Updated June 2026.
Every December, Philippine employers owe rank-and-file employees a 13th-month pay under Presidential Decree 851. It is not a bonus and not optional: it is a statutory benefit, and getting it wrong is one of the fastest ways to end up with a DOLE complaint. Here is how to compute it correctly.
Who is entitled
All rank-and-file employees who have worked at least one month during the calendar year are entitled to 13th-month pay, regardless of how they are paid or how many days they worked. Managerial employees, those whose primary duty is to manage and who exercise real discretion, are excluded by the decree, though many companies extend the benefit anyway.
The formula
The computation is deliberately simple:
13th-month pay = total basic salary earned during the calendar year ÷ 12
The key phrase is basic salary earned. It includes the basic pay actually earned for work performed. It excludes allowances, overtime pay, night differential, holiday premiums, unused leave conversions and monetary benefits that are not part of basic pay. Unpaid absences reduce the total, which is why the correct base is what was actually earned, not the monthly rate multiplied by 12.
Proration for new hires and separated employees
An employee who joined in July does not get a full 13th month; they get 1/12 of whatever basic salary they earned from July onward. The same logic applies in reverse: an employee who resigns in September is entitled to proportionate 13th-month pay for January to September, payable with their final pay. Example: an employee hired on 1 July at ₱20,000/month with no absences earns ₱120,000 by year end, so their 13th-month pay is ₱120,000 ÷ 12 = ₱10,000.
The ₱90,000 tax rule
13th-month pay and "other benefits" (Christmas bonuses, productivity incentives and similar) are income-tax-exempt up to a combined ₱90,000 per employee per year. Only the portion above ₱90,000 is added to taxable income and subjected to withholding tax. Note that the cap is shared across all such benefits, an employee with a ₱70,000 13th month and a ₱40,000 performance bonus has ₱20,000 taxable, even though neither amount alone exceeds the cap.
The deadline
13th-month pay must be paid on or before 24 December. Employers may pay half earlier in the year (many pay in May or June) and the balance in December. After paying, employers must file a compliance report with DOLE, traditionally due by 15 January of the following year.
Common mistakes we see
- Using the monthly rate × 12 as the base. Unpaid leaves and mid-year hires make the earned base lower: overpayment is money out the door, underpayment is a labor claim.
- Including allowances in the base. COLA and de minimis benefits are not basic salary. (See our de minimis guide.)
- Forgetting separated employees. Proportionate 13th month is part of final pay, whenever the separation happens.
- Missing the ₱90,000 aggregation. The cap applies to 13th month plus other benefits, not per benefit.
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