13th-Month Pay Mandatory Benefit in the Philippines

18-Dec-2020
13th-Month Pay Mandatory Benefit in the Philippines

Did you know that all employees at Smiles On Demand receive a 13th-month pay?

What is 13th-Month Pay?

Simply, the 13th-month mandatory pay in the Philippines is an additional amount of compensation for employees

Our clients don’t pay this fee, we do. 🙂 

At Smiles, we pay our 13th-month pay in two equal instalments…50% in June, and 50% in December.  

Why? 

Due to our country’s other cultural important dates, it means that employees can use the extra money during our special holidays which happen throughout the year. 

For this reason, it is not really a Christmas or New Year’s Bonus.

Nevertheless, it’s still a nice way to round off the year. 🙂

Normally, this time of year we would be gearing up for one of our legendary Christmas parties.

However, sadly, due to the pandemic, these types of events are not possible right now in the Philippines, and instead, we’ve had to extra creative with our special way of saying “we care, and we appreciate you”.

The oscars christmas party

Project Noche Buena

Over the past few days, Santa’s little helpers have been busy packing over 300 Smiles goodie bags!

We call this project the “Noche Buena”.  

Each bag contains the staples of a traditional Filipino feast; ingredients for Filipino-style Spaghetti, an all-time favourite Fruit Salad and the star of the show… the Christmas Ham

These gifts will be given to every employee on the 18th of December 2020 along with the second instalment of their 13th-month pay, so they can enjoy the holiday season in style with their nearest and dearest. 🙂

How Does the 13th-Month Pay Work?

In the Philippines, the 13th-month pay is mandatory under the labour code and by Presidential Decree 851.

Every level of employee, from customer service reps to operation managers, regardless of the status of employment at the time (for example if an employee is on Mat Leave), is entitled to it as long as they have worked at least one month during the calendar year. 🙂

It is calculated as 1/12 of the total basic salary earned during the year.

By law, this payment has to be made by the 24th of December.

Coverage of 13th-Month Pay

Other monetary compensations such as:

  • cost-of-living allowances;
  • profit-sharing payments;
  • cash equivalent of unused vacation and sick leave credits;
  • overtime pay;
  • premium pay;
  • night shift differential;
  • holiday pay; and
  • other allowances and monetary benefits not considered part of an employee’s basic salary;

may not be regarded as part of the computation for this mandatory benefit.

Smiles On Demand Bus

These compensations may only be computed when they are treated as part of the basic salary.

Computation

So, how is it computed?

The 13th-month pay primarily consists of the total basic monthly salary of an employee for the whole year, divided by twelve (12) months.

Those who have worked for less than a year, however, are only entitled to receive the amount due to them on the number of months they were employed.

How it’s calculated:

Daily wage X number of paid days = _________.

Take that, divide it by 12, and there’s your 13th-month pay!

Tax Obligation

The 13th month pay is generally exempt from taxation.

However, there is a prescribed limit to this exemption under Section 32 (B)(7)(e) of the National Internal Revenue Code (NIRC) – which was amended by Republic Act No. 10963 or the TRAIN law on January 2018.

This update stipulates that the 13th-month pay will not be taxed for amounts equaling or less than P90, 000.

13 month pay Philippines

Anything beyond the maximum exclusion rate of P90,000 must be included in the computation of the employee’s gross income for the applicable taxable year.

This new amount is a relative increase from the previous tax exclusion rate of P82,000.

Additional Resources You May Find Useful

  1. 105 Days Paid Maternity Leave
  2. Why We’re Not in Manila or Cebu