Code of the Philippines), as amended by Sec. 1 of R. A. No. 10653.
▪ BIR Revenue Regulations No. 11-2018, Amending Certain Provisions of Revenue Regulations No. 298, as Amended, to Implement Further Amendments Introduced by Republic Act No. 10963
▪ 2020 DOLE-BWC Handbook on Workers’ Statutory Monetary Benefits
▪ Jurisprudence or Supreme Court Decisions
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