How to Compute 13th Month Pay According to DOLE

The 13th Month Pay is a mandatory annual benefit for employees in the Philippines. This compensation provides a financial boost, particularly as the holiday season approaches. Understanding its framework is important for both employees and employers in the country.

Understanding 13th Month Pay

The 13th Month Pay is a statutory benefit in the Philippines, established by Presidential Decree No. 851 in 1975. This decree mandates private sector employers to provide eligible employees with an additional payment equivalent to one-twelfth (1/12) of their total basic salary earned within a calendar year. Its aim is to protect workers’ wages and provide supplementary income.

All rank-and-file employees in the private sector who have rendered at least one month of service during the calendar year are eligible. This includes employees of any employment status, such as regular, probationary, casual, contractual, project-based, seasonal, or part-time workers. Foreign employees in the Philippines are also entitled if they meet these criteria.

Certain employee categories are exempt from receiving 13th Month Pay. These include managerial employees (those with power to hire, fire, or discipline), government employees (who receive separate year-end bonuses), and household service workers. Employers who already provide benefits equivalent to or exceeding the mandated 13th Month Pay are also exempt.

Computing Your 13th Month Pay

The 13th Month Pay is calculated as one-twelfth of an employee’s total basic salary earned during the calendar year. Basic salary includes all remuneration paid for services rendered, such as regular wages and Cost-of-Living Allowances (COLA) if integrated into the basic wage.

Earnings excluded from the basic salary calculation for 13th Month Pay purposes typically include overtime pay, premium pay, night-shift differential, discretionary bonuses, profit-sharing payments, and the cash equivalent of unused vacation and sick leave credits. These items are considered separate from the regular compensation. Only the actual basic salary earned by the employee forms the basis for this computation.

For an employee who has worked the entire calendar year with a consistent basic monthly salary, the 13th Month Pay equals one month’s basic salary. For instance, if an employee earns PHP 25,000 monthly and worked from January to December, their total basic salary for the year is PHP 300,000 (PHP 25,000 x 12 months). Dividing this by 12 yields a 13th Month Pay of PHP 25,000.

When an employee has not worked for the full year, the 13th Month Pay is computed on a prorated basis. The calculation considers only the total basic salary earned during their months of employment within the calendar year. The formula remains total basic salary earned divided by 12.

For example, an employee with a PHP 25,000 monthly salary who started on July 1st would have worked six months by December 31st. Their total basic salary earned would be PHP 150,000 (PHP 25,000 x 6 months). Dividing this by 12 results in a prorated 13th Month Pay of PHP 12,500.

Unpaid absences or leaves during the year affect the total basic salary earned. If an employee has unpaid absences, the total basic salary used for computation is reduced by the salary corresponding to those absent days. For example, if an employee’s annual basic salary would typically be PHP 300,000, but due to unpaid absences, they only earned PHP 290,000, their 13th Month Pay would be PHP 290,000 divided by 12.

Key Considerations for 13th Month Pay

Employers must disburse the 13th Month Pay to eligible employees no later than December 24th of each calendar year. The Department of Labor and Employment (DOLE) enforces this deadline. Some employers pay in two installments, with the first half released in June and the remaining balance by the December deadline.

The 13th Month Pay has specific tax treatment. Under the Tax Reform for Acceleration and Inclusion (TRAIN) Law, the 13th Month Pay and other benefits are exempt from income tax up to a PHP 90,000 threshold.

Any amount of 13th Month Pay, when combined with other benefits, that exceeds the PHP 90,000 threshold is subject to regular income tax. Employers are responsible for correctly deducting applicable withholding taxes from any amount exceeding the non-taxable limit.