13th Month Pay: How is it Computed?

By Pinoy-Business.com & DOLE website

Time flies so fast and before you know it, the year-end is just around the corner. There’s the thought of Christmas and, yes, 13th-month pay, which the law requires to be paid not later than December 24 of each year.

The law – Presidential Decree No. 851 – requires all employers to pay their rank-and-file employees, regardless of the nature of their employment and irrespective of the method by which their wages are paid, an equivalent to at least one (1) month of their wages as 13th month pay. To be entitled to 13th-month pay, these employees must have worked for at least one month during the calendar year.

The 13th-month pay of an employee is based on the “basic salary,” which includes all remunerations or earnings paid by an employer to an employee for services rendered. However, 13th-month pay does not include cost-of-living allowances (COLA) granted pursuant to P.D. No. 525 or Letter of Instruction No. 174, profit-sharing payments, and all allowances and monetary benefits which are not considered or integrated as part of the regular or basic salary of the employee. Maternity benefits, like other benefits granted by the SSS, are are not included in computing the employee’s 13th-month pay. Overtime pay, earnings and other remunerations are also excluded from “basic salary” in the computation of the 13th-month pay.

There’s a catch, though. If these items, which are legally excluded from the computation of 13th month pay, are included by the employer in its previous computations and such act ripens into a “company practice,” then these items can’t be excluded without violating the prohibition against diminution or elimination of  benefits.

FORMULA AND COMPUTATION OF 13TH MONTH PAY (source: DOLE website)

Total basic salary earned during the year / 12 Months = Proportionate 13th Month Pay

Illustration: Using the basic wage in the NCR at 436.00 per day and a six-day workweek or an equivalent Monthly Basic Salary of P11,372.33, to wit:

Months Attendance Salary in a Month
January no absence P11,372.33
February no absence P11,372.33
March 1 day leave w/ pay P11,372.33
April no absence P11,372.33
May 2 days leave w/ pay P11,372.33
June 2 days leave w/ pay P11,372.33
July no absence P11,372.33
August 2 days leave w/ pay P11,372.33
September on maternity leave no salary
October on maternity leave no salary
November no absence P11,372.33
December 5 days leave w/o pay 9,192.33
P111,543.33 / 12 months P9,295.28 is the proportionate 13th month pay

Note:
1. COLA of P30.00 under Wage Order No. NCR 17 is not included in the basic salary in computing 13th month pay.

2. The 2 months of maternity leave are not included in the computation of 13th month pay because the female employee has no earnings from the company for the period.

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