When the weather becomes cooler in December, you may hear two things coming out of every Filipino’s mouth. The first is Christmas and how they want to spend it with their family, and the second is their 13th-month salary.
Everyone anticipates this payment since it covers the cost of the celebration and the Christmas gifts we give to our loved ones. However, because employers typically handle the intricacies of payroll, it’s understandable that not everyone is aware of the 13th-month pay law.
Nevertheless, it is necessary to grasp the details of the legislation to comprehend why you are receiving a certain percentage of your monthly income. Knowing how to do a correct 13th-month salary calculation will help you better organize your finances in preparation for the holidays.
Explanation of 13th-Month Pay
13th-month pay is a mandatory compensation that is delivered to rank-and-file employees before the end of the year. To offer a clear description of what it is, When President Ferdinand Marcos implemented Presidential Decree No. 851, it became law on December 16, 1975.
Every year, the payment must be received by December 24th. While the majority of firms pay their employees at the end of the year, certain employers might pay them twice a year (in June and in December).
The compensation may resemble any Christmas bonuses given out by companies at the end of the year. But this kind of incentive is legislated by the government to offer equitable compensation for the period of work a specific employee has performed for the year, while bonuses are awarded at the discretion of your employers.
Now that we’ve clarified what the 13th-month pay is all about, how do we go about figuring out the details of this law? Who is qualified for it? Who is exempted from the mandate? Is the amount paid taxable? Are freelancers subjected to it?
Are Freelancers Subjected To 13th-Month Pay?
For everyone who works in the Philippines, the 13th-month pay is one of the most eagerly anticipated December benefits. This might be something you’re used to getting towards the end of the year. Should you expect this incentive from your clients now that you’re a freelancer?
Unfortunately, this rule in the Philippines does not apply to online freelancers such as virtual assistants, content writers, social media managers, web developers, graphic designers, video editors, real estate cold callers, transcriptionists, e-commerce professionals, and so forth.
There are various factors to consider while deciding whether to request this benefit. Because you are a freelancer and not an employee, you should not demand anything. Terminologies can be perplexing at times, so let’s define a few terms to clear things up.
Employee: A person who works part-time or full-time under an employment agreement, whether verbally or in writing, stated or implicit, and has recognized rights and obligations.
Freelancer: A person who works for a range of firms on a contract basis rather than as an employee for a single organization. Freelancers are generally called self-employed since they have the option to choose which projects and firms they want to work with.
When you choose to work for yourself or as a freelancer, you are effectively waiving your rights to government-mandated benefits like a 13th-month salary, health insurance, and other privileges that come with working for someone else. You can negotiate, but not demand, whether you should ask your clients for these perks. You may not even need to inquire. The benefits will come easily and perhaps spontaneously if you do your job well and give it all.
Educate and Negotiate
Labor regulations vary from country to country. Some employees are paid for the 13th month, while others are not. Some clients are also more willing to talk about how they will pay their employees. However, if you haven’t been fortunate enough to have this type of client, the best thing you can do is educate them. While this is a difficult choice for freelancers to make because of the risk of outright rejection, it is one you should consider for clients with whom you have formed connections and have created a degree of trust and confidence. Negotiate rather than demand.
Who Is Eligible for 13th-Month Pay?
Enlisted employees are entitled to their 13th-month compensation if they continue to work for their company. Even if employed towards the end of the year, the employee is entitled to at least 1/12th of their basic income during the year. This reward is available to all workers, even those who have resigned or been fired.
Who Isn’t Qualified to Receive Their 13th-Month Pay?
Under Presidential Decree 851 (PDF), employees of government agencies and political subdivisions are not qualified. The law does not apply to workers who work for numerous employers or government employees who work part-time for private businesses.
Employers Who Are Not Obligated to Give 13th-Month Pay
Under PD 851, the following employers are excluded from paying 13th-month pay:
- The government and any of its political branches, including government-owned and controlled corporations, except for those firms acting effectively as private subsidiaries of the government,
- Employers who pay their employees the equivalent of a 13th-month wage or more in a calendar year when PD 851 is issued.
- Employers of folks who work in somebody else’s service
- Employers must pay the required 13th-month pay to those who are paid solely on a commission, boundary, or mission basis, as well as those who are paid a fixed amount for performing specific work, regardless of the time spent doing so.
Are There Clients Who Give 13-Month Incentives?
The good news is that some clients are willing to pay their Filipino freelancers for the 13th month. It might be out of the kindness of their hearts, or in recognition of outstanding job performance, or to meet business year-end goals, or just to pay the Filipino hires for the 13th month. Whatever it is, be grateful if you receive a 13th-month pay or any holiday bonus as a freelancer, regardless of the amount, because not everyone is as fortunate as you.
How to Compute 13th-Month Pay
As you might have anticipated, the actual calculation of the 13th-month salary varies by jurisdiction.
In certain countries, 13th-month pay is treated as an additional payment; hence, the amount due for the 13th month is usually determined by dividing the entire basic income by 12. In the Philippines, the calculation method is as follows: total annual basic wage (minus unpaid absences) divided by 12 equals 13th-month compensation. To put it another way, that’s the equivalent of a month’s wages for that year. Bonuses and other monetary advantages obtained that year are not included in the total basic pay.
If an employee makes PHP 240,000 per year and hasn’t taken any unpaid vacation days, their 13th-month salary would be PHP 20,000 (240,000/12 = 20,000).
In the Philippines, however, calculating 13th-month compensation is a little different if an employee joins the firm halfway through the year. In this situation, the 13th month’s pay would be calculated by dividing the entire yearly compensation by 12.
Let’s use the employee who makes PHP 240,000 per year as an example, except that by December 31, they will have only worked for the employer for four months. To calculate their basic monthly wage, multiply it by the number of months they worked (PHP 20,000 x 4 = PHP 80,000), then divide it by 12 (PHP 80,000 divided by 12 = PHP 6,666.67). That is their wage for the 13th month.
Can I Still Get Paid For The 13th Month If I Resign?
An employee who resigned or whose services were terminated before the payment of the 13th-month pay is entitled to this monetary benefit in proportion to the length of time he worked during the year, calculated from the time he began working during the calendar year until the time he resigned or was terminated from the service.
Will The 13th Month’s Compensation Be Taxed?
Only a portion of your 13th-month salary will be liable to tax if it reaches a particular threshold. The former PHP 82,000 limit has been raised to PHP 90,000 thanks to the TRAIN Law.
Is There a 13th-Month Compensation for Managers and Supervisors?
Managers and supervisors may have to wait a while for their 13th-month salary because the legislation does not include them. It is up to the company’s choice whether its managers will get this compensation.
What Can You Do As A Freelancer To Make Up For The 13th Month?
You may save a portion of your freelance job earnings each month and put it in a coin bank or savings account to give yourself something to look forward to in December. Then, in December, pull out all your saved cash to splurge on gifts for yourself and your loved ones, just like you would if you were given a bonus!
It’s natural to be envious of other people’s good fortune because we’re just humans. but don’t dwell on it too much. You’re fortunate in that you have a job. You’re fortunate in that you can keep an eye on and care for your children every day, even if you’re working on a project. You’re fortunate in that you don’t have to drive through terrible traffic to get to work. Because you are a freelancer, you are fortunate.
Also, be grateful for those Filipino freelancers who have received their 13th-month salary from their clients. Perhaps you will be one of the lucky ones next year as well.
13th Month Pay and Christmas Bonuses
To clarify, the 13th month’s pay is not the same as the Christmas bonus for both employers and employees. The fact that they are both monetary and given by employers is the only thing they have in common.
For all non-managerial employees, the 13th-month salary is required by law; however, for managers, it is up to the employer’s choice.
On the other hand, Christmas bonuses are a non-taxable perk that businesses may or may not offer to their staff. In contrast to the mandatory 13th month’s pay, it is also voluntary. Additionally, employers may decide to distribute it ahead of, on, or after December 24. Employers now frequently pay half at the start of the academic year and the remaining amount in the weeks leading up to Christmas.