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13th month pay law and computation

13th month pay law

It’s that time of the year again that every employee looks forward to: the BER months. It is the countdown for Christmas season, which connotes cold nights, Christmas songs, holiday decorations, Simbang Gabi, and the much-awaited 13th month pay.

Who else wouldn’t get excited to look forward to another year with a stable job and extra money for your savings?

However, not everyone has the privilege to get this, especially freelancers and self-employed individuals. This article will discuss the 13th month pay, the law covering this benefit, and why employers ‘should’ give this to their freelancers as well.

13th month pay

13th month pay is simply an additional compensation given to the employees. Depending on the country, giving out this benefit may or may not be required by the government.

In the Philippines, by the virtue of Presidential Decree No. 851, also known as the ‘13th Month Pay law’, it is a mandatory cash benefit given to all qualified employees on or before the 24th of December of the current year so that employees may be able to properly celebrate Christmas and New Year.

13th month pay is different from 14th month pay or a Christmas bonus. Also, employers are not required to give out bonuses to their employees. And even if they do, it’s either in a form of gift certificates, Christmas packages, and the likes.

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In the case of some business process outsourcing employees, they get both a 13th and 14th month pay on top of their incentives.

Who are qualified to receive this?

Section 3 of the Rules and Regulations of the ’13th Month Pay law’ indicates that all employees in the private sector, except in a few cases:

  • Those with distressed employers. Companies continuing to gain losses more than profit may file for an exception to the Department of Labor and Employment.
  • Household persons and those in the personal service, such as helpers, family drivers, gardeners, etc.
  • Employees earning on purely commission-based, task-based, or those paid with a fixed amount for a specific work, such as the case of freelancers.
13th month pay

13th month pay computation

For employees with more than one year of tenure and up, their 13th month is equivalent to a month worth of salary or 1/12 of their annual basic pay. 

For employees with less than a year of tenure, a pro-rated amount of not less than one thousand pesos (Php 1,000.00) shall be given to them, depending on their length of tenure in the company within the current year. 

As an example, we have provided a 13th month computation table for an employee receiving PHP20,000 basic monthly salary.

Basic pay
(monthly salary)

Length of tenure
(in months)
13th month pay*
(amount to be received)
PHP 20,000.001PHP  1, 667.00
PHP 20,000.006PHP 10,000.00
PHP 20,000.0012PHP 20,000.00

*13th month pay = (basic pay * length of tenure) / 12

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This benefit does not cover additional monetary allowances and benefits such as:

  • Cost of living allowances
  • Unused vacation and sick leave credits
  • Holiday pay
  • Night differential
  • Overtime pay
  • Etc.

Is it taxable?

It depends on the amount you receive. The good thing is, as per the Sec 32 (B) (7) (e) of the National Internal Revenue Code amended by the Republic Act 10963, or the TRAIN law, the limit of the non-taxable 13th month pay and other benefits has been increased to Php 92,000.00. This limit covers Christmas bonuses and other incentives.

Failure to give 13th month pay to employees

Unless filed for exemption, companies that failed to give 13th month pay to their employees are subject to legal charges.

According to its Rules and Regulations, employers are required to file a report of compliance to the Department of Labor and Employment (DOLE) not later than the 15th of January the following year. Upon failure to do so, employees may file a money claims case to any DOLE branch. 

This, then, will be processed according to the Rules and Regulations of the Labor Code of the Philippines and the Rules of National Labor Relations Commission.  Once filed, the 13th month pay of the employees will be due and demandable.

BPO companies are also not exempted from this, even though their clients are outside the country. Since their companies are based in the Philippines, they are still covered by the Philippine jurisdiction and are therefore accountable for failing to do so.

How about giving 13th month to freelancers?

Though it is not required by law, why not consider giving them additional compensation? Freelancers and remote workers may not be a part of your company’s payroll or hold an 8-to-5 job in your office. But just like any employee, they continue to provide their skills and services to your business.

They put their time and resources in order to get things done and they look for the most effective way possible to complete their projects on time. Many of them work without the usual benefits, though it’s not mandatory, they will be delighted seeing a bit of extra money in their pockets for the coming Philippine holidays.

The government won’t make the 13th month pay mandatory for no reason. This is beneficial to employees, especially in the upcoming holidays. Unfortunately, this isn’t the case for freelancers.

We encourage employers to give their freelancers their 13th month pay as a sign of gratitude for their hard work.

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