Is Christmas bonus the same as the 13th month pay? How do they differ from each other?
Well, to answer the first question – No. Christmas bonus is different from the 13th month pay of your employees, and one is mandatory by the law, while the other is under your discretion as the employer.
You should know, however, that Labor Secretary Silvestre Bello III made it clear that no company or employer will be exempted from paying their employees their 13th month pay this year (2020), despite the country experiencing a crisis due to the effects of the widespread coronavirus.
In accordance to this, the Department of Labor and Employment (DOLE) also ruled out the deferment or postponement of the 13th month pay, and that it should be released and given to the employees on or before December 24.
This is good news for the employees, but at the employers’ standpoint, it is seen as a challenge, especially if the company is facing financial distress at the time being.
What’s good news for the employers is that there is a solution.
Before we delve into that, let us first learn the basics on Christmas bonus and 13th month pay. In this article, we will learn their coverage, computation, and new obligation rate.
The key similarity that Christmas bonus and 13th month pay have is that they are both monetary benefits given out by employers to their employees. The key difference is that one is mandated by law, specifically Presidential Decree No. 851, and the other is by choice of the employers.
The 13th month pay that every employee receives should not be confused with Christmas bonus. The latter is not the employers’ obligation and is given voluntarily. It may be given to all or a few select as a show of appreciation or gratitude towards their hard work or great contribution to the company. While the 13th month pay is given to all rank-and-file employees in the private sector. However, they should have worked for at least a month within the calendar year, regardless of their job position, designation, and their employment status.
Employers covered The Decree shall apply to all employers except to:
- Distressed employers, such as (1) those which are currently incurring substantial losses or (2) in the case of non-profit institutions and organizations, where their income, whether from donations, contributions, grants and other earnings from any source, has consistently declined by more than forty (40%) percent of their normal income for the last two (2) years, subject to the provision of Section 7 of this issuance;
- The Government and any of its political subdivisions, including government-owned and controlled corporations, except those corporations operating essentially as private subsidiaries of the Government;
- Employers already paying their employees 13-month pay or more in a calendar year of its equivalent at the time of this issuance;
- Employers of household helpers and persons in the personal service of another in relation to such workers; and
- Employers of those 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 be covered by this issuance insofar as such workers are concerned.
13th month pay is pro-rated, while Christmas bonus is not.
When you say pro-rated, the computation is based on the total basic annual salary of the employee, divided by 12 months (or months in a year) and multiplied by the number of months an employee has been working in the company.
For example, an employee’s basic salary is ₱15,000 and has been working for 10 months within the same calendar year. The 13th month pay will be multiplied by 10 months, and divided by 12 months or the number of months in a year. Below is the sample computation:
₱15,000 x 10 months = ₱150,000
₱150,000 / 12 months = ₱12,500
₱12,500 should be the 13th month pay, in this example.
Compensations such as allowances, overtime pay, night shift differentials, regular holiday pays, and other monetary benefits are not to be included in the computation of the 13th month pay, unless these are treated as part of an employee’s basic salary.
On the other hand, the employer will determine the amount to be given when talking about Christmas bonus. The factors that affect this decision of the employer are employee’s tenure, performance evaluation, or the organization’s total productivity.
One other good news for employees is that the new TRAIN Law stipulates that the 13th month pay and other equivalent benefits is generally non-taxable for a maximum of ₱90,000, and any amount beyond this must be included in the gross income of the employee for the applicable taxable year.
Non-Compliance of 13th Month Pay
In Section 9 of the Presidential Decree No. 851, non-payment of the 13th month pay is to be treated as a claims case, and employers are given 10 days to comply. Otherwise, they can face administrative sanctions. The only time they can be exempted is if they are currently incurring substantial losses as per Section 7 of PD 851. They must, however, file a petition for exemption and must be approved by the current Labor Secretary.
Now here’s the solution mentioned earlier in this article. Applying for a business loan can make up for the financial loss that your company may be facing during a global crisis. You can use the loan money to cover for your employees’ mandatory bonus, if you choose to continue your business without getting reported for non-compliance of 13th month pay.
ANDALI can help you on this. Our financing solutions are designed to protect your cash flows and adapt to your business requirements.
To learn more about our business loans, click here or call us at +63 2 8898 3889 or +63 917 535 8956.