The Presidential Decree No. 851 otherwise known as the 13th Month Pay is fundamentally a Government implementation of monetary assistance equivalent to the monthly basic salary received by an employee. The 13th Month Pay computation is pro rata, it is based on how many months within the calendar year that the employee has worked for the employer(s). To compute the 13th Month Pay:
(Basic Monthly Pay) ÷ 12 * (Number of Months worked within the Calendar Year)
The term '13th Month Pay' denotes the one twelfth (1/12) of the employee's basic salary within a calendar year. The 13th Month Pay computation is derived from the 12 months of one calendar year.
For an employee to be entitled for the 13th Month Pay, he/she must have worked for the employer at least one month during the calendar year, provided that the employer is covered and is not stated in Section 3 of the decree.
The term 'Basic Salary' denotes the wage or salary the employee receives from the employer(s) for services rendered with the payouts set according to the predetermined schedule agreed by both employer and employee. The term 'calendar year' refers to the Gregorian calendar that starts from January 1 and ends on December 31.
A payment which is deemed not part of the Basic Salary and thus will not be included in the 13th Month Pay computation (but may be included in other payments, e.g. Christmas Bonus) includes the following:
- Benefits received for regular holidays and night differentials will not be included in the 13th month pay computation.
- Premium benefits received for work rendered during rest days and special holidays will not be included in the 13th month pay computation.
- Sick leave, Vacation leave and Maternity leave aren't included in the 13th Month Pay computation.
While the 13th Month Pay is mandated by law, the Christmas Bonus isn't. The Christmas bonus is not a required and demandable responsibility, provided that this bonus, as per agreement made by the employer and employee, it is not made part of the compensation or wage benefit of the employee.
In such instances when a Christmas bonus (or any kind of bonus for that matter) becomes a long-standing policy, withdrawing the benefit is tantamount to a reduction of employee benefits prohibited under the Philippine Labor Code.