Know Your Employment Rights | Part 3 – Basic Pay, Christmas Bonus, and Thirteenth Month Pay
It’s the season for your most coveted, hard-earned Christmas bonus and thirteenth-month pay. Most people correlate one with the other but how are these two terms different? Are they one and the same?
Anatomy of Your Basic Pay
Let us first analyze your basic pay as this is the focal point of our discussion on the thirteenth-month pay. The amount stipulated in your contract as per your compensation is your basic pay. It should be explicitly mentioned there the amount and frequency of receipt (like every 15th and 30th of each month, every month, or every 5th and 20th, etc.)
The basic pay does not include the deductions – SSS/GSIS, PhilHealth, HDMF, and Income Tax. Conversely, your overtime pay and any company initiated “add-ons” like de minimis and other forms of allowances (like rice and clothing allowance) are also not part of your basic pay.
The final amount that displays on the ATM screen every payday is also called your take home pay or NET pay. Your NET pay is the total amount of your basic pay plus all the additional allowances minus all the deductions as mentioned above. Your basic pay plus all your allowances WITHOUT the deductions is called your GROSS pay.
The thirteenth month is computed based on your basic pay. However, for some companies who provide for a Cost of Living Allowance, this amount (COLA) is part of the thirteenth-month computation.
All You Need to Know About Your Thirteenth-month Pay
Presidential Decree 851 is a law implementing the thirteenth-month pay in 1975. It was ratified in 1986 through Memorandum Order 28 removing the salary ceiling clause. The 13th-month pay is a legal obligation, your employer must conform to the law else, they face penalties accordingly imposed by the Department of Labor.
Who are entitled to the thirteenth-month pay?
In verbatim, this is what the law provides:
All rank-and-file employees, regardless of their designation or employment status, and irrespective of the method by which their wages are paid, who have worked at least one month during the calendar year are entitled to 13th-month pay.
This basically explains that no matter what your type of employment is, there is always a reason to put a smile across your face come December.
When Can You Expect it?
It is the company’ prerogative or the agreement between the employer and employee/collective bargaining agent when to release the thirteenth-month pay. According to the law, it should be given on or before the 24th of December. Some companies give it as early as the first week of December. There are also others who would give it on two occasions. This is within the clause of the law as it states that An employer may give to his employees one-half (½) of the required 13th-month pay before the opening of the regular school year and the other half on before the 24th of December of every year.
How Much is Your 13th Month Pay?
It’s best explained with an example. You earn 18 thousand pesos basic pay per month. You started working for the company last June. The 13th-month pay is actually computed relative to your tenure, so, since it is six months from June to December, we now have all the variables needed to compute.
Divide your basic pay by 12 (the number of months in a year). Then multiply it by the number of months you have been with the company. In our example, that would be 6. Therefore:
18,000 / 12 = 1,500
1,500 x 6 = 9,000
So your expected 13th-month pay is 9,000 pesos more or less because the extra days will also be computed accordingly if say, you got hired mid-June. You can, however, expect the full 18,000 pesos as your thirteenth month pay the following year. Now, what if you were promoted and your salary increased? Simply follow the same formula to compute but this time, count the number of months you were receiving your usual pay and the number of months your pay increased.
Following the previous example, you got promoted in August and your salary increased to 24,000. Therefore, from January to July (7 months), you will have:
18,000 /12 = 1,500
1,500 x 7 = 10,500
From August to December would be 5 months which will have this formula:
24,000 / 12 = 2,000
2,000 x 5 = 10,000
10,500 + 10,000 = 20,500
Adding up both results will have 20,500 as your 13th-month pay. Take note, however, that the computations shown above are but a guide and is not an accurate calculation as there will be other considerations as imposed by your company. There will be some companies wherein your absences can actually be deducted among others.
Is there a tax on my 13th month?
Thanks to the new law regarding the 13th-month pay, annual bonuses of up to 82,000 pesos are exempt from income tax. So if your total 13th month and bonuses do not reach the threshold, you can expect the whole sum – Merry merry Christmas!!
13th Month Pay VS Christmas Bonus
Nope. They are not the same. Although most of the time, people use the term interchangeably. To simplify it, the 13th-month pay is a legal obligation. Your bonus on top of your 13th-month pay is an act of kindness and generosity by your employer.
There are only a few companies who would give bonuses. As mentioned and as the name itself implies, a bonus is not obligatory. Your thirteenth-month pay must be given to you on or before December 24. Your bonus can be given anytime.
To further differentiate the two, the amount you receive on your thirteenth-month pay is computed based on your basic pay. A bonus can be any amount your employer’s kind pockets can feasibly allow them to share. It is also possible as practiced by other companies that the bonus is a form of profit sharing. A bonus can be computed based on your performance you displayed for the year. It is, therefore, best to consult your local HR.
It is nevertheless important to note that there are Supreme Court cases wherein a bonus can become demandable. As it by theory, an act of generosity, if it has become a long-standing practice or policy, the employer is obliged to give the bonus permanently. Else, it will be considered as a reduction of benefits.
Before you get excited on how you will spend your work blessings this holiday season, it is important to know your rights as these are all fruits of your labor.
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