Payroll, HR & labor compliance
13th month pay computation in the Philippines: rules, examples and tax
Who is entitled to 13th month pay, how to compute it from basic salary, pro-rated examples for new hires and resignations, deadlines and the ₱90,000 tax exemption.
In the Philippines, 13th month pay is at least one-twelfth (1/12) of the total basic salary an employee earned within the calendar year. Under Presidential Decree No. 851 and its implementing rules, it is mandatory for rank-and-file employees who worked for at least one month during the year, and it must be paid on or before December 24. Under the TRAIN Law, 13th month pay and other benefits are tax-exempt up to ₱90,000 per year in total.
Who is entitled to 13th month pay?
All rank-and-file employees in the private sector who have worked at least one month in the calendar year are entitled, regardless of their position, designation, employment status or how their wages are paid. That includes probationary, contractual and project employees, and employees paid by the day or by results (with specific rules for piece-rate workers).
Managerial employees are not covered by PD 851, but many companies extend 13th month pay to them by policy or contract. If your policy grants it, the payroll system should treat it the same way.
What counts as basic salary?
Basic salary is the core pay for work performed during normal working hours. Under the rules, it generally excludes:
- Overtime pay, premium pay for rest days and holidays, and night shift differential
- Holiday pay for unworked regular holidays (subject to your policy and jurisprudence)
- Cost-of-living allowances and other allowances not integrated into the basic salary
- Profit-sharing payments and other cash benefits not considered part of basic salary
Paid leave that is part of the employee's regular salary is usually included. Treatment of commissions depends on whether they form part of the basic salary under your pay structure; get advice for sales roles. Whatever you decide, configure it as a rule so every branch computes the same way.
The formula
13th month pay = total basic salary earned during the calendar year ÷ 12
Use the basic salary actually earned, which means unpaid absences and leave without pay reduce the base.
Worked examples
| Scenario | Basic salary earned in the year | 13th month pay |
|---|---|---|
| Full year at ₱30,000 a month, no unpaid absences | ₱360,000 | ₱30,000 |
| Full year at ₱30,000 a month, ₱3,000 of unpaid absences | ₱357,000 | ₱29,750 |
| Hired April 1 at ₱30,000 a month | ₱270,000 (9 months) | ₱22,500 |
| Salary increased from ₱25,000 to ₱30,000 on July 1 | ₱150,000 + ₱180,000 = ₱330,000 | ₱27,500 |
| Daily-paid at ₱700, worked 250 paid days | ₱175,000 | ₱14,583.33 |
When must it be paid?
Pay 13th month pay not later than December 24 each year. Employers may pay it in two installments, for example half in mid-year and the balance before December 24, as long as the full amount is paid by the deadline.
Employees who resign or are separated
Employees who leave before the payment date are entitled to a pro-rated 13th month pay based on the basic salary they earned from January to their last day. Include it in the final pay computation, which DOLE expects to be released within 30 days from separation unless a more favorable policy or agreement applies.
Is 13th month pay taxable?
The TRAIN Law exempts 13th month pay and other benefits (such as Christmas bonuses and productivity incentives) from income tax up to ₱90,000 per year combined. The excess over ₱90,000 is added to taxable compensation and taxed through the regular withholding and annualization process.
| Item | Amount |
|---|---|
| 13th month pay | ₱60,000 |
| Year-end bonus | ₱45,000 |
| Total other benefits | ₱105,000 |
| Exempt portion | ₱90,000 |
| Taxable excess | ₱15,000 |
As of this review, the ₱90,000 ceiling has not changed. Bills proposing a higher ceiling have been filed in Congress; check whether any has become law before your December payroll.
Common 13th month pay mistakes
- Including overtime or allowances in the base, which overpays and creates inconsistent precedents.
- Using the current salary × 1 for employees whose pay changed during the year, instead of the actual basic salary earned.
- Forgetting resigned employees, who must get their pro-rated amount in final pay.
- Taxing the full amount, or forgetting to combine other benefits when applying the ₱90,000 exemption.
- Branch inconsistency, when each branch computes in its own spreadsheet.
Automating 13th month pay
Because the formula depends on earnings across the whole year, it is best computed from payroll history rather than a separate spreadsheet. Cirquolus Payroll includes 13th month pay, annualization and payroll approvals, using the same records as each cutoff. For the full payroll process, read how to compute payroll in the Philippines.
Frequently asked questions
Is 13th month pay mandatory for all employees?
It is mandatory for rank-and-file private-sector employees who worked at least one month in the calendar year. Managerial employees are not covered by the law but may receive it by company policy.
Are probationary and contractual employees entitled to 13th month pay?
Yes. Entitlement does not depend on employment status, as long as the employee is rank-and-file and worked at least one month during the year.
Can 13th month pay be given in installments?
Yes, as long as the full amount is paid on or before December 24.
Is 13th month pay included in final pay?
Yes. A separated employee receives the pro-rated 13th month pay for the basic salary earned during the year up to their last day.
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