If you are an employer and business owner or someone just about to set up shop, it is important to note that in the Philippines, the 13th Month Pay benefit is required by law and needs to be complied with by all companies and employers.
The 13th-month pay, under the Presidential Decree No. 851, is a sum all employers must pay their employees no later than December 24 of every year and must be equivalent to the basic monthly salary, or one-twelfth of the basic annual salary. Under Philippine labor laws, it is a mandatory benefit and is not to be conflated with a “Christmas bonus,” and employers voluntarily give Christmas bonuses to employees.
Failure to comply with Labor Law provisions for the 13th month pay will result in penalties. Business owners will also be subject to legal scrutiny by the Philippine Department of Labor and Employment (DOLE). To learn more about the details surrounding the 13th month pay, as well as the computation needed for it, read on. We have compiled all that you need to know.
Who is covered by the 13th month ruling?
All employees in private companies who have rendered their services for at least one month in a regular calendar year are eligible to claim their 13th month pay, regardless of position in the business or employee status.
How do I compute for my staff’s 13th month pay?
Computation is the total basic annual salary divided by twelve months. If, however, the employee worked for less than a year, then they are only entitled to receive the amount due to them based on the number of months that they were employed by you. Additionally, you may opt to give the 13th month pay in two installments so long as the benefit is given before December 24. Most companies opt for this two-installment arrangement, giving the first half in May (mid-year) and the second half in December (year-end).
Noteworthy, the following fiduciary compensations are not included in the computation for 13th month pay unless they are provided for in the total basic salary:
– Cost-of-living allowances
– Overtime Pay
– Profit-sharing payments
– Cash equivalent of sick leave and unused vacation credits
– Premium pay
– Night shift differential
– Holiday pay
– Other allowances, bonuses, and benefits not counted in the employee’s salary
What does the Tax Obligation Rates under TRAIN Law mean with regards to 13th Month Pay?
Generally, the 13th month’s pay is excluded from taxation; however, there is a limit to this exemption as provided under the amended Section 32 (B)(7)(e) of the National Internal Revenue Code. This amendment states that 13th month pay that amounts to P 90,000 or less is to be exempted from tax. Any amount beyond P 90000 must be included in the computation of the employee’s gross income for the year.
So, what should I do now?
The 13th month pay can be easily computed for, lest it goes over the maximum limit. Just keep these tips in mind when doing so yourself. However, if you feel like you’re in need of additional help, you may always form a team of in-house professionals or outsource accounting services to do the job for you.
Call our team of accounting professionals to ensure you calculate the right amount. Avoid stiff penalties and DOLE sanctions with our expert help. Apart from accounting and bookkeeping services, we offer payroll services to help with your operations. Don’t hesitate to touch base with our team so we can audit your books. We offer free 30-minute consultations.
