The Invisible Month

Employees must have been having their company’s Christmas parties by now. This is actually a month where most of the days in the calendar has non-working holidays and while the rest of the working days were either spent preparing for Corporate parties or employees are on Vacation Leave.

Aside from company-sponsored parties or events for employees, and even some with the employees’ family, one basic employee benefit is triggered by the onset of the Christmas Season and that is the 13th Month Pay.

13th Month Pay came into law on December 16, 1976 through Presidential Decree 851 by the late Former President Ferdinand E. Marcos. This law required all employers at that time to pay their employees 13th month pay. The rationale that this law came in to existence are the following reasons:

1. There have been no increase in the legal minimum wage rate since 1970;
2. It is necessary to further protect the level of real wages from the ravage of worldwide inflation;
3. The Christmas season is an opportune time for society to show its concern for the plight of the working masses so they may properly celebrate Christmas and New Year.

And the basic guidelines for this law were:

1. All employers are hereby required to pay all their employees receiving a basic salary of not more than P1,000 a month, regardless of the nature of their employment, a 13th-month pay not later than December 24 of every year.
2. Employers already paying their employees a 13th-month pay or its equivalent are not covered by this Decree.
3. It was effective immediately.

Being a person in the corporate finance, I could only imagine the confusion that this law brought when it was first implemented, considering that this was to be effective immediately. Our cubicled treasury warriors must have scoured through those cash flow budgets to source funds for such a corporate-wide expenditure. Our cubicled Accountants and HR people must have spent some sleepless night pounding their calculators to come up with the employee’s computations.

As to the computation, the formula is:

Total basic salary earned for the year exclusive of overtime, holiday, and night shift differential pay divided by 12 = 13th month pay.

Now I assume most of you guys must have received or if you are entrepreneurs yourselves have paid the mandatory 13th month pay. So, enjoy and happy gift giving!