For employees in the Philippines, the 13th month pay typically received at the end of the year is indeed something to celebrate. After all, the stated purpose for the 13th Month Pay Law issued by President Ferdinand Marcos in 1975 was “so that they may properly celebrate Christmas and New Year.” That is why employees from different industries, be it food services or outsourcing, look forward to the coming of December.

Presidential Decree No. 851, or the 13th Month Pay Law, mandates all employers to pay all rank and file employees a 13th month pay on or before December 24 of each year. How is the 13th month pay in the Philippines computed? The 13th month pay is equivalent to one twelfth (1/12) of the basic salary within a calendar year. To be eligible for it, an employee must have worked for the employer for at least one month in that calendar year.

In the computation of the 13th month pay, the “basic salary” excludes overtime pay, earnings, sick leaves, vacation leaves, maternity leaves and other remunerations.

In cases where an employer withholds the 13th month pay, covered employees can direct their complaints to the Department of Labor and Employment (DOLE) or the National Labor Relations Commission (NLRC).

The 13th month pay is different from the Christmas bonus. The 13th month pay is mandated by law, whereas the Christmas bonus is paid at the sole discretion of the employer. The 13th month pay is taxable only for amounts that exceed Php 30,000.00 (Philippine pesos).

There are employers who are exempted from paying the 13th month pay, among which are government and government-owned corporations, employers of household helpers, and employers of those paid on commission or task basis. An outsourcer outside the Philippines can only be subject to the 13th month pay rule if the company has its own business units on Philippine grounds, duly registered with the appropriate government establishments. When the outsourcing arrangement is purely on a contractual freelance basis, the employer is not required to dole out the mandated bonus.

Indeed, the 13th month pay serves its purpose to lend extra financial aid to employees during the Christmas season, and at the same time boost employee morale.

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