How to Compute 13th Month Pay in the Philippines

The 13th month pay is one of the most anticipated benefits for Filipino employees. Mandated by Presidential Decree No. 851 (PD 851), it provides workers with an additional month's worth of pay before the Christmas season.

This guide explains everything you need to know about 13th month pay: how it's calculated, what counts as basic salary, pro-rata rules for partial year employment, and the legal deadline for payment.

What is 13th Month Pay?

The 13th month pay is a mandatory bonus equivalent to one-twelfth (1/12) of the total basic salary earned by an employee during the calendar year. It's called "13th month" because it essentially provides an extra month's pay beyond the regular 12 months.

Under PD 851, all rank-and-file employees in the private sector are entitled to 13th month pay, regardless of:

• Employment status (regular, probationary, contractual)
• Pay method (daily, weekly, monthly)
• Position or designation

The 13th Month Pay Formula

The formula is straightforward:

For employees paid monthly who worked the full year:

For partial year employment (pro-rata):

What's Included in Basic Salary?

Understanding what counts as "basic salary" is crucial for accurate 13th month pay computation. The law is specific about inclusions and exclusions.

Included in Basic Salary

• Fixed monthly wage or salary
• Daily rate multiplied by regular working days

NOT Included in Basic Salary

• Overtime pay: Compensation for work beyond 8 hours
• Holiday pay premium: The additional pay for holiday work (not the basic pay for that day)
• Night shift differential: Extra pay for night work (10PM-6AM)
• COLA: Cost of Living Allowance
• Allowances: Meal, transportation, communication allowances
• Commission: Unless it's a fixed amount (not performance-based)
• 13th month pay itself: Obviously not included in the computation
• Other bonuses: Mid-year bonus, performance bonus, etc.

The rule of thumb: if the pay is variable or dependent on certain conditions being met, it's generally not part of basic salary.

Pro-Rata for Partial Year Employment

Not everyone works the full 12 months. New hires and resigned/separated employees receive proportionate 13th month pay based on actual months worked.

Example Scenarios

Important: Resigned employees are still entitled to their pro-rated 13th month pay. Employers must include it in the final pay computation regardless of the reason for separation.

The December 24 Deadline

PD 851 mandates that 13th month pay must be released on or before December 24 of each year. This ensures employees have funds for the Christmas holidays.

Some employers split the payment:

• First half: Released in May or June (often called "mid-year bonus")
• Second half: Released before December 24

This practice is allowed as long as the total amount paid by December 24 equals the full 13th month pay entitlement.

Tax Treatment

Good news: 13th month pay is tax-exempt up to ₱90,000. This means:

• If your 13th month pay is ₱90,000 or less: Completely tax-free
• If it exceeds ₱90,000: Only the amount above ₱90,000 is taxable

The ₱90,000 exemption also includes other benefits like Christmas bonus, productivity incentives, and other non-taxable benefits received during the year.

Common Questions

Can my employer withhold 13th month pay?

No. The 13th month pay is a statutory benefit that employers cannot withhold. Even if you have outstanding loans or cash advances, the employer cannot deduct them from your 13th month pay without your written consent.

What if I worked less than one month?

Employees who worked at least one month during the calendar year are entitled to pro-rated 13th month pay. Those who worked less than one month may still be entitled depending on company policy.

Are managers entitled to 13th month pay?

Managerial employees (those with the authority to hire, fire, or effectively recommend such actions) are exempt from the mandatory 13th month pay. However, many companies still grant it as a benefit.

Key Takeaways

• 13th month pay equals total basic salary for the year divided by 12
• Only basic salary is included—no OT, allowances, or bonuses
• Pro-rata applies for partial year employment
• Must be paid on or before December 24
• Tax-exempt up to ₱90,000
• Resigned employees are still entitled to their share

Use our 13th Month Pay Calculator to instantly compute your entitlement based on your basic salary and months worked.