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It is prescribed by Philippine labor laws as a mandatory benefit and should not be confused with the “Christmas
bonus” commonly practiced in the local business setting. The Christmas bonus is not a demandable and
enforceable obligation, and can only be released upon an employer’s voluntary discretion. It is usually granted
by employers to show appreciation and gratitude for the service rendered by their employees within a year. The
13th month pay, on the other hand, is required by law and employers who fail to provide them by the end of the
year are subject to legal scrutiny by the Department of Labor and Employment (DOLE).
cost-of-living allowances;
profit-sharing payments;
cash equivalent of unused vacation and sick leave credits;
overtime pay;
premium pay;
night shift differential;
holiday pay; and
other allowances and monetary benefits not considered part of an employee’s basic salary.
However, if some or all of the items enumerated in the list above are treated as part of the basic salary, then they
shall be included in the final computation.
Although not stipulated by PD 851, by accepted practice, managerial employees are also provided with an
equivalent of the 13th month pay.
Computation
Computation of the 13th month pay primarily consists of the total basic monthly salary of an employee for the
whole year, divided by twelve (12) months. Those who have worked for less than a year, however, are only
entitled to receive the amount due to them on the number of months they were employed.
Moreover, an employer is given the prerogative to release the 13th month pay in installments of two (2) to
whichever number that is convenient to satisfy the condition that the mandatory benefit be given before
December 24 every year. By practice, many companies maintain two installments, first in May and then in
December, where the first fifty percent (50%) is given as an aid for employees to prepare for the opening of the
regular school year in June.
Anything beyond the maximum exclusion rate of P90,000 must be included in the computation of the
employee’s gross income for the applicable taxable year.