13th Month

There is no such thing as a 13th month, so what’s all this about getting paid for a month that doesn’t exist?

The History of 13th Month Pay

13th month pay began as a tradition in the Philippines to help families during the holiday season. A similar tradition known as the thirteenth salary is also popular in several other countries: Armenia, Argentina, Uruguay, Brazil, Germany, Austria, Italy, Singapore, Guatemala, Mexico, Costa Rica and Nepal.

Sometimes, companies choose to release the 13th month pay in two segments – one in May and the other in December.

The first portion is paid out to help families pay for school tuition down payments in preparation for the beginning of the school year. This helps the government to ensure that more Filipino children from less fortunate families are able to attend school.

The second portion is paid out to help families make the holidays special. Christmas is a huge affair in the Philippines, being a predominantly Christian country with strong Spanish influence. More than ever before, family members relocate overseas and have to travel to gather for the holiday season. The number of Filipinos working overseas has also drastically increased in the last few decades. This means that today, the Christmas gathering is all the more important to Filipino families. It is the only time that they are able to see their loved ones, and the only time that they really get to let their hair down.

Why Give an Extra Month’s Pay?

It is a deep-seated tradition for Filipinos to spend the holidays together, shopping for gifts, calling on friends and neighbors bearing food and gifts, attending church services, sharing their blessings with the poor, and preparing a huge midnight feast called the Nochebuena (literally “the Good Night”, the Spanish term for Christmas Eve).  As a result, family breadwinners end up burdened with huge expenses just to make the giant gathering happen. Some Filipinos have been known to beg, borrow and even steal just to be able to prepare what is needed for this crowning event of the year. The 13th month pay is a very important tradition that supports the most culturally vital holiday in the land.

So these are the roots of the 13th month pay and the role that it plays in the lives of the Filipino people. The tradition has somewhat evolved since its beginnings, however. Here are the answers to six basic questions that are often asked about this extra month’s pay today:

1.  Is 13th month pay the same as a Christmas bonus?

13th month pay is often described as being much like your average Christmas or end-of-the-year bonus. In reality, however, it is a completely separate monetary benefit. Some people in the Philippines get both 13th month pay and a Christmas bonus from their employers.

2.  How is the 13th month pay computed?

The 13th month pay is literally an additional month’s salary that is paid out to employees during the month of December. In effect, the employee’s salary is doubled for that month. Employees who have been with a company for less than a year, however, receive an amount that is directly proportional to the number of days that they have worked for that company in the past year. The formula for computing the 13th month pay is:

(basic monthly salary) X (number of months worked) / (12, the number of months in the year)

Note that the basic salary is exclusive of any allowances, other monetary benefits, commissions, and the like, which are not considered part of employees’ integrated basic monthly pay.

3.  Who gets 13th month pay?

13th month pay applies only to rank and file employees receiving fixed monthly wages who work in the private sector. This means that the following are not entitled:

  • managerial employees (those vested with the power to institute and execute management policies, to hire, transfer, suspend, lay-off, recall, discharge, assign or discipline employees, or recommend such actions);
  • those covered under the civil service law;
  • those already receiving the equivalent (not less than 1/12 of the employee’s basic salary) in the form of a Christmas bonus, mid-year bonus, or other bonuses;
  • those in the personal service of another (household helpers, private nurses, personal drivers, etc.); and,
  • those paid exclusively on a commission basis (real estate brokers, etc.), boundary basis (taxi and jeep drivers, etc.), task basis, and those who are paid a fixed amount for performing specific work (freelancers, etc.), except those paid on a piece-rate basis (factory workers, certain sales personnel, etc.).

4.  Is 13th month pay taxable?

Under Philippine law, 13th month pay below the Php30,000 threshold is tax exempt. Only the portion, if any, above the said amount is subject to regular income tax.

5.  Is 13th month pay obligatory?

In 1975, the giving of 13th month pay became an obligatory benefit protected by law under the country’s Department of labor and Employment (DOLE). The president at that time also decreed that all entitled employees must receive their 13th month pay before the 24th of December. The 13th month pay law was limited to those who received a basic monthly salary of less than Php1000. In 1986, however, the law was amended to remove the salary cap and include all salary levels.

6.  Should I be giving freelance hires 13th month pay?

There are two key aspects here for non-Filipinos hiring remote to remember. First, the 13th month pay law applies only to employees. Remote freelancers on FreeeUp are hired on a contractual basis, and not considered employees. Second, the 13th month pay law does not apply to freelancers paid on a per-task basis or paid a fixed amount for performing specific work. Therefore, the release of the 13th month pay, like a Christmas bonus, is completely optional.

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