13th month pay: A Basic Guide to the Mandatory Benefit in the Philippines 

December, it is that time of the year again. Parols hanging from the balcony, Jose Mari Chan on everyone’s car radio and the most anticipated 13^th month pays for employees in the Philippines. However, for employers with a large employee population, 13th-month pay can be complicated, strenuous, and sometimes even time-consuming. So, what is 13^th month pay in the Philippines? Let us unpack that.

Brief History of 13^th month pay in the Philippines 

Pursuant to Presidential Decree No. 851 (1975), employers in the private sector in the Philippines are required to pay 13th month pay to all employees receiving at least PhP1,000.00 a month basic salary, regardless of the nature of employment, who have rendered at least one month of service. The decree was originally imposed to “further protect the level of real wages from the ravage of worldwide inflation” and in the spirit of Christmas and New Year, employers are to show their concern and appreciation towards the working masses. In August 1896, the Malacañang released the Memorandum Order No. 28 modifying the existing decree requiring all employers (not just those receiving PhP1,000 basic pay a month) to pay their employees a 13^th month pay on or before the 24^th day of December. 13^th month pay in the Philippines is an important mandated benefit to grant as there is neither request nor application of exemption allowed for delay or non-issuance and employers who are found to be in violation of such may be subjected to sanctions. 

Who is eligible (and who is not)?

According to the DOLE’s guidelines under Labor Advisory no. 25 of 2023, 13^th month pay in the Philippines is given to rank-and-file employees regardless of their designation, position, or employment status. Resigned or separated employees who have rendered at least a month of work are also eligible to receive the compensation, given as part of their final pay.

Under the labor rules, rank-and-file employees entitled 13^th month pay in the Philippines are those employees who are not in managerial or supervisory positions. Supervisory employees as defined by Presidential Decree No. 442 are “those who, in the interest of the employer, effectively recommend such managerial actions if the exercise of such authority is not merely routinary or clerical in nature but requires the use of independent judgment” while managerial employees are those ” who is vested with powers or prerogatives to lay down and execute management policies and/or to hire, transfer, suspend, lay-off, recall, discharge, assign or discipline employees”. In general, both supervisory and managerial employee classifications are not mandatorily covered by 13^th month pay in the Philippines since the purpose of 13^th month pay is to give an additional incentive for low-earning employees. Workers paid by results such as commission or task base, household helpers and contractual workers are also not eligible to receive the pay. However, it is within the employer’s prerogative to issue a bonus for their hard work and service. In cases in which the company accidentally issued the benefit to those non-eligible for 13^th month pay in the Philippines, the employer is entitled to retract it, unless covered by the non-diminution rule under the labor rules in the Philippines.

Coverage of 13^th month pay – how do we calculate it? 

The basic calculation for 13^th month pay is the total basic salary pay of the employee for a year divided by 12 (months). Basic pay refers to “all remunerations or earnings paid by an employer to an employee for services rendered” (P.D No. 851). It is important to emphasize that basic pay is the minimum requirement to cover in the computation and compensation from leaves, overtime pay, premium pay and company allowances may be included according to the employer’s discretion.  Furthermore, other year-end benefits such as 14^th month pay and bonuses such as Christmas and performance bonuses are not required by the law, and it is within the company’s discretion to issue one.

However, employees who have rendered less than a year of service, for instance, employees hired in the middle of the month or employees separated before the year ends are calculated and issued a prorated 13^th month pay. For instance, employee Z started a job as a Data Analyst with a basic salary of Php50,000.00 and started working on July 17. The employer may calculate their 13^th month pay as follows: 

You can calculate the daily rate based on the Estimated Equivalent Monthly Rate (EEMR), prescribed by DOLE (Department of Labor and Employment) in their Handbook. 

When to pay 13^th month pay in the Philippines 

Although establishments should issue their employees the benefit on or before December 14, DOLE encourages employers to release it early, ensuring that their workers have enough budget to prepare for the festivities.

DOLE Report Compliance for 13^th month pay in the Philippines

As stated in the 2023 Handbook on Workers’ Statutory Monetary Benefits provided by (DOLE) Bureau on Working Conditions, employers must submit a report to DOLE about the issuance of 13th-month pay in the company. This can be submitted to the nearest regional office or through their website DOLE ERS not later than January 15 of the following year. Although DOLE have not released a template, the report should include the name of the establishment and its address, its product and/or services, total employment and total employees benefitted from the pay, amount granted per employee and the name, position and telephone number of person disclosing the information. Non-compliance of the benefit and the submission report can be considered as a money claim case that should be forwarded to the court.  

Last thoughts 
13^th month pay is a year-end mandatory benefit that motivates employees to finish the year strong. Though it may be complicated, DOLE released related advisories to guide establishments to properly comply. Furthermore, our company offers services that aim to guide and assist you in smooth and easy transactions that would ensure compliance with related labor rules so that you can celebrate the festive season without any hassle.