How to Calculate 13th Month Pay in the Philippines

The 13th month pay in the Philippines is a mandatory monetary benefit for eligible employees in the private sector. Rooted in Presidential Decree No. 851 (1975), it aims to provide financial relief to employees. It represents an additional compensation equal to one-twelfth (1/12) of an employee’s basic annual salary.

Eligibility for 13th Month Pay

All rank-and-file employees in the private sector are entitled to receive 13th month pay, regardless of their position, designation, or employment status, including regular, probationary, casual, and seasonal employees. The only condition for eligibility is that the employee must have worked for at least one month during the calendar year. This means even new hires or those who resign before year-end are still entitled to a prorated amount.

Certain employee categories are excluded from this mandate. Managerial employees, defined as those with the authority to hire, fire, or recommend such actions, are not covered by this decree. Government employees receive separate year-end bonuses and are not covered by this law. Household helpers, governed by the Domestic Workers Act (Republic Act No. 10361), also have different compensation rules.

Understanding Basic Salary for Calculation

For the purpose of calculating 13th month pay, “basic salary” refers to all remuneration or earnings paid by an employer for services rendered. This typically includes the employee’s fixed wages and any regular allowances that are integrated into their basic pay.

Certain forms of compensation are specifically excluded from the basic salary when computing 13th month pay. These include cost-of-living allowances (COLA), profit-sharing payments, the cash equivalent of unused vacation and sick leave credits, overtime pay, premium pay, night shift differential, and holiday pay.

Calculating 13th Month Pay

For employees who have worked the entire year, the 13th month pay is calculated by dividing their total basic salary earned for the year by 12 months. For instance, if an employee’s basic monthly salary is PHP 20,000 and they worked for the full year, their total basic salary would be PHP 240,000 (PHP 20,000 x 12 months). Dividing this by 12 yields a 13th month pay of PHP 20,000 (PHP 240,000 / 12).

For employees who have not worked for the full calendar year, such as new hires, resigned, or terminated employees, the 13th month pay is calculated on a pro-rata basis. The total basic salary earned during their period of employment within the year is divided by 12. For example, if an employee with a basic monthly salary of PHP 20,000 worked for four months from September to December, their total basic salary earned would be PHP 80,000 (PHP 20,000 x 4 months). Their pro-rata 13th month pay would then be approximately PHP 6,666.67 (PHP 80,000 / 12).

Payment Schedule and Other Practical Notes

Employers are legally required to pay the 13th month benefit on or before December 24th of each year. While employers can choose to pay it in a single lump sum, they also have the option to disburse it in two installments, with the first half typically paid in June or July and the remaining half before the December 24th deadline.

The 13th month pay, along with other benefits, is exempt from income tax up to a certain threshold. Under the Tax Reform for Acceleration and Inclusion (TRAIN) Law (Republic Act No. 10963), this tax exemption limit is PHP 90,000. If an employee’s total 13th month pay and other benefits exceed this PHP 90,000 threshold, the excess becomes subject to income tax. Employers are also obligated to submit an annual compliance report to the Department of Labor and Employment (DOLE) by January 15th of the following year, confirming their adherence to the 13th month pay requirement.