Question:
I am not sure how to pay my employees what they are entitled to this holiday season. How much exactly is the 13th month pay.? Where do I base its computation? Is it simply one month’s salary per employee?
Answer:
The 13th Month Pay Law of 1987 defines 13th month pay as “1/12 of the basic salary of an employee within a calendar year.”
The basic salary, on which the 13th month pay is based, is defined by revised guidelines on the implementation of the law as:
“The “basic salary” of an employee for the purpose of computing the 13th month pay shall include all remunerations or earning paid by this employer for services rendered but 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, nigh differential and holiday pay, and cost-of-living allowances. However these salary-related benefits should be included as part of the basic salary in the computation of the 13th month pay if by individual or collective agreement, company practice or policy, the same are treated as part of the basic salary of the employees.”
Question:
Is the 13th month pay taxable?
Answer:
It is, only when it exceeds P30,000. The tax is applicable only on the amount in excess of P30,000.
Question
Who are entitled to the 13th month pay?
Answer
To answer your question, here are relevant excerpts from (Presidential) Memorandum Order No. 28 of 1986:
“All employers are hereby required to pay all their rank-and-file employees a 13th month pay not later than December 24 of every year.”
“All rank and file employees are entitled to a 13th month pay regardless of the amount of basic salary that they receive in a month if their employers are not otherwise exempted from the application of P.D. No. 851. Such employees are entitled to the benefit regardless of their designation or employment status, and irrespective of the method by which their wages are paid, provided that they have worked for at least one (1) month during a calendar year.”
Rank and file employees are those who do not perform managerial positions.
Question
How about employees who have recently resigned? Are they entitled to the 13th month pay too?
Answer:
They are entitled, in part.
Based on the Labor code, an employee who has resigned or whose services were terminated at any time before the time for payment of the 13th month pay is entitled to this monetary benefit in proportion to the length of time he worked during the year, reckoned from the time he started working during the calendar year up to the time of his resignation or termination from the service.
Question
When is the best time to distribute the 13th month pay?
Answer
The law mandates that it should be paid any time before December 24. But ideally, for employees, this should be given a few weeks before Christmas to enable them to avoid the holiday rush in getting ready for the holidays. Some companies distribute this to their employees by end November or early December.
(Ed’s note: To read the second and concluding part of this Q & A on the 13th-month pay, click here …)
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