The famous 13th month pay in the Philippines is not just a seasonal perk—it is a statutory entitlement enshrined under Presidential Decree No. 851,¹ issued in 1975. Designed to ease the financial burdens of Filipino workers during the holidays, this benefit has evolved through the years to reflect current economic conditions, tax laws, and labor advisories. It remains one of the cornerstones of employee rights in the country.

This blog post provides a brief yet comprehensive legal guide on 13th month pay, integrating relevant updates, recent DOLE guidelines, and current tax implications. With up-to-date legal information, this article aims to help both employers and employees understand their obligations and rights under Philippine labor law.

13th Month Pay in the Philippines | Overview and Legal Basis

The 13th month pay is a mandatory benefit equivalent to one-twelfth (1/12) of an employee’s total basic salary within a calendar year. It is legally mandated for rank-and-file employees in the private sector who have rendered at least one month of service, regardless of the nature of their employment.

The legal foundation of this benefit is Presidential Decree No. 851,² as mentioned. The implementing rules and subsequent labor department orders continue to clarify and expand the scope of the benefit.

The Department of Labor and Employment (DOLE) serves as the implementing agency and regularly issues labor advisories to provide guidance to employers and employees. For example, Labor Advisory No. 13, Series of 2024³ reiterates the mandatory nature of this benefit and explicitly prohibits deferment of payment.

Covered Employees

The benefit covers all rank-and-file employees, including:

• Regular employees
• Probationary employees
• Fixed-term, seasonal, or project-based workers
• Employees who have resigned or were terminated before year-end (on a pro-rated basis)

Excluded from coverage are:

• Government employees covered by the Civil Service Law
• Household helpers (kasambahays), unless voluntarily given
• Managerial employees as defined under Article 82 of the Labor Code (P.D. 851 only applies to rank-and-file employees; no mention of managerial employees)⁴
• Employees of employers already providing comparable or better bonuses prior to the effectivity of PD 851

Computation Explained

The formula for calculating 13th month pay is:

13th Month Pay = Total Basic Salary Earned During the Year ÷ 12

“Basic salary” includes the fixed regular pay for work performed. It does not include:

• Overtime pay
• Holiday pay
• Night shift differentials
• Cost of living allowances (COLA)
• Cash equivalents of unused leaves
• Non-monetary benefits like rice, uniforms, or company vehicles

For example, if an employee earns PHP 18,000 monthly and worked the entire year:

PHP 18,000 × 12 = PHP 216,000

PHP 216,000 ÷ 12 = PHP 18,000 (13th month pay)

For those who worked only part of the year, say from January to June:

PHP 18,000 × 6 = PHP 108,000

PHP 108,000 ÷ 12 = PHP 9,000 (pro-rated 13th month pay)

Deadline and Manner of Payment

As clarified in Labor Advisory No. 25, Series of 2023,⁵ Republic Act No. 10963, the tax-exempt threshold for 13th month pay and other benefits was raised from PHP 82,000 to PHP 90,000.

This means:

• If an employee’s total 13th month pay and other bonuses for the year do not exceed PHP 90,000, the entire amount is tax-exempt.
• Any amount in excess of PHP 90,000 is subject to withholding tax under the employee’s tax bracket.

Employers must coordinate with their accounting or HR departments to ensure proper tax application based on this threshold.

Employer Compliance: Legal Duties and Documentation

Employers must comply with the following obligations:

• Proper computation of 13th month pay
• Timely payment on or before December 24
• Submission of DOLE compliance report
• Maintenance of payroll records for at least 3 years

Violations may result in:

• DOLE inspections
• Monetary fines
• Possible suspension or closure of business operations for willful and repeated violations
• Criminal prosecution under the Labor Code

Clarifications and Misconceptions

Many employers and employees have questions regarding the nuances of this benefit. Here are some key clarifications:

• Is this different from a Christmas bonus? Yes. A Christmas bonus is optional and based on company discretion. The 13th month pay is mandatory.
• Is maternity leave included in the computation? No. Maternity leave is not considered part of basic salary.
• Can financial hardship exempt employers from payment? Labor Advisory No. 13, Series of 2024⁶ explicitly prohibits deferment or exemption based on economic conditions.
• Are part-time employees covered? Yes, provided they have worked at least one month in the calendar year.

Recent DOLE Guidelines During the Pandemic and Beyond

During the COVID-19 pandemic, some business groups sought temporary exemptions from this benefit. However, DOLE Labor Advisory No. 28, Series of 2020⁷ emphasized that all private employers must pay the 13th month pay in full and on time, with no exemptions allowed.

This position remains unchanged in the latest Labor Advisory No. 13, Series of 2024, reinforcing the government’s stance on preserving labor rights despite economic fluctuations.

What Employees Should Do If Not Paid

If you are an employee who did not receive your 13th month pay:

• Approach your employer or HR department to request clarification
• File a complaint with the DOLE Regional Office
• Use DOLE’s online complaint portal for faster processing

DOLE may conduct investigations, order the payment of the benefit, and impose penalties on non-compliant employers.

Conclusion: Know Your Rights and Obligations

The 13th month pay is more than a holiday tradition—it is a reflection of the Philippine government’s commitment to worker welfare. While rooted in a decree issued in the 1970s, it continues to be legally binding and supported by modern regulations, especially in times of national and global economic challenges.

For employers, strict compliance is necessary—not only to avoid sanctions but to maintain a positive and legally sound workplace. For employees, knowing your entitlement empowers you to ensure that your labor rights are honored.

1. P.D. 851[↩]
2. Supra. P.D. 851[↩]
3. L.A. 13-2024[↩]
4. However, there is no law prohibiting the company from giving incentives to managerial employees as they are still considered workers of a company[↩]
5. L.A. No. 25, Series of 2023) the 13th month pay must be paid on or before December 24 of each year. Employers are required to make a lump-sum payment; installment schemes are not permitted unless part of a Collective Bargaining Agreement (CBA).

   Employers must also file a compliance report with the nearest DOLE Regional Office on or before January 15 of the succeeding year.

   Failure to meet this deadline constitutes a violation of labor standards laws and may result in labor complaints, DOLE inspections, and possible penalties.

   TRAIN Law and Tax Implications

   Under the Tax Reform for Acceleration and Inclusion (TRAIN) Law,((Tax Changes You Need to Know[↩]

6. Supra., L.A. 13-2024[↩]
7. L.A. 28-2020[↩]