A Complete Guide to 13th Months Pay Law in Philippines

Filipino workers are waiting down the days until their 13th month's pay as the holidays get near.

However, this seemingly straightforward benefit can raise a lot of issues for employers. What is the precise calculation method? Who’s entitled to it? And what happens if it’s not paid on time?

Don't worry; we've got you covered.

This guide will walk you through everything you need to know about the 13th-month Pay Law in the Philippines—without the legal jargon. Whether you’re an HR pro or a small business owner, let’s make sure you’re ready for the holiday bonus season.

What is 13th Month Pay in the Philippines?

In the Philippines, the 13th month pay is like an extra paycheck, but with a twist. It’s a benefit employers must give to their rank and file employees, and it’s not optional—it’s the law. Even government employees are entitled to this benefit under the same rules.

Think of it as a year-end bonus, but it’s more than just a holiday treat. This pay equals one-twelfth of your total earnings for the year. So if you’ve been working full-time, it’s the total of what you earned—salary, overtime, allowances, and even casual leave benefits—divided by 12.

It’s a way for employees to get a little financial cushion before the Christmas season. If an employee has worked for a company for at least a month, they're entitled to it. No strings attached.

Benefits of 13th Month Pay Law

Offering the 13th month pay is more than just a tradition or a legal obligation.

It’s a powerful tool that plays a critical role in employee engagement and retention. In fact, research shows that 81% of employees in the Philippines are engaged in their work, placing the country in the top 19% globally.

This explains why such a high proportion of the employees’ commitment to their work is not by chance but rather by how a business invests in its employees by, for example, provision of a 13 months Salary.

Here are some more benefits of 13th month pay you must consider:

• It shows appreciation: Employees love knowing their hard work is recognized with something tangible
• It builds loyalty: A bonus like this makes employees feel valued, reducing the urge to look elsewhere
• It keeps them motivated: The promise of extra income keeps people pushing through till the end of the calendar year
• It relieves financial stress: Employees can use such monetary benefits to cover holiday expenses, making them feel more secure.
• It helps reduce turnover: Companies that offer this benefit see lower turnover rates, as employees are less likely to leave.

Who is statutorily entitled to receive 13th Month Pay?

Anyone working as a rank-and-file employee is entitled to 13th month pay as long as they’ve worked for at least one month during the year. That includes full-time, part-time, and even contractual workers, as long as they meet the minimum one-month work requirement.

This doesn’t just apply to regular employees on permanent contracts; it covers workers on probation, casuals, or those with fixed-term contracts. The key factor is working for at least a month within the year.

So if someone is hired in December and works until the end of the year, they’re still eligible to receive the pay, but it will be a proportionate amount. In essence, it’s about giving everyone a fair share of their annual earnings as a bonus—regardless of how long they’ve been with the company.

The difference between the 13th-month and 14th-month pay

Both are additional compensation and can be classified as the same, however knowing the distinction between two can facilitate better handling of one’s finances and let your employees know how much you appreciate their efforts.

Let’s break down the key differences 👇

💡Pro tip: If you're thinking about adding a 14th Month Pay, consider it as more than just another bonus. It’s a chance to show employees that you’re invested in their well-being beyond the legal requirements. Maybe tie it to milestones like company goals or personal achievements—this can make it feel even more rewarding.

13th Month Pay vs Bonus

When it comes to end-of-year rewards, the terms 13th-month Pay and bonus often get tossed around interchangeably. But here’s the deal: they’re not the same thing.

Let’s break it down, shall we?

13th month pay- a legal obligation, not a gift

The 13th-month Pay is a legal right. Think of it as a “mandatory holiday gift” from employers. According to Presidential Decree No. 851, employers must pay their rank-and-file employees this benefit. It's calculated as 1/12th of an employee's total basic salary earned for the year.

It’s not up to the employer’s discretion, and it must be paid by December 24. This benefit is meant to provide financial relief to employees during the holidays, especially when expenses spike for the season.

Bonus- the extra 'thank you' from employers

A bonus, on the other hand, is more of a gesture of appreciation. It can vary widely depending on the employer, the company’s performance, and, sometimes, how much the employer feels like giving. There’s no specific rule for the amount or the timing—it’s up to the company.

Some companies may offer performance bonuses, Christmas bonuses, or holiday bonuses, but none of these are required by law.

Also read: Service Charge Law in Philippines

Computation of 13th Month Pay

Computing the 13th month pay isn't rocket science, but it does involve a bit of math magic—specifically, dividing your total earnings into 12 equal parts. Here’s how it works:

• Step 1: Add up your total earnings for the year. This includes:
  • Total basic salary
  • Overtime pay
  • Allowances
  • Any other earnings
• Step 2: Divide the total by 12 (since the 13th Month Pay is one-twelfth of your yearly earnings).
• Step 3: The result is your 13th Month Pay!

Example:

Let’s say your monthly salary is PHP 30,000, and throughout the year you also earned PHP 20,000 in overtime and allowances combined.

1. Total earnings for the year = PHP 30,000 x 12 (months) = PHP 360,000
   Plus overtime and allowances: PHP 360,000 + PHP 20,000 = PHP 380,000
2. Now, divide PHP 380,000 by 12 to get your 13th Month Pay:
   PHP 380,000 ÷ 12 = PHP 31,666.67

So, your 13th Month Pay would be PHP 31,666.67.

Is 13th Month Pay Taxable or Non-taxable?

In the Philippines, the 13th-month pay is exempt from tax up to PHP 90,000 (approximately US$1,533). This means that if an employee's total 13th-Month Pay, along with other benefits, is within this limit, it won’t be subject to income tax.

However, if the combined amount exceeds PHP 90,000, the excess portion is subject to taxation. Employers are responsible for withholding the appropriate tax on any amount over this threshold and reporting these deductions to the Bureau of Internal Revenue (BIR).

13th Month Pay for Resigned or Terminated Employees

If an employee resigns or gets terminated before the year ends, they’re still entitled to a proportional 13th month pay. The key here is that it’s not all-or-nothing—it’s based on the amount of time they worked during the year, regardless of their employment status

How to compute it:

• Step 1: Determine the number of months the employee worked
• Step 2: Calculate the total earnings during that time (base salary, allowances, etc.)
• Step 3: Divide that total by 12, and then multiply by the number of months worked

Let’s say an employee worked from January to June, earning PHP 25,000 monthly, with PHP 5,000 in allowances:

1. Total earnings from January to June = (PHP 25,000 x 6) + (PHP 5,000 x 6) = PHP 180,000
2. Divide the total earnings by 12:
   PHP 180,000 ÷ 12 = PHP 15,000 (the full yearly 13th Month Pay if they worked all year)
3. Proportional pay for 6 months worked = PHP 15,000 x 6 ÷ 12 = PHP 7,500

So, this employee would receive PHP 7,500 as their proportional 13th Month Pay or holiday pay.

Failure to give 13th-month pay to employees

Not providing the 13th month pay to employees can lead to some serious consequences for employers. While it may seem like a minor oversight, it’s a legal obligation, and failure to comply can affect both the business and the workforce.

Under Presidential Decree No. 851, all employers are required to pay their rank and file employees a 13th-month pay not later than December 24 of each year. Non-compliance is considered a labor law violation, subject to penalties imposed by the Department of Labor and Employment (DOLE).

Here’s what can happen if you miss this:

• Legal consequences: Employees can file a complaint with DOLE, and companies can face penalties, including hefty fines up to ₱5,000 per day of delay
• Damaged employee trust: Employees who don’t receive their 13th Month Pay may feel cheated or unappreciated, which can lead to a loss of trust and morale
• Potential lawsuits: In severe cases, employees can take legal action. If they win, the company could be required to pay not only the 13th month pay but also back wages, interest, and attorney’s fees
• Increased employee turnover: If employees feel their rights are being disregarded, they’re more likely to leave, leading to higher turnover rates and increased recruitment costs

To minimize the risk of non-compliance, set up a reminder system within your HR or payroll department for the 13th month pay deadline. Whether it's a digital calendar alert or a checklist, having a clear reminder in place ensures that the payment is processed on time every year.

Make 13th Month Pay Effortless with Darwinbox

Let’s be honest—handling 13th-month pay can be a real headache. Between making sure you’re calculating everything correctly, meeting tight deadlines, and avoiding penalties, it’s easy to miss out on things. And when you're managing all these moving parts, even the smallest mistake can cost you.

That’s where Darwinbox comes in to save the day. It automates the entire process, from accurate calculations to ensuring timely payments, so you don’t have to worry about a thing. With Darwinbox, you’ll always stay on track, keep your employees happy, and stay compliant—without the stress. It’s payroll made easy, so you can focus on what really matters.

Want to know more about how it can help? Talk to our team today!

FAQs

What is the difference between 13th-month pay and the Christmas Bonus?

The 13th-month pay is a mandatory benefit that employers must provide to rank-and-file employees under Presidential Decree No. 851. It is equal to 1/12th of the employee's total basic salary for the year, paid by December 24. The Christmas Bonus, on the other hand, is voluntary and given at the employer's discretion, usually as an extra holiday gift, with no legal requirement or set amount.

Are managerial employees entitled to 13th-month pay?

No, managerial employees are not entitled to receive 13th-month Pay under Philippine law. The law specifically excludes them from this benefit. However, some companies may choose to provide it as a part of their benefits package, but it is not mandatory.

Can 13th-month pay be prorated?

Yes, the 13th-month pay can be prorated if the employee has worked for less than 12 months. The amount is calculated based on the months worked, with the formula being 1/12th of the total basic salary for the months worked in the year. If the employee worked for only 6 months, they would receive half of the 13th-month Pay.