There has been much discussion recently on the topic of 13th Month Pay and the obligations of employers in the Philippines in 2020 – a year in which many businesses have been affected by COVID-19.
For employers in the Philippines, the 13th Month Pay obligation has significant implications for payroll, accounting, bookkeeping, tax compliance and budgeting activities.
Check out our previous article – 13th Month Pay in the Philippines: Obligations for Employers – for a more comprehensive explanation on 13th Month Pay in the Philippines.
In this article, however, we focus on DOLE’s recent issuance of Labor Advisory No. 28 – Series of 2020 – which clarifies the obligations on employers for paying 13th Month Pay this year.
What is 13th Month Pay in the Philippines?
13th Month Pay is a statutory benefit that must be paid to rank-and-file employees in the Philippines each year. Employees, with at least one month employment service, are entitled to receive payment, in addition to their regular salary, equivalent to 1/12 of their basic salary for the relevant calendar year.
In short, 13th Month Pay is a statutory obligation that employers in the Philippines are strictly mandated to pay to all covered employees.
Why has there been so much discussion about 13th Month Pay in recent weeks?
Two main reasons!
First – there is always a lot of conversations about 13th Month Pay as we approach the end of the calendar year in the Philippines as this is the time when it is usually paid (see below)!
Secondly – this year is different! Due to COVID-19, many companies in the Philippines have experienced a significant impact on their business, operations, cashflow and general finances since early 2020. As such, the 13th Month Pay payment is likely to have much greater implications on a company’s cashflow and finances than it would have in a “normal” year.
What does Labor Advisory No. 28 say?
Labor Advisory No. 28 – Series of 2020 – Guidelines on the Payment of Thirteenth Month Pay was issued by DOLE, dated 16 October 2020.
Labor Advisory No. 28 of 2020 includes five short sections which effectively confirm that employers in the Philippines are obliged to pay all covered employees this year, notwithstanding COVID-19. No exceptions!
The five sections of Labor Advisory No. 28 are summarised below:
All rank-and-file employees in the private sector shall be entitled to receive 13th Month Pay regardless of their position, designation or employment status – provided they have been employed for at least one month in 2020.
The minimum 13th Month Pay payment under law must not be less than 1/12 of an employee’s total basic salary earned during 2020. The computation formula is as follows:
Total basic salary earned during the year / 12 months = Proportionate 13th Month Pay Value
- Timing of Payment
Employers must pay the full amount of the 13th Month Pay on or before 24 December 2020!
- No Exemptions or Deferments
No request or application for exemption from the 13th Month Pay obligation, or for deferment of the payment thereof, shall be accepted or allowed.
- Report of Compliance
Employers are required to submit a Compliance Report to DOLE no later than 15 January 2021. The report on compliance should include the following information:
- Name of establishment
- Principal product or business
- Total employment
- Number of workers benefited
- Amount granted per employee
- Total amount of benefits granted
- Name, position and telephone number of person providing the information
13th Month Pay – All you need to know!
For a more in-depth review of the 13th Month Pay requirement in the Philippines, check out our previous article – 13th Month Pay in the Philippines: Obligations for Employers.
In that article, we outlined:
- The key requirements of 13th Month Pay in the Philippines;
- The difference between 13th Month Pay and an employee bonus;
- The tax treatment of 13th Month Pay;
- How to compute 13th Month Pay for both existing employees and resigned/terminated employees (including a working example!);
- The relevant points of consideration when accounting and bookkeeping for 13th Month Pay.
Digital Accounting, Bookkeeping and Payroll Services in Metro Manila and the Philippines
CloudCfo supports businesses in the Philippines across the range of payroll-related services. We advise on efficient payroll solutions as well as help design processes to ensure the payroll function is fully optimised and integrated across your business.
We help compute and file mandatory government employee contributions (SSS, Pag-IBIG, PhilHealth) as well as payroll-related deductions and help ensure that your business is fully compliant!
Visit us at cloudcfo.ph or contact us at firstname.lastname@example.org to discuss how we can help your business grow here in the Philippines!