Your 13th Month Pay and You

One of the benefits of working here in the Philippines is that, by law, you get a Christmas bonus - your 13th month pay.

But did you know that you don't actually get your one month's salary? You wouldn't think so from it's name, but in almost all cases an ordinary employee doesn't actually get one month's worth of salary.

For one, it's pro-rated. So if you've only been working for only 8 months by the time Christmas comes around, you only get 8/12 (~66%) of your month's salary.

And even by next year, you still might not get the full month's salary.

Companies usually give their employees their salary increase by September or October. Assuming you got an increase by October, by the time Christmas rolls-in you'll once again get a "pro-rated" bonus.

Your old rate (ex: 10k x 9 months) and new rate (12k x 3 months) are added and your 13th month pay will be based on the average. In this case you get just 10500, instead of the heftier 12000.

Of course the biggest hurdle is actually the income tax. Only the first Php30,000 is "free" - anything over that and you're required to pay taxes on the excess. Thankfully that's about to be raised to Php82,000. (update: It's been raised to Php82,000 as of Feb 13, 2015)

At first glance, it might not seem like ordinary, rank-n-file employees benefit from that higher exemption. After all, how many actually make 30k+ per month, right?

But actually that exemption applies to almost all other compensation you get aside from your basic salary and the few non-taxable allowances allowed by law.

So if you get a quarterly bonus, performance bonus, or even a one-time cash reward for exemplary performance, those count against the exemption. That 30k might not get eaten up completely, but all those smaller bonuses add up and could result in a bigger part of your 13th month pay getting taxed.

Besides, who among us really feels the need to give the government a "Christmas gift" by handing over even a small portion of our 13-th month pay?

It's better if we just give that "gift" to ourselves.

What about you, what have you done with your 13th month pay?

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photo credit: cthoyes via photopin cc

1 comment:

  1. i hope the P82k threshold for tax-exempted income for 13th month bonuses becomes official soon. Tax fees are really a pain. x_x