13th Month Pay in the Philippines: Computation, Rules, and Worked Examples

13th month pay is one of the most important mandatory benefits for Philippine employees. Governed by Presidential Decree No. 851, it requires all private-sector employers to pay an additional month's worth of salary to rank-and-file employees every year.

This guide covers the rules, formula, and common scenarios.

The Formula

The 13th month pay formula is straightforward:

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

What "Total Basic Salary Earned" Means

This is the sum of all basic pay the employee received from January 1 to December 31 (or their actual employment period within the year).

Included:

• Regular monthly/daily/hourly basic salary
• Cost of living allowance (COLA) integrated into basic salary

Excluded:

• Overtime pay
• Holiday premium pay (the additional pay above regular rate)
• Night shift differential
• Transportation, meal, and other allowances
• Performance bonuses and commissions (unless part of fixed compensation)
• 13th month pay from the previous year

Worked Examples

Example 1: Full-year employee

Monthly basic salary: P25,000 (worked all 12 months)

• Total basic salary earned: P25,000 x 12 = P300,000
• 13th month pay: P300,000 / 12 = P25,000

For a full-year employee with a fixed monthly salary, the 13th month pay equals one month's salary.

Example 2: Mid-year hire

Monthly basic salary: P20,000 (hired July 1 — worked 6 months)

• Total basic salary earned: P20,000 x 6 = P120,000
• 13th month pay: P120,000 / 12 = P10,000

The formula naturally pro-rates — the denominator is always 12, regardless of how many months the employee worked.

Example 3: Separated employee

Monthly basic salary: P30,000 (resigned September 30 — worked 9 months)

• Total basic salary earned: P30,000 x 9 = P270,000
• 13th month pay: P270,000 / 12 = P22,500

Separated employees are entitled to pro-rated 13th month pay upon separation, not just in December.

Example 4: Daily-rated employee

Daily rate: P600 (worked 245 days in the year)

• Total basic salary earned: P600 x 245 = P147,000
• 13th month pay: P147,000 / 12 = P12,250

For daily-rated employees, use the actual total basic pay earned (daily rate x days worked), not a monthly equivalent.

Tax Treatment

Under the TRAIN Law, the first P90,000 of 13th month pay and other benefits combined is tax-exempt.

13th Month Amount	Tax-Exempt	Taxable Excess
P25,000	P25,000	P0
P50,000	P50,000	P0
P90,000	P90,000	P0
P120,000	P90,000	P30,000

The P90,000 threshold is a combined limit for 13th month pay, Christmas bonus, productivity incentives, and other benefits. If total benefits exceed P90,000, the excess is taxable.

Payment Deadline

• Full payment deadline: On or before December 24 of each year
• Split payment option: Employers may pay half on or before May 30 and the remaining half on or before December 24
• Separated employees: Must receive pro-rated 13th month pay with their final pay

DOLE can impose penalties for late or non-payment of 13th month pay.

Who Is Entitled?

Covered

• All rank-and-file employees in the private sector
• Regular, probationary, contractual, casual, and project-based employees
• Part-time and seasonal employees (pro-rated)
• Domestic workers (kasambahay)

Not Covered

• Managerial employees — those who set and execute management policies, hire/fire employees
• Government employees (covered by a separate system)
• Employers already paying the equivalent of 13th month pay or more under a CBA or company policy

Months Worked Calculation

For employees who didn't work the full calendar year, TalinoHR computes "months worked" using day-level precision:

1. Determine the effective start date (later of January 1 or hire date)
2. Determine the effective end date (earlier of December 31 or separation date)
3. Count calendar days between start and end
4. Divide by average days per month (30.44) to get months worked
5. Cap at 12 months minimum 0.5 months

This precise calculation handles mid-month hires and separations accurately.

Common 13th Month Pay Mistakes

1. Including overtime and allowances — Only basic salary counts. OT, NSD, holiday premiums, and allowances are excluded.

2. Dividing by months worked instead of 12 — The formula always divides by 12. Don't divide by the number of months the employee actually worked.

3. Missing the December 24 deadline — DOLE takes this seriously. Late payment triggers complaints and penalties.

4. Forgetting separated employees — Employees who resign or are terminated mid-year are still entitled to pro-rated 13th month pay.

5. Not accounting for the P90,000 tax threshold — The excess over P90,000 is taxable. Ensure your payroll system handles this correctly during year-end annualization.

How TalinoHR Computes 13th Month Pay

TalinoHR provides a dedicated 13th month pay module:

• Automatic aggregation — The engine sums all basicPay from regular payroll runs for the year per employee
• PD 851 formula — Total basic earned divided by 12, with day-level precision for months worked
• Pro-rating — Mid-year hires and separated employees are automatically pro-rated based on actual days employed
• Tax computation — The P90,000 tax-exempt threshold is applied automatically, with taxable excess flagged
• One-click generation — Preview all employees' 13th month amounts, then generate the payroll run with a single click
• Separate payroll run type — 13th month pay is tracked as a THIRTEENTH_MONTH run type, keeping it distinct from regular payroll

No spreadsheets. No manual aggregation. Book a demo to see TalinoHR's 13th month pay automation.