How to Compute 13th Month Pay?

The 13th month pay in the Philippines is one of the most anticipated pays of the year. Contrary to popular belief, it is not a bonus. It is rather the right of an employee. Today, you will learn all you have to know about the 13th month pay and how to calculate your 13th month pay.

The 13th month pay is a mandated compensation for private employees in the Philippines. It is a monetary benefit where the employer gives one month’s worth of salary to an employee every December of the year.

The thing is that the 13th month pay is not always equal to a month of salary. It is calculated according to the number of months you have worked for your current employer.

Take note that the 13th month pay is only based on your basic income. It is not calculated based on your bonuses and employment allowances. The 13th month pay is only computed from the time that you were employed, so it can get confusing.

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What Is the 13th Month Pay Law in the Philippines?

By virtue of Presidential Decree No. 851, private employers in the Philippines are required to give out 13th month pay to all rank and file employees who have worked at least a month in the company. This was introduced in 1975 by President Ferdinand Marcos, who is considered the 13th month pay law author.

The meaning of 13th month pay is additional monetary compensation given to employees at the end of the year. This is given out regardless of their employment status or how they receive their wages. 13th month pay must be awarded by December 24 each year.

This is not similar to a Christmas bonus: the former is mandatory, while the latter is discretionary. It is up to your bosses if they will give out a Christmas bonus in the Philippines for 2023. Your midyear bonus and Christmas bonus computations will also depend on your employer.

Who are the Ones Entitled to 13th Month pay?

Per the guidelines set by the Department of Labor and Employment (DOLE), rank-and-file employees from the private sector are entitled to a 13th month pay provided that they worked for the company for at least a month during the entire year. It is part of employment law that obliges employers to pay either in one lump sum or two installments payable before December 24 of that year.

Those in managerial positions  who have the authority to hire, discipline, and discharge rank-and-file employees are unfortunately not eligible for this pay.  The same applies to employees with distressed employers, household workers, and those earning on a commission or task basis. Government employees are also not entitled to receive 13th month pay.

Is the 13th Month pay Taxable?

As a general rule, there is such a thing as 13th month pay taxable in the Philippines. However, under the Train (Tax Reform for Acceleration and Inclusion) Law of 2018, the 13th month is not subject to taxation if the pay is below the threshold. The threshold amount is set at Php 90,000 which means employees receiving salary below that maximum limit will receive their pay in full, tax-free, while those receiving above the threshold will be obliged to pay the corresponding tax.

Prior to 2018, the prescribed limit to the exemption under the National Internal Revenue Code (NIRC) is eighty-two thousand pesos. The Train Law increased the threshold amount before the amount Php 90,000 which is 13th month taxable.

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How to Compute 13th Month Pay?

The 13th month pay is 1/12 of your salary. In essence, the 13th month pay is equivalent to your basic salary multiplied by the number of months you worked for the company.
The 13th month pay is given no later than the 24th of the month, which means that the employer will assume that you have worked the entire month of December to be able to compute it.
The formula for the computation of 13th month pay in the Philippines is the following:

(Basic salary x months worked) ÷ 12 months

Let us say that your basic salary per month is Php 20,000. If you worked from September to December, then you have worked for 3 months.

The calculation will be the following:

Php 20,000 x 3 months = Php 60,000;
Php 60,000 ÷ 12 = Php 5,000.

Your 13th month pay, not including your salary for the month of December, is Php 5,000. Remember that if your salary includes the allowance, bonuses and commissions, they are not part of the calculation.
In the next section, we will be calculating 13th month pay based on different scenarios. Below we give an example of how to calculate the 13th month salary for day rate employees.

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How to Compute 13th Month pay for 6 Months

Here is the basic formula for calculating your 13th month pay:

Total basic salary earned during the year ÷ 12 months = 13th month pay

Your monthly basic salary refers to the amount that your employer pays you for your services. This does not include overtime pay, cost of living allowances, unused leaves, night shift differential, et cetera.
You also have to consider your employment length, or the number of months that you have worked in a company for a calendar year. For example, if you were employed or have worked for a company from April to October, then your employment length is six months.

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If you’ve been an employee for 6 months, here’s how you would compute your 13th month pay. We’re going to use the example above (employee from April to October). If your monthly salary is Php 30,000, your 13th month pay is:

(Php 30,000 x 6 months) ÷ 12 months = Php 15,000

Because you did not work for the company for the whole calendar year, you will only receive a prorated amount based on the number of months you worked. So based on the sample computation above, your monthly salary of Php 30,000 will be multiplied by 6 since you only worked from April to October. But it will still be divided by 12 months so you get Php 15,000.

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How to Compute 13th Month pay for Resigned Employees

What if you have resigned from the company? How much would you receive as 13th month pay?

Resigned and terminated employees are still entitled to their 13th month pay, so no need to worry if you decided to leave before the end of the calendar year. This will be given to you as part of your back pay or final pay.
If you have resigned, your 13th month pay formula will be based on your monthly salary multiplied by the number of months you worked, divided by 12 months. For example, your previous salary was Php 40,000/month and you worked for the company for 10 months. The formula will be:

(Php 40,000 x 10 months) ÷ 12 months

Going by this, your 13th month pay will be Php 33,333. If you have resigned, you will receive this as part of your final pay.

What is not Included in the 13th Month pay Computation

Do note that only your monthly salary will be considered for your 13th month pay. In general, benefits and allowances that are not integrated into your basic monthly salary will not be included in the 13th month pay computation. These include:

• Cost of living allowance (COLA)
• Profit-sharing payments
• Cash equivalent of unused sick and vacation leaves
• Overtime pay
• Premium pay
• Night shift differential
• Holiday pay
• Maternity benefits

The benefits mentioned above will only be included in your 13th month pay IF they have been integrated into your basic monthly salary in the first place.

Example of 13th Month Pay Computation for 2023

Earlier, we showed you the basic way of how to compute 13th month pay for 2023 in the Philippines. It is pretty much straightforward. But what if you have absences and leaves? How to compute 13th month pay with absences and late?
What we will compute in this section is an example for an employee who has earned different amounts in several months. This is called prorated 13th month calculation.
Let us take the scenario below, how to compute prorated 13th month pay:

The basic pay of this employee is Php 20,000 per month. On some occasions, the employee did not earn the full amount because he had unpaid absences. In some months, he earned more than Php 20,000 because he rendered overtime. Take note that the salary presented is just the basic pay, and does not include other pays like bonuses, sales commissions, and others.

Now, the 13th month pay computation for 2023 is like this – simply add all the amounts, and then divide it by 12.

Our prorated 13th month pay calculator will show this result:

Php 230,000 ÷12 = Php 19,166.67

This method is used on how to compute 13th month pay with absences, even for 13th month pay where you have earned extra because of the overtime rate for 2023 in the Philippines .
Since the 13th month pay is computed by December 15, the assumption of the company is that you will work for the entire month of December.
If you want to calculate yours, you can search online for a website that has the calculator or software for computing 13th month pay.

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What to Do if You Don’t Get 13th Month Pay

If you did not get a 13th month pay, you need to file a report to the Department of Labor and Employment or DOLE. You will know how to compute 13th month pay with DOLE help and will get all the benefits you are entitled to under the law. The 13th month pay is a mandatory benefit. All employees are entitled to get a 13th month pay, provided that they have worked at least one month in the company.

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