Both thirteenth month pay and separation pay includes which component?

In understanding the components that comprise both thirteenth month pay and separation pay, the correct choice highlights that both payments include the basic salary and regular allowances.

Thirteenth month pay is calculated based on an employee's total earnings for the year, which typically includes the basic salary along with mandatory allowances such as housing and transportation allowances. These allowances are considered part of the regular compensation an employee receives and therefore directly influence the total amount of the thirteenth month pay.

Similarly, separation pay, which is given to employees upon termination of employment, also incorporates the basic salary and any applicable regular allowances. This ensures that the employee receives a fair payout reflecting their total compensation package up until the point of separation.

By including both the basic salary and regular allowances, the calculation of these payments ensures that employees are compensated comprehensively, reflecting their ordinary earnings without omitting essential components that contribute to their financial well-being.