Understanding 13th month pay and Christmas bonus
We have associated December with the idea of receiving gifts. As we got into the world of work, that belief remains and that is where interchanging 13th month pay and Christmas bonuses is rooted from. Although it seems harmless, mistaking one for the other could actually lead to confusion.
To enlighten employers and workers, the 13th month pay is not the same as the Christmas bonus. The only shared similarities that they have is that they are both monetary and given out by employers.
The 13th month pay is a form of monetary benefit equivalent to the monthly basic compensation received by an employee, computed pro-rata according to the number of months within a year that the employee has rendered service to the employer.
This mandated monetary benefit is given to rank-and-file or non-managerial employees after at least one month of tenure with an employer. The 13th month pay is made mandatory by Presidential Decree 851.
The decree states that employers must provide their employees a 13th month pay before the 24th of December of every year, after meeting certain requirements.
The 13th month pay is mandatory while Christmas bonus is at the discretion of the employer.
Christmas bonuses are non-taxable benefit that employers may or may not give to employees. It is also optional, a contrast to the 13th month pay. Employers may also opt to give it out before, during, or after Dec. 24. It has become common for employers to pay half at the beginning of the school year and the rest in the days running up to Christmas.
The Christmas bonus is an amount granted to an employee in excess of what the law requires as a reward or incentive for achieving a goal and/or contributing to the success of the employer’s business. This means that unlike 13th month pay, the Christmas bonus is given out of the employer’s generosity and is not a demandable and enforceable obligation.
Company bonuses soon came to be known as Christmas bonuses because they are typically handed out in December, although they could even be given throughout the year.
The following employers are exempted from paying the 13th month benefit under PD 851: a) government and any of its political subdivision, including government-owned and controlled corporations, except those corporations operating essentially as private subsidiaries of the government; b) employers already paying their employees 13th month pay or more in a calendar year or its equivalent at the time of this issuance; c) persons in the personal service of another in relation to such workers; and d) employers who are paid on purely commission, boundary, or task basis, and those who are paid a fixed amount for performing a specific work, irrespective of the time consumed in the performance thereof, except where the workers are paid on piece-rate basis in which case the employer shall grant the required 13th month pay to such workers.
The types of employees who are entitled to 13th month pay are: a) employees paid by results or employees who are paid on piece work basis and those who are paid a fixed or guaranteed wage plus commission, based on their total earnings during the calendar year, i.e., on both their fixed or guaranteed wage and commission; b) those with multiple employers. Government employees working part time in a private enterprise, including private educational institutions, as well as employees working in two or more private firms, whether on full or part time basis, are entitled to the 13th month pay from all their private employers regardless of their total earnings from each or all their employers; c) private school teachers. Private school teachers, including faculty members of universities and colleges, are entitled to 13th month pay, regardless of the number of months they teach or are paid within a year.
If they have rendered service for at least one month within a year and resigned or separated, they are also entitled to 13th month pay.