Christmas Bonus VS 13th Month Pay: Know the Difference

30 October 2021

Inquire Now

'Tis the season to be jolly not just because of the upcoming holidays but also because of the incoming 13th Month Pay and Christmas Bonuses of our hardworking rank and file employees.

It is a well-known fact that in Southeast Asia, the number 13 is considered an unlucky number. Because of this, Friday the 13th is observed as a day of vigilance, and the buildings' 13th storey floor is denoted as the 14th instead. And these are just a few of the most notable cases of Tetraphobia that have been described in this region.

But this belief tends to have a fresh breeze of change whenever the month of December is approaching—all thanks to our country's 13th Month Pay Law, along with the Christmas Bonus.

Every December, the "unlucky" number 13 takes on a new meaning. It's "double the blessings," as every employee's account receives a bonus equal to their doubled monthly wage. In addition, the Christmas Bonuses is also a welcome boost for certain fortunate workers.

But before we all get too excited for this additional premium pay that we can have this Christmas season, we employees must first know the difference between the 13th Month Pay and the Christmas Bonus.

13th Month Pay in the Philippines

1. It is a mandatory benefit.

Employers are legally mandated to pay their workers for the 13th month of their contract. If the employees in the corporations operating essentially for at least one month, regardless of position, he or she is entitled to this monetary benefit. It must be issued on or before the 24th of December of each year so make sure that you received your 13th Month Pay not later than the said date. If not, rank and file employees may sue their employers if they are not given the 13th month's wage on time.

Meanwhile, unless private employers have a long-standing tradition or is part of the employee's signed contract or personal service, an employer who fails to provide its employees a Christmas Bonus monetary benefits won't be subject to any legal action.

2. It is pro-rated.

The "Thirteenth-month pay" is defined in Sec. 2 of Presidential Decree 851 as one-twelfth (1/12) of an employee's basic monthly salary throughout a calendar year."

To arrive at this figure, the company divides the entire basic yearly compensation of each employee by the number of months they worked there. Meaning if you worked for the same firm for a year, you would be eligible for the entire amount of this mandatory benefit.

3. It is taxable.

Although the 13th Month Pay is promising, especially to the rank and file employees, it is taxable.

But thanks to The TRAIN Law, this employee perk is only made taxable if the total salary exceeds P90,000 beginning of January 1, 2018. Unless this occurs, you will be entitled to receive your 13th month's salary in full, tax-free.

Christmas Bonus in the Philippines

1. It is a voluntary obligation.

All Christmas bonus holiday pay is, in essence, a voluntary duty of the business to its workers. Based on business practices, these bonuses may be released at the employer's discretion any time of the calendar year. The only reason why it's called a "Christmas bonus" is because it is usually released around the holidays.

2. The amount will depend on the employer's decision.

To express appreciation or thanks, a business may provide a bonus to its employees. It might be based on the length of time an individual has worked there, their remarkable performance, or the high level of production of the organization.

3. It is non-taxable

A Christmas Bonus is at the company's exclusive discretion and is not governed by any legislation. As a result, there is no tax on it. Employers have the option of providing cash or other presents to their employees, depending on the terms and circumstances of the organization.

The Productivity Incentive Bonus under Republic Act 6971 and the Social Amelioration Program Cash bonus for the Sugar Industry employees under Republic Act 6982 are two examples of bonuses regulated by law. Aside from that, several firms have been paying Christmas Bonuses on top of the required 13th-month compensation for a long time.

Now that you already have some ideas about the difference between the 13th Month Pay and the Christmas Bonus, it's now time for us to learn how to compute the 13th Month Pay.

Computation of 13th Month Pay

Since the government mandates the 13th Month Pay, it is essential for the employees to know the right amount of earnings they should receive on or before December 24. Let's take a look into this example situation to know how to compute the 13th Month Pay.

This person has worked for the firm for eight months out of the twelve months in this scenario. There is a proration or division of the 13th-month salary according to the duration of service. Assuming that a basic salary income of P25,000 the compensation is computed as follows:

P25,000 x 8 =P200,000 / 12 = P16,666.67 (13th Month Pay)

The basic salary is the amount given to an employee by their employer for services rendered before deductions for contributions, personal income tax, and other employer-imposed deductions made like tardiness or unpaid leaves.

How did the 13th Month Pay in the Philippines start?

There was a struggle about the minimum wage in the Philippines in December 1975, and that's when the idea of a thirteenth wage first surfaced. It had been five years since the minimum wage had been increased, and it no longer corresponded to the cost of living.

Employers were required to pay the 13th Month Pay under Presidential Decree No. 851, issued by former President Ferdinand Marcos. A bonus was given to the employees, which they could either save or spend.

The Philippine Labor Code, or PD 442, was signed into law by former President Ferdinand E. Marcos on May 1, 1974. The code was created by a group headed by former Labor Secretary Blas Ople. In his Labor Day speech in 1974, Marcos had directed Ople to "accelerate the formulation of all labor regulations."

A great deal has changed in the area of labor law and employee relations since then.

According to the legislation, a person in an employment-employer relationship is entitled to 13th-month compensation and other benefits. Taxes apply to all employer income, including the 13th month's salary and any further bonuses.

But ever since the Tax Reform for Acceleration and Inclusion (TRAIN) act law took effect on January 1, 2018, the threshold for 13th-month salary and other employer incentives to be exempt from paying taxes has risen from Php 82,000 to Php 90,000. Perks, such as fringe, de minimis, and other benefits, are not taxed if they are less than Php 90,000.

The 13th Month Pay and the Christmas Bonus are indeed double-blessings for employers every December. Just remember to spend them wisely and make sure to save up some of them for your future and life investment.