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13th Month Pay in the Philippines: A Guide for Employers

Depending on the economic and business policies in each country, there may be additional employee entitlements and bonuses that are required which may be unfamiliar to you.  One of those is what is known as ‘13th month pay’, where employees receive an extra month of salary as though there were 13 months in the calendar year.

This is the case in the Philippines, where 13th month pay is mandated by statute, and widely expected by employees for the holidays.  This guide will explain to you how 13th month pay is offered, calculated and taxed so that you can plan for this additional cost of total compensation.

What is 13th month pay?

13th month pay is an amount equal to 1/12 of the annual salary, paid by December 24 of each year.  Because it is mandatory, employers don’t have any discretion of whether to pay it or not based on employee performance or business revenues.  It is distinct from the Christmas bonus, which is optional but can be awarded to employees out of appreciation.

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Who is entitled to receive the 13th month pay in the Philippines?

All non-management employees are entitled to 13th month pay as long as they have worked at least one month for the employer (managers also often receive 13th month pay, although it’s not required). 

Employees who resign or are terminated also receive the additional pay, but it may be pro-rated depending on the date of termination.  They would receive it as part of their final payroll.

How do employers calculate the 13th month salary?

13th month pay is calculated by dividing the annual basic salary by 12, and that amount would be the 13th month.  A new employee who works more than one month but less than a year would receive an amount equal to the year’s accrued salary to date, divided by 12.

When do employers pay the 13th month salary in the Philippines?

The 13th month pay can either be paid by the December 24th deadline, or in two installments of 50%, with the other payment in May.  Employers must file a compliance report by January 15 of the new year to confirm payments.

What is the DOLE advisory?

Because of the COVID pandemic, many employers in the Philippines thought there might be some relief from the 13th month pay requirement, due to declines in business revenue.  But the department of labor issued the an advisory in October 2020 that the 13th month pay continued to be mandatory, with no changes or exceptions, despite the economic challenges.

This does highlight how important this additional month of pay is to the country’s labor policymakers (and of course employees), and it is expected that the 13th month pay will be in full effect for 2021.

Client Case: Taxable threshold of the 13th month pay in the Philippines

One of our client’s employees in the Philippines reached out to ask us about the taxability of the 13th month pay, and if there was a tax-free amount.  We let them know that the 13th month pay is tax-free up to PHP 90,000, and any amounts above that are taxable and the tax would be deducted from the final payment.

The tax-free amount of PHP 90,000 also includes ‘other equivalent benefits’ like commissions and bonuses that have to factor into the calculation.  The employee, in this case, had a total 13th month pay plus additional benefits that exceeded PHP 90,000 (PHP 103,000), so the excess of PHP 13,000 was taxable.

Do you need more information about the Philippines?

If you are new to employing in the Philippines, you might have other questions such as:

Is the 13th month pay included in December payroll, or paid separately?

Does the 13th month pay calculation include any amounts in addition to basic salary?

Are there penalties if the employer is late with the payment?

It is because of compliance concerns like these that our clients contact us regularly for updates and changes to labor policies.  With the help of our in-country partners, we keep them in compliance with all payroll and benefit requirements.  We make international employment simple.

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The information in this article is subject to changes in local legislation.

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