13th-Month Pay in the Philippines: 2026 Employer Guide

13th-month pay is one of the most commonly misunderstood — and most frequently contested — statutory benefits in the Philippines. It is not discretionary. It is not a Christmas bonus employers can withhold for performance reasons. It is a mandatory legal entitlement governed by Presidential Decree No. 851, with over four decades of DOLE enforcement behind it.

For foreign companies employing Philippine-based staff, understanding the mechanics before your first December payroll run saves you from retroactive corrections and potential DOLE complaints.

Who must pay

All private-sector employers — including foreign-owned companies registered in the Philippines — must pay 13th-month pay. There is no exception based on company size, profitability, or the employer’s nationality.

Covered employees: All rank-and-file employees who have worked for at least one month in the calendar year. This includes:

• Regular employees
• Probationary employees
• Fixed-term employees (pro-rated for the period worked)
• Resigned or separated employees (entitled to a proportionate amount based on months worked before leaving)

Not covered: Managerial employees (those with authority to hire, fire, or take actions of similar consequence) and employees who are paid a fixed monthly salary that already includes the 13th-month component explicitly in the employment contract — though this exception requires careful documentation.

How to compute it

13th-month pay = Total basic salary earned in the calendar year ÷ 12

Basic salary means the fixed remuneration paid for services rendered. It excludes:

• Overtime pay
• Holiday and night shift differential premiums
• Cash equivalent of unused leave credits
• Allowances (COLA, transportation, meal — unless these are treated as basic salary in the contract)

The same formula applies to monthly-paid and daily-paid staff. For daily-paid employees, total basic salary earned means the sum of daily wages actually earned across the calendar year, then divided by 12.

Worked examples

Full-year, monthly-paid. An employee earning PHP 30,000 basic salary per month who worked the full year receives: PHP 30,000 × 12 months ÷ 12 = PHP 30,000.

Mid-year hire. An employee who joined on 1 July at PHP 30,000 has earned PHP 180,000 by 31 December: PHP 180,000 ÷ 12 = PHP 15,000. Nine months worked would give PHP 270,000 ÷ 12 = PHP 22,500.

Salary increase mid-year. An employee earned PHP 25,000 per month from January to June and PHP 30,000 from July to December: (25,000 × 6 + 30,000 × 6) ÷ 12 = 330,000 ÷ 12 = PHP 27,500. Always divide what was actually earned, not the December run rate.

Daily-paid with absences. A daily-paid worker earning PHP 700 per day and paid for 280 days during the year earned PHP 196,000 in basic wages: PHP 196,000 ÷ 12 = PHP 16,333. Unpaid absences reduce the base, which is why attendance records and 13th-month accuracy are the same system.

What trips up the computation

1. Including premiums in the base. Overtime pay, night differential, and holiday premiums are excluded unless your contract explicitly folds them into basic salary. Including them inflates the 13th-month cost permanently, because the next year’s figure is benchmarked against it.
2. Applying the PHP 90,000 ceiling per bonus instead of in aggregate. The ceiling covers 13th-month pay plus all other bonuses and incentives combined for the year.
3. Skipping separated employees. Resigned or terminated staff are entitled to a proportionate 13th-month for months worked before separation, payable with final pay.
4. Forgetting the two-tranche option is still a deadline. A November first tranche is fine; the balance must land by 24 December regardless.

The PHP 90,000 tax-exempt ceiling

As of June 2026, the tax-exempt ceiling for 13th-month pay and other bonuses is PHP 90,000 per calendar year, as confirmed under BIR Revenue Regulations No. 29-2025 (effective January 2026). This ceiling applies to the combined total of:

• 13th-month pay
• Christmas bonuses
• Productivity incentives
• Other similar benefits

Any amount exceeding PHP 90,000 is included in the employee’s taxable compensation and subjected to withholding tax under the TRAIN Law schedule. De minimis benefits (meal allowances, rice subsidies, uniform allowances within BIR-prescribed limits) are counted separately and do not erode the PHP 90,000 ceiling.

Deadline and payment options

The statutory deadline is December 24 of each year. DOLE does not accept late payment as a compliance issue to be “cured” — failure to pay by the deadline exposes the employer to DOLE inspection and penalty proceedings.

Employers may pay in two tranches: a half payment at any point before December 24 (many pay around November, before the school enrolment season), and the balance by the deadline. The tranche arrangement is optional; full payment at any point before December 24 is equally compliant.

Record-keeping and DOLE reporting

Under the DOLE reporting framework, employers must be able to demonstrate that 13th-month pay was computed correctly and paid on time. Maintain payroll records showing each employee’s monthly basic salary, total earnings for the year, and the 13th-month amount paid.

Our HR and payroll service includes 13th-month pay computation, payslip generation, and DOLE compliance support. See our payroll service or book a consultation if you are setting up payroll for the first time.