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.
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.
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:
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💡Pro Tip for Employers: To make sure there are no surprises, always include 13th month pay clauses in your employment contract. Clearly outlining these terms ensures you set expectations from day one and protect both your business and your employees. |
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.
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 👇
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Feature |
13th Month Pay |
14th Month Pay |
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Legal Requirement |
Mandated by law in the Philippines |
Not mandated by law, but may be offered by employers as an additional benefit |
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Eligibility |
All rank-and-file employees who have worked for at least one month during the year |
Typically offered to all employees, but not legally required |
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Amount |
One-twelfth of total earnings for the year |
Similar to the 13th Month Pay but paid as a separate bonus, usually at a different time |
|
Payment Schedule |
Usually paid in December |
Often paid in mid-year or another specified time by the employer |
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Taxation |
Subject to tax if it exceeds the P90,000 annual threshold |
Subject to tax if it exceeds the P90,000 annual threshold |
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Purpose |
Financial assistance for the holiday season |
Additional bonus, often for retention or motivation |
💡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.
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?
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.
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
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:
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.
So, your 13th Month Pay would be PHP 31,666.67.
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❌ Common mistake to avoid ❌ A frequent mistake when calculating the 13th month pay is excluding additional earnings like overtime, allowances, or commissions. Some people only factor in the base salary, but that's not the full picture. For example, if you earned PHP 30,000 per month in salary but also received PHP 20,000 in overtime and allowances throughout the year, those extras must be included. Forgetting to account for them will result in a lower 13th Month Pay than you're entitled to. |
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).
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Pro Tip for Employers: To simplify compliance and avoid income tax issues, consider using payroll software that automatically calculates and tracks the 13th-month pay and other benefits. A good payroll system can help you:
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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:
Let’s say an employee worked from January to June, earning PHP 25,000 monthly, with PHP 5,000 in allowances:
So, this employee would receive PHP 7,500 as their proportional 13th Month Pay or holiday pay.
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💡Exceptional scenario: An exception to receiving the proportional 13th month pay applies if an employee was terminated due to just cause. This includes cases like serious misconduct, fraud, or willful disobedience. In such situations, the employee may forfeit their entitlement to the 13th month pay, even if they worked for part of the year. The employer is legally allowed to withhold the bonus, as long as the termination is justified under Philippine labor laws. |
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:
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.
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!
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.
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.
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.