diff --git a/app/Http/Controllers/AttendanceRecordController.php b/app/Http/Controllers/AttendanceRecordController.php
index 24044b031..f0db7c172 100644
--- a/app/Http/Controllers/AttendanceRecordController.php
+++ b/app/Http/Controllers/AttendanceRecordController.php
@@ -41,7 +41,7 @@ class AttendanceRecordController extends Controller
         }
 
         if (Auth::user()->can('manage-attendance-records')) {
-            $query = AttendanceRecord::with(['employee.employee.branch', 'shift', 'attendancePolicy', 'creator'])
+            $query = AttendanceRecord::with(['employee.employee.branch', 'shift', 'creator'])
                 ->where(function ($q) {
                     if (Auth::user()->can('manage-any-attendance-records')) {
                         $q->whereIn('created_by', getCompanyAndUsersId());
@@ -442,7 +442,7 @@ class AttendanceRecordController extends Controller
                 $attendanceRecord->update($validated);
 
                 // Reload necessary relationships if not already fresh
-                $attendanceRecord->loadMissing(['shift', 'attendancePolicy']);
+                $attendanceRecord->loadMissing(['shift']);
                 $attendanceRecord->processAttendance(false);
 
                 return redirect()->back()->with('success', __('Attendance record updated successfully'));
@@ -735,7 +735,7 @@ class AttendanceRecordController extends Controller
     {
         if (Auth::user()->can('export-attendance-record')) {
             try {
-                $attendanceRecords = AttendanceRecord::with(['employee', 'shift', 'attendancePolicy'])
+                $attendanceRecords = AttendanceRecord::with(['employee', 'shift'])
                     ->where(function ($q) {
                         if (Auth::user()->can('manage-any-attendance-records')) {
                             $q->whereIn('created_by', getCompanyAndUsersId());
@@ -758,7 +758,6 @@ class AttendanceRecordController extends Controller
                         'Employee',
                         'Date',
                         'Shift',
-                        'Attedance Policy',
                         'Clock In',
                         'Clock Out',
                         'Break Hours',
@@ -775,7 +774,6 @@ class AttendanceRecordController extends Controller
                             $record->employee->name ?? '',
                             $record->date ? date('Y-m-d', strtotime($record->date)) : '',
                             $record->shift->name ?? '',
-                            $record->attendancePolicy->name ?? '',
                             $record->clock_in ?? '',
                             $record->clock_out ?? '',
                             $record->break_hours ?? '',
diff --git a/app/Http/Controllers/EmployeeController.php b/app/Http/Controllers/EmployeeController.php
index eeef8736b..e1b4c3648 100644
--- a/app/Http/Controllers/EmployeeController.php
+++ b/app/Http/Controllers/EmployeeController.php
@@ -462,7 +462,7 @@ class EmployeeController extends Controller
             }
 
             // Load user with employee relationships
-            $user = User::with(['employee.branch', 'employee.department', 'employee.designation', 'employee.shift', 'employee.attendancePolicy', 'employee.documents.documentType'])
+            $user = User::with(['employee.branch', 'employee.department', 'employee.designation', 'employee.shift', 'employee.documents.documentType'])
                 ->where('id', $employee->user_id)
                 ->first();
 
@@ -1149,7 +1149,7 @@ class EmployeeController extends Controller
     {
         if (Auth::user()->can('export-employee')) {
             try {
-                $employees = User::with(['employee.branch', 'employee.department', 'employee.designation', 'employee.shift', 'employee.attendancePolicy'])
+                $employees = User::with(['employee.branch', 'employee.department', 'employee.designation', 'employee.shift'])
                     ->where('type', 'employee')
                     ->where(function ($q) {
                         if (Auth::user()->can('manage-any-employees')) {
@@ -1182,7 +1182,6 @@ class EmployeeController extends Controller
                         'Gender',
                         'Shift',
                         'Basic Salary',
-                        'Attedance Policy',
                         'Employement Type',
                         'Employement Status',
                         'City',
@@ -1212,7 +1211,6 @@ class EmployeeController extends Controller
                                 $employee->gender ?? '',
                                 $employee->shift->name ?? '',
                                 $employee->base_salary ?? '',
-                                $employee->attendancePolicy->name ?? '',
                                 $employee->employment_type ?? '',
                                 $employee->employee_status ?? 'active',
                                 $employee->city ?? '',
diff --git a/app/Services/ThirteenthMonthService.php b/app/Services/ThirteenthMonthService.php
index aa66e21d8..7420395c5 100644
--- a/app/Services/ThirteenthMonthService.php
+++ b/app/Services/ThirteenthMonthService.php
@@ -50,19 +50,22 @@ class ThirteenthMonthService
                 $key = $periodDate->format('Y-m');
 
                 if (array_key_exists($key, $monthlyEarnings)) {
+                    // Actual Basic Salary Earned (net of absences/tardiness)
                     $basic = (float) ($entry->basic_salary ?? 0);
-                    
-                    $extraBase = 0.00;
+
+                    // Add Paid Leaves (Sick Leave, Vacation Leave, Birthday Leave)
+                    // Excludes: LWOP (Unpaid Leaves), Holiday Pay, Overtime, Night Differential, COLA
+                    $paidLeaves = 0.00;
                     if (is_array($entry->earnings_breakdown)) {
                         foreach ($entry->earnings_breakdown as $item) {
                             $category = strtolower($item['name'] ?? '');
-                            if (str_contains($category, 'paid leave') || str_contains($category, 'holiday')) {
-                                $extraBase += (float) ($item['amount'] ?? 0);
+                            if (str_contains($category, 'paid leave')) {
+                                $paidLeaves += (float) ($item['amount'] ?? 0);
                             }
                         }
                     }
 
-                    $monthlyEarnings[$key] += ($basic + $extraBase);
+                    $monthlyEarnings[$key] += ($basic + $paidLeaves);
                 }
             }
         } else {
diff --git a/docs/PLAN-13th-month-pay.md b/docs/PLAN-13th-month-pay.md
index 938197af4..723825946 100644
--- a/docs/PLAN-13th-month-pay.md
+++ b/docs/PLAN-13th-month-pay.md
@@ -8,10 +8,10 @@ Implement a comprehensive **13th Month Pay Module** compliant with Philippine La
 ## 2. Requirements & Business Rules
 
 ### A. Calculation Formula (DOLE Standard)
-$$\text{13th Month Pay} = \frac{\sum (\text{Basic Salary Earned} + \text{Paid Leave Pay} + \text{Holiday Pay})}{12}$$
+$$\text{13th Month Pay} = \frac{\sum (\text{Actual Basic Salary Earned} + \text{Paid Leave Pay})}{12}$$
 
-* **Included Base:** Basic pay earned + Approved paid leave pay (VL/SL) + Holiday pay from processed `PayrollEntry` records in the selected year/range.
-* **Excluded Base:** Overtime pay, Night Differential pay, allowances, incentives, and reimbursements.
+* **Included Base:** Actual basic salary earned (after tardiness/absence deductions) + Approved Paid Leaves (Sick Leave, Vacation Leave, Birthday Leave) from processed `PayrollEntry` records.
+* **Excluded Base:** Unpaid Leaves (LWOP), Holiday Pay (Regular & Special Non-Working), Overtime Pay, Night Differential Pay, COLA, allowances, incentives, and reimbursements.
 * **Deductions Policy:** Completely free of statutory (SSS, PhilHealth, Pag-IBIG) and loan deductions.
 * **Tax Exemption:** Automatically applies TRAIN Law ₱90,000 bonus tax-exemption threshold (amounts above ₱90k flagged for tax evaluation).
 * **Pro-rating:** Automatically pro-rates for employees hired during the year or resigned mid-year based on actual payroll records.