If you’re hiring in the Philippines, or planning to, you’ve probably heard about 13th-month pay. And if it raised more questions than answers, that makes sense.
Think of it as a mandatory holiday bonus with legal teeth. Not a perk. Not a nice-to-have. It’s a legally required payment for employees in the private sector in the Philippines, and if you miss it (or mess it up), you’re going to run into issues with compliance, employee satisfaction, and possibly even the Department of Labor.
And yes, it’s different from a Christmas bonus, that one’s optional. But 13th-month pay? Absolutely not. If you employ workers in the Philippines, you’re required to pay it.
In this guide, we’ll walk you through:
- What 13th-month pay is
- Who’s entitled to receive it
- How to compute 13th-month pay accurately
- And how to stay compliant without losing sleep (hint: we can help with that)
What Is 13th-Month Pay in the Philippines?
The 13th-month pay is an additional compensation given to employees at the end of the year, usually in December, hence the nickname “Christmas bonus”. But don’t confuse it with a traditional bonus. It’s not performance-based, and it’s not optional.
This pay is mandated by law. Specifically, Presidential Decree No. 851, which was introduced in 1975. It requires all employers in the private sector to provide 13th-month pay to all rank-and-file employees who have worked for at least one month during the calendar year.
While many countries have their own versions of year-end bonuses like the Tet bonus in Vietnam,the 13th-month pay in the Philippines is unique in that it’s mandatory under labor law, not just a cultural tradition.
So, whether your employee joined in January or October, as long as they’ve worked at least a month, they’re entitled to the 13th-month pay.
It’s also worth noting that the Philippines isn’t the only country that does this, the 13th salary is common in parts of Latin America, but it originated in the Philippines as a way to help employees with year-end expenses.
Who Is Entitled to 13th-Month Pay?
Short answer: Almost everyone in the private sector.
According to the 13th-month pay law in the Philippines, here’s who qualifies:
- All rank-and-file employees who have worked for their employer for at least one month during the calendar year
- Regardless of how they’re paid (monthly, daily, hourly, etc.)
- Regardless of whether they’re regular, probationary, contractual, or project-based
That means if you hire and pay employees through an EOR like Empleyo, your team members still receive their 13th-month pay as part of your compliant payroll setup.
Who’s not entitled?
- Managerial employees (those who have authority to hire, fire, discipline, etc.)
- Government employees (as they follow a different structure)
- Household helpers and freelancers (unless otherwise specified in their contract)
Bottom line: if your workers are rank-and-file and part of the private sector, you’re obligated to pay.
How is the 13th-Month Pay Calculated?
Understanding how to compute 13th-month pay in the Philippines isn’t just about punching numbers into a formula. It’s about aligning with labor law, respecting your employees, and making sure your payroll practices hold up under scrutiny.
Let’s break it down and show you exactly how to get it right.
The 13th-Month Pay Formula
To start, here’s the official formula to calculate 13th-month pay in the Philippines:
13th-Month Pay = Total Basic Salary Earned During the Year ÷ 12
“Basic salary” means just the employee’s regular pay. It does not include:
- Overtime pay
- Holiday pay
- Night shift differentials
- Allowances
- Commissions
- Bonus pay (ironic, we know)
This formula is grounded in Philippine labor law, which defines 13th-month pay as an additional compensation, equal to one-twelfth of the employee’s total basic salary earned within the calendar year.
This bonus isn’t based on performance. It’s based purely on how much base salary the employee earned over the year. That’s why it’s so important to track basic pay accurately throughout your payroll cycle.
Real-Life Example for A Full-Year Employment
Let’s say your employee earns a monthly salary of PHP 30,000 and has been with your company for the full year.
Their 13th-month salary is:
PHP 30,000 × 12 = PHP 360,000 (total basic salary) PHP 360,000 ÷ 12 = PHP 30,000 (13th-month pay)
So the 13th-month payment you’re legally required to provide in December is PHP 30,000.
That’s a clean, full-year case. But what happens if someone joined mid-year?
What If the Employee Didn’t Work the Full Year?
No problem, the 13th-month pay is prorated. As long as an employee has worked at least one month during the calendar year, they are entitled to 13th-month pay, according to the 13th-month pay law in the Philippines.
Example: 6 Months of Work
Employee joined in July with a monthly base salary of PHP 25,000.
PHP 25,000 × 6 months = PHP 150,000
PHP 150,000 ÷ 12 = PHP 12,500
They’re entitled to PHP 12,500 as their 13th-month payment.
Employers must also calculate prorated 13th-month pay for resigned employees, terminated staff, or any situation where the employee worked less than 12 months in a calendar year.
Is the 13th-Month Pay Taxable in the Philippines?
Great question because this is where compliance and clarity really matter.
Under current taxation rules in the Philippines, the 13th-month pay and other Christmas bonuses are not taxable, as long as the total amount does not exceed PHP 90,000 in a calendar year.
Here’s the breakdown:
- If the 13th-month salary and other bonus pay combined are PHP 90,000 or less, the pay given to employees is tax-exempt.
- If the total exceeds PHP 90,000, the excess amount is taxable and must be included in your payroll computations.
This applies across industries and sectors, including foreign companies that offer 13th-month pay or operate through an Employer of Record (EOR). Regardless of setup, the same employment law and taxation policies apply.
For employees with a high annual salary, the taxable portion of their 13th month’s pay must be handled correctly to avoid reporting errors and penalties. Employers should also reflect this in their payroll documentation to ensure clean compliance under the labor code.
When Is the 13th-Month Pay Given?
In the Philippines, the deadline for paying the 13th-month pay is on or before December 24 each year. That’s written into the 13th-month pay law, and yes, it’s legally required.
So if you’re planning to offer 13th-month pay as part of your compensation package, you need to make sure it’s paid on time. It’s not a flexible, “whenever-we-can” kind of bonus. It’s a mandatory payout that must be disbursed by the end of the calendar year.
For many employees in the private sector, this 13th month salary is treated like a Christmas bonus used for family celebrations, school fees, and year-end expenses. That’s why paying the 13th-month pay late isn’t just a compliance issue, it could also damage morale and trust.
What if you pay biweekly or monthly?
No problem. The 13th-month payment is separate from regular payroll cycles. It’s a lump sum, typically processed in the first or second week of December, or earlier if the employer prefers.
Some companies pay half of the 13th salary mid-year (usually June) and the rest in December. This is allowed as long as the full amount is settled before the December 24 deadline.
In short, whatever your pay schedule looks like, make sure your employees receive their 13th-month pay no later than Christmas Eve. It’s required by law, not just best practice.
Common Mistakes Employers Make With 13th-Month Pay
For foreign employers new to labor and employment rules in the Philippines, 13th-month pay might seem simple on paper but there are plenty of ways to trip up. Here are the most common mistakes international companies make when trying to offer 13th month pay:
1. Including Non-Basic Pay in the Computation
The law says 13th-month pay is calculated based on basic salary only. But many employers give more than that by mistake.
What not to include:
- Overtime pay
- Holiday pay
- Night differential
- Allowances or incentives
- Commissions
- Any other additional pay not classified as base pay
Only the basic monthly salary as stated in the employment contract should be factored into the computation.
2. Forgetting to Prorate for Partial-Year Employees
Even employees who only worked one month during the calendar year are entitled to 13th-month pay. But the amount should be prorated based on how many months they worked.
If someone joined in September, don’t give them a full month’s salary as their 13th-month payout, only one-twelfth of their total basic salary from September to December.
Failing to calculate 13th-month pay correctly can lead to overpayment (ouch for the budget) or underpayment (which can result in non-compliance).
3. Missing the December 24 Deadline
This is a big one. Delays in paying the 13th-month pay are a violation of Philippine labor law.
There’s no holiday grace period or “we’ll pay it with the next paycheck” option. Employers are required to pay this mandatory bonus on time, or they risk penalties and reputational damage.
4. Assuming It’s Tax-Free in All Cases
There’s a common misconception that 13th-month pay is always tax-free. Not true.
- Up to PHP 90,000 per year is exempt from taxation (as of current tax rules).
- Any amount above that threshold is taxable.
This usually affects employees with high base salaries or those receiving other month bonus payments like a 14th-month bonus or performance-related bonus pay.
If you’re managing a team of high earners, factor in taxation rules when setting compensation expectations and calculate 13th-month pay accordingly.
5. Overlooking Resigned or Terminated Employees
Here’s another one many employers to pay miss: even if someone resigned or was terminated, they’re still entitled to the 13th-month pay for the time they worked during the year.
Let’s say someone worked from January to August, then left. They’re still owed a prorated 13th-month salary based on their base pay for those eight months.
And yes, employer must pay this regardless of how the exit went.
Need Help Navigating 13th-Month Pay Compliance in the Philippines?
If you’re doing business in the Philippines, or planning to expand soon, getting the 13th-month pay right isn’t optional, it’s mandatory under Philippine labor law. Whether you’re figuring out how to calculate 13th-month pay, managing payroll for a distributed team, or unsure if the 13th-month pay is taxable, it’s easy to get tangled in the details.
And that’s where we come in.
At Empleyo, we help international companies hire and pay their employees in the Philippines without worrying about compliance, 13th month salary computations, or year-end deadlines. We make sure your team receives the 13th-month pay they’re entitled to, while you stay focused on growing your business.
Need to offer 13th month pay but unsure how? Concerned about local employment law? Or just want a reliable partner to handle it all?
Contact us today and let’s make paying the 13th-month pay stress-free, error-free, and fully compliant.
FAQs About 13th Month Pay Benefits in the Philippines
1. Is the 13th month pay different from a performance bonus?
Yes, absolutely. While both are often paid around the same time, the 13th-month pay is legally required in the Philippines and based on basic salary, not performance. A performance bonus is discretionary, it’s a reward employers give based on metrics, goals, or KPIs. In contrast, the 13th-month pay benefits apply to all eligible private sector employees, regardless of performance or company profitability.
2. Can foreign companies offer a 14th-month bonus in the Philippines?
Yes, they can. While only the 13th-month pay is mandatory, some companies choose to offer 13th and 14th month bonus payouts as part of a competitive package. A 14th-month bonus is purely optional, often used as a mid-year incentive or retention tool. Just remember: even if you offer 13th-month pay and additional bonuses, only the 13th-month pay is governed by Philippine labor law.
3. Are contractual or project-based employees entitled to 13th-month salary?
Yes — as long as they are considered rank-and-file employees in the private sector and have worked at least one month during the calendar year, they are entitled to 13th-month pay. This includes fixed-term, contractual, and project-based workers. Their 13th-month salary must still be computed based on their total basic salary, even if their employment contract is short-term.
4. How should employers handle 13th-month pay for remote workers in the Philippines?
Remote employees working from the Philippines are still covered by local employment law, regardless of where the employer is based. If they are employed under a valid Philippine employment contract, they are entitled to 13th-month pay just like office-based staff. If your company operates remotely, using an Employer of Record (EOR) like Empleyo can ensure proper payroll, taxation, and 13th-month pay compliance.
5. Do employers need to submit proof of 13th-month payments to the government?
Yes. Employers are required to submit a report of compliance to the Department of Labor and Employment (DOLE). This document confirms that the company has fulfilled its obligation to pay their employees the correct 13th-month payment by the legal deadline. Failure to submit may flag your company for audit or non-compliance with Philippine labor code.
