13th month pay is the one payroll item every employee checks to the peso. The formula is short. The disagreements come from what counts as basic salary, how partial years are pro-rated, and where the ₱90,000 tax ceiling bites. Prefer to try numbers first? Use the 13th month calculator.
The rule under PD 851
Presidential Decree 851 requires every private-sector employer to pay rank-and-file employees a 13th month pay. The amount is:
13th month pay = total basic salary earned in the calendar year ÷ 12
"Earned" is the operative word. It is not one month's salary; it is one-twelfth of the basic salary actually earned from January 1 to December 31. For a full-year employee on a fixed salary the two are the same. For everyone else they differ.
Who is entitled
- All rank-and-file employees in the private sector, regardless of position, designation, or employment status (regular, probationary, casual, project-based, seasonal), and regardless of how they are paid (monthly, daily, piece-rate), as long as they worked at least one month in the calendar year.
- Managerial employees are not covered by the decree. Many companies extend it to them by policy, and once granted consistently it can become an established practice.
- Certain employers and workers are exempt under the implementing rules, for example household helpers under their own law and workers paid purely on commission or task basis without a fixed salary component. Check the current DOLE issuance for the exact list.
What counts as basic salary
Basic salary is the pay for the employee's regular work. The following are excluded from the base unless the company's policy, practice, or collective bargaining agreement treats them as part of basic salary:
- Allowances (cost-of-living, transportation, meal, and similar)
- Overtime pay and premium pay for rest days and holidays
- Night shift differential
- Profit-sharing and bonuses
- Cash conversion of unused vacation or sick leave
Salary for paid leave taken during the year (vacation, sick, maternity, and similar paid leave at basic rate) is basic salary and is included. Unpaid absences and leave without pay reduce the basic salary earned, and therefore reduce the 13th month pay.
Pro-rating
New hires
An employee hired mid-year receives one-twelfth of the basic salary earned from the hire date to December 31. Partial first months count for the days actually paid.
Resigned or separated employees
An employee who resigns, is terminated, or otherwise separates before December is entitled to the proportionate 13th month for basic salary earned from January 1 (or the hire date) up to the last day of work. It is paid with the final pay, not held until December.
Salary changes during the year
Because the formula uses salary actually earned, a raise mid-year is automatically reflected: the months at the old rate and the months at the new rate are summed, then divided by 12. There is no need to pick one rate.
The ₱90,000 tax-exempt ceiling
13th month pay together with other benefits (Christmas bonus, productivity incentives, and similar benefits, but not de minimis benefits, which have their own limits) is exempt from income tax up to ₱90,000 per year. Only the excess over ₱90,000 is added to the employee's taxable compensation and picked up in the year-end annualization.
Example: an employee receives ₱60,000 13th month and a ₱40,000 performance bonus. Total ₱100,000. ₱90,000 is exempt; ₱10,000 is taxable.
Deadline and DOLE report
- Pay on or before December 24. Employers may release half before the opening of the regular school year and the balance by December 24.
- Separated employees are paid with their final pay.
- DOLE requires employers to submit a compliance report on 13th month payment after the year end, typically through the DOLE establishment reporting system. Check the current DOLE issuance for the form, channel, and deadline for the year.
Four worked examples
1. Full year, fixed salary
| Monthly basic salary | ₱25,000.00 |
| Months worked (January to December) | 12 |
| Total basic salary earned | ₱300,000.00 |
| 13th month pay (₱300,000 ÷ 12) | ₱25,000.00 |
Fully tax-exempt, assuming no other benefits push the total above ₱90,000.
2. Mid-year hire
| Monthly basic salary | ₱20,000.00 |
| Hired June 1; worked June to December | 7 months |
| Total basic salary earned | ₱140,000.00 |
| 13th month pay (₱140,000 ÷ 12) | ₱11,666.67 |
Note that it is not 7/12 of ₱20,000 as a shortcut in the other direction; the result is the same here because the salary was fixed, but the correct base is always salary earned.
3. Resigned in August
| Monthly basic salary | ₱18,000.00 |
| Worked January 1 to August 31 | 8 months |
| Less: 2 days leave without pay in May (daily rate ₱827.59 at a 261-day factor) | −₱1,655.17 |
| Total basic salary earned | ₱142,344.83 |
| 13th month pay (₱142,344.83 ÷ 12) | ₱11,862.07 |
Paid with the final pay in September, together with the last salary, unused leave conversion, and any other amounts due. The daily rate depends on the company's working-days factor; see the leave conversion guide.
4. Salary increase mid-year
| January to June at ₱22,000 (6 months) | ₱132,000.00 |
| July to December at ₱25,000 (6 months) | ₱150,000.00 |
| Total basic salary earned | ₱282,000.00 |
| 13th month pay (₱282,000 ÷ 12) | ₱23,500.00 |
Neither ₱22,000 nor ₱25,000. The employee's 13th month is one-twelfth of what was actually earned across both rates.
Try your own figures in the 13th month calculator, including absences, a mid-year raise, and the ₱90,000 ceiling.
Common payroll mistakes
- Paying one month's current salary. Right for a full-year employee with no changes, wrong for everyone else. Use salary earned ÷ 12.
- Including allowances and overtime. They inflate the base. Only basic salary counts unless your policy or CBA says otherwise.
- Forgetting to deduct unpaid absences. Leave without pay reduces basic salary earned, and so reduces 13th month pay.
- Holding a resigned employee's 13th month until December. It is part of final pay.
- Applying the ₱90,000 ceiling to 13th month alone. The ceiling covers 13th month plus other benefits combined.
- Missing the DOLE compliance report. Paying on time is only half the obligation.
How AppDeep Payroll handles this
- 13th month is computed inside the cutoff from the basic salary actually paid in each cutoff of the year, so absences, mid-year raises, and hire dates are already reflected without a separate spreadsheet.
- Separated employees get their pro-rated 13th month automatically in the final pay computation, alongside unused leave conversion and the BIR 2316.
- The ₱90,000 ceiling is applied against 13th month plus other benefits in the year-end annualization, and the taxable excess flows into the withholding true-up and the 2316.
- The payroll summary exports the per-employee 13th month figures for your DOLE compliance report.
- Every 13th month figure is reconciled against your current system in the free parallel run before you go live.
Frequently asked questions
How is 13th month pay computed?
Total basic salary earned during the calendar year divided by 12. An employee who earned ₱300,000 in basic salary from January to December receives ₱25,000. An employee who worked part of the year receives a proportionate amount based on what was actually earned.
Who is entitled to 13th month pay?
All rank-and-file employees in the private sector who have worked at least one month during the calendar year, regardless of employment status, position, or how they are paid. Managerial employees are not covered by PD 851, though many companies grant it to them by policy.
When is 13th month pay due?
On or before December 24 of each year. Employers may release half before the opening of the school year and the other half by December 24. Separated employees receive their pro-rated 13th month with their final pay.
Is 13th month pay taxable?
13th month pay together with other benefits is tax-exempt up to ₱90,000 a year. Only the amount above that ceiling is added to taxable compensation.
Are overtime, allowances, and unused leave included in 13th month pay?
No. The base is basic salary only. Overtime, premium pay, night differential, cost-of-living and other allowances, profit sharing, and the cash value of unused leave are excluded unless the company's policy or CBA treats them as part of basic salary.
Do resigned or terminated employees get 13th month pay?
Yes. An employee who leaves before December is entitled to 13th month pay proportionate to the basic salary earned during the year up to separation, paid as part of final pay.
Not tax or legal advice. This guide is general information based on the rules currently in effect as we understand them. Verify against the current DOLE and BIR issuances and consult your accountant or counsel for your situation.