13th month pay = Total Basic Salary Earned in the Year divided by 12. It is mandatory for all rank-and-file employees under PD 851, regardless of how they are paid. Tax-exempt up to ₱90,000 combined with other de minimis benefits. Deadline: on or before December 24. New hires and resigned employees receive a prorated amount.
What Is 13th Month Pay and Is It Really Mandatory?
Yes — 13th month pay is a legal mandate, not a bonus. Presidential Decree 851 (PD 851), signed in 1975 and still fully in force, requires all private employers to pay every rank-and-file employee a 13th month pay on or before December 24 of each year.
Non-compliance is enforceable by DOLE and can result in complaints, fines, and back-payment orders. There is no grace period: if December 24 passes without payment, the employer is already in violation.
Who Is Covered?
All rank-and-file employees who have worked for at least one month during the calendar year are covered — regardless of employment status (regular, probationary, contractual, project-based), payment basis (daily, weekly, monthly), or whether they resigned before December 24.
Who is NOT covered:
- Managerial employees (those who determine and execute management policies with no rank-and-file duties)
- Government employees covered by the Civil Service
- Domestic workers (kasambahay) — though they have their own benefit requirements under RA 10361
- Employers with fewer than 10 employees (though many comply voluntarily as good practice)
The 13th Month Pay Formula
The formula is straightforward:
| 13th Month Pay = Total Basic Salary Earned in the Calendar Year ÷ 12 |
|---|
Key points about the formula:
- Basic salary only — exclude overtime pay, allowances, cash gifts, holiday pay, night differential, cost-of-living allowances, and profit-sharing payments
- Calendar year — January 1 to December 31
- Earned salary only — if an employee was on unpaid leave, those days are not counted
Example: Full-Year Employee
Employee with a basic salary of ₱20,000/month who worked the full calendar year:
- Total basic salary earned: ₱20,000 × 12 = ₱240,000
- 13th month pay: ₱240,000 ÷ 12 = ₱20,000
Example: Prorated (New Hire in April)
Employee hired on April 1 with a basic salary of ₱18,000/month:
- Months worked: 9 (April through December)
- Total basic salary earned: ₱18,000 × 9 = ₱162,000
- 13th month pay: ₱162,000 ÷ 12 = ₱13,500
Example: Resigned Employee
An employee who resigned in August after working 8 months at ₱25,000/month:
- Total basic salary earned: ₱25,000 × 8 = ₱200,000
- 13th month pay: ₱200,000 ÷ 12 = ₱16,666.67
- This must be included in the employee's final pay — it cannot be withheld because the employee resigned.
Tax Treatment of 13th Month Pay
13th month pay is tax-exempt up to ₱90,000 combined with other qualifying benefits under the TRAIN Law. This ₱90,000 ceiling covers:
- 13th month pay
- Christmas bonus / performance bonus classified as "other benefits"
- Cash gift
If the total of 13th month pay + other benefits exceeds ₱90,000, only the excess above ₱90,000 is subject to income tax withholding.
Example: Taxable Excess
- 13th month pay: ₱25,000
- Christmas bonus: ₱20,000
- Cash gift: ₱5,000
- Total: ₱50,000 — fully exempt (below ₱90,000)
- 13th month pay: ₱80,000
- Performance bonus: ₱30,000
- Total: ₱110,000 — ₱20,000 is taxable (excess over ₱90,000)
The December 24 Deadline — and Mid-Year Release Option
The law sets December 24 as the final deadline for 13th month pay. However, many employers release it in two tranches:
- First half: on or before May 31 (optional)
- Second half: on or before December 24
The mid-year release is not mandated by PD 851 but has become standard practice for many companies. Some employers release the full amount in November to give employees time for the holidays.
Frequently Asked Questions
No. 13th month pay is a legal mandate under PD 851. A Christmas bonus (or "14th month pay") is a company-discretionary benefit. Many employers give both, but only the 13th month pay is legally required.
No. Separation pay is computed based on the employee's regular monthly salary and years of service, as prescribed by the Labor Code. The 13th month pay is a separate statutory entitlement paid as part of final pay.
For 13th month pay computation, only actual basic salary received is included. Leave periods where salary was paid (e.g., paid sick leave) count. Unpaid leave periods do not add to the base — meaning the employee receives a slightly lower 13th month pay proportional to actual salary received.
No. Under DOLE guidelines, 13th month pay is based strictly on basic salary. Overtime pay, night differential, allowances (COLA, rice allowance, transportation), and other supplemental pay are excluded.
Non-compliance with PD 851 can result in a DOLE compliance order requiring full payment plus possible administrative penalties. Employees who file a complaint are entitled to receive the full unpaid 13th month pay regardless of when they file. The employer may also face a labor case for non-payment of wages.
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