Having Difficulty Calculating Your 13th Month Pay in the Philippines? Here is an Easy Guide to Help You (With Examples)
Christmas is coming! It’s a wonderful time where family and friends gather to relax and have fun. Bring on the amazing log cakes, Christmas hams, menudo, chicken embutido and spaghetti! 😊
It is December and the long-awaited holiday is finally here! In the Philippines, it is normal to see people preparing for Christmas as early as in September. They start putting up Christmas trees, decorations, think of gift ideas and the food to prepare for their family and friends. Aside from gifting and delicious food, many Filipinos also look forward to receiving their 13th month pay at the end of the year. This amount of cash is well appreciated by employees.
However, did you know that the 13th month pay is not optional nor is it done out of the generosity of the employer?
It is actually mandatory for the employer to pay the employees the 13th month pay because it is enshrined in the labour laws in the Philippines. An employee needs to have worked one month at the very least in the year to qualify to receive the 13th month pay.
The 13th month pay is calculated as the total basic annual salary of the employee, less any deductions and excluding any cash benefits or payments for overtime, divided by 12. This amount should be given to the employee in December, preferably in the first week, though the law dictates that it should be paid by 24th December. The 13th month pay is very different from a Christmas bonus, because it is mandatory by law for the employer to pay the 13th month pay while the Christmas bonus is not mandatory. If the employer chooses to give the employee a Christmas bonus, it is usually in the form of a physical gift or a gift voucher, and therefore not necessarily cash.
Not sure how to calculate your 13th month pay? Here are some examples just for you:
- If an employee has worked for the full 12 months of the year, and his or her basic monthly pay is P15,000, then the 13th month pay will be:
P15,000 x 12= P180,000
P180,000 / 12= P15,000
In this case, the 13th month pay will be P15,000.
- If an employee worked for 10 months of the year, and had 2 months unpaid leave, and the basic monthly pay is P15,000, then the 13th month pay will be:
P15,000 x 10=P150,000
P150,000 / 12= P12,500
The employee will get P12,500 as the 13th month pay.
- If an employee was hired in the month of February and resigned at the end of October and the basic monthly pay is P15,000, then the 13th month pay will be based on the total annual basic salary for the 9 months that he or she has worked, assuming that there were no deductions. It will be calculated as follows:
P15,000 x 9= P135,000
P135,000 / 12= P11,250
The employee who resigned in October will get P11,250 as the 13th month pay.
- If an employee is contracted to work for 6 months in the year, and is paid at a rate P500 per day, then his 13th month pay will be based on the pay that he has received for those 6 months assuming that there are no deductions. It will be calculated as follows:
P10,000 x 6= P60,000
P60,000 / 12= P5,000
The employee on contract will receive P5,000 as his or her 13th month pay.
- If an employee managed to get a pay raise on the basic pay from P 15,000 to P 20,000, but the pay raise was effected in June, then the 13th month pay will be as follows:
P15, 000 x 5= P75,000
P20,000 x 7= P140,000
P215,000 / 12= P17,917
This particular employee will receive P17,917 as the 13th month pay.
It is always exciting for an employee to receive this pay during Christmas time. However, there is always the risk of using these funds in a wasteful way.
The following are some wise ways of using the 13th month pay:
1. Set cash aside for emergencies
This is one of the best ways of utilising this pay. If one has never had any savings put aside for emergencies, then it is advisable to begin doing it when the 13th month pay comes in. Emergencies are inevitable and it can happen any time. These could be in the areas of medical, job retrenchment or even unforeseen catastrophes. It is important to have some kind of savings available to provide a way out when such emergencies occur.
2. Buy some stocks
Investing in stocks has always been a way of making extra cash while one has a fulltime job. It is a great benefit for Filipinos to put their 13th month pay into this kind of investment. There are stock market experts who will handle the movement of the stocks on behalf of the investors, and the end result should be a net profit on the original investment.
3. Settle outstanding debts
Most Filipinos are in debt to some degree. Therefore, it is a wise decision to try and settle a good percentage of personal debts using the 13th month pay. This will give the employee peace of mind during Christmas as he or she will have reduced the debt burden substantially. This will also improve the credit rating of the employee over time.
4. Invest in a business
This is a great opportunity for an employee to become a business owner. Many Filipinos dream of starting their own businesses and saying goodbye to employment, but many times they lack the initial capital to get the business up and running. The 13th month pay provides an excellent source of cash for the employee to take the plunge into the exiting world of business. With good budgeting and planning, this could be his or her launch into a higher level of prosperity.
5. Get insurance
Life insurance is one of the best ways of protecting one’s family from sudden tragedies such as death. It will be wise for the employee to invest the 13th month pay in some kind of life insurance policy that will give good benefits to the loved ones in the event of sudden loss or death.
6. Give a donation
Christmas is a time of giving and there will always be those who are less privileged than others. This is also true in the Philippines, and it will be a great idea for the employee to actually give their 13th month pay to a good cause during the Christmas season. Indeed, this creates a wonderful feeling of satisfaction and joy for the giver, because it is always a beautiful thing to help others.
7. Develop a hobby
If an employee always wanted to invest in a particular area that he or she loves, then this is a good time to do it. Perhaps he or she has a passion for drawing and art work, but has never been able to get the equipment needed to develop this passion. Or perhaps he or she is passionate about music and can use the money to purchase a new guitar and share more music with friends and family. The 13th month pay can generally be used to buy the items necessary to develop any hobby.
8. Go on a well-deserved holiday
After working for a full year non-stop, every employee deserves a restful and refreshing holiday. The 13th month pay will provide a great opportunity for this to become a reality. Going on holiday is both exciting and therapeutic. It enables the employee to return to work with renewed energy and vigour, and this will improve the overall performance at work.
The 13th month pay is mandatory in the Philippines and should be received before or on 24th December. However, as with all laws, there are exceptions. The people who are not able to claim this cash are those who earn commissions, those in managerial positions, those who work for the government, and all who provide services for individuals on a personal level.
Remember that the formula for the 13th month pay is (Basic Salary Through The Year) / 12 = 13th month pay. Try not to get too excited when you receive your 13th month pay. Try to set aside some funds and not spend all of the money and lastly, have a wonderful Christmas!