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An introduction to 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 the 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. It is usually equivalent to at least 1/12 of an employee’s total basic salary in a year.

Depending on the country, giving out this benefit may or may not be required by the government. Surprisingly, majority of developed countries such as the US and UK are not required to provide this bonus.

Most Latin American countries, meanwhile, give 13th month pay on up to three installments. Only Chile practices “customary thirteenth month pay” given either as one-time lump-sum or two installments in September and December.

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13th month pay law in the Philippines

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.

An amendment of the said presidential decree specified that the 13th month pay must be given to all rank-and-file employees on or before December 24.

The difference between 13th month and 14th month pay

13th month pay is different from 14th month pay or a Christmas bonus. While the 13th month pay is mandatory in the Philippines, the 14th month pay is only given according to the company’s practices and standards.

Also, employers are not required to give out bonuses to their employees. Even if they do, it’s either in a form of gift certificates, Christmas packages, and the likes.

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

Computation of 13th month pay based on employment status

Per the presidential decree, the 13th month pay is equivalent to one month’s salary or 1/12 of a worker’s annual salary. This applies to rank-and-file employees with more than one year of tenure in a company.

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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

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 shift differential
  • Overtime pay
  • Etc.

Different computation applies according to the employment status of a worker.

Minimum wage earners

Minimum wage earners are still eligible for 13th month pay, regardless of their employment status. However, unpaid absences and company shutdowns can affect the amount they can get.

DOLE released updated guidelines on the sample computation of 13th month pay as applied to the basic wage in NCR.

Contractual employees

Contractual employees in the Philippines are fully protected by the law. As per Section 8 of the DOLE Department Order no. 18-A, contractual employees including seasonal, relievers, and temporary workers are entitled to rights and privileges under the Labor Code.

This gives them the eligibility for 13th month pay and other monetary benefits as provided in their employment contract or on the Labor Code.

The 13th month pay for contractual employees is computed similarly to regular workers. They can either receive a pro-rated pay calculated from their start date or an equivalent of their basic monthly salary.

a group of people working in a factory
Computation of 13th month pay based on employment status
Managerial employees

Employees holding managerial positions are not eligible to receive 13th month pay. However, employers can provide this benefit at their discretion.

In addition, managerial employees can receive other monetary benefits from their companies. This includes Christmas bonuses and 14th month pay.

Government employees

Originally, the 13th month pay law only applies to private sectors. With this, government employees are not qualified to receive this benefit.

But this does not mean they don’t receive any bonuses at all. Government workers are entitled to receive the following monetary benefits.

14th month pay

Local and national government agencies can provide 14th month pay based on their discretion. Employees can receive up to a full equivalent of their monthly basic salary depending on the amount indicated on the approved memorandum circular.

Bonuses

Government employees can receive mid-year and year-end bonuses as long as they meet the minimum tenure required for the bonuses. These biannual bonuses are the equivalent of 13th month pay in the private sector.

Performance-based bonuses, meanwhile, have different calculation since it is based on the employee’s performance and contribution to the Department or Local Government Unit (LGU) they are in.

Resigned or terminated employees

According to the Bureau of Working Conditions, resigned or terminated employees are still eligible for the 13th month pay “at any time before the time of payment.”

Based on their website, the 13th month pay of a separated employee is “in proportionate” to the length of their stay for the current year. The amount they can get can be calculated based on two options.

  • From the start date. For employees below one year of tenure, calculation of 13th month pay can start from the time they started working within the calendar year to their separation date.
  • From the date of the last 13th month pay. Tenured employees, meanwhile, can calculate their 13th month pay from the last time they received their 13th month to their separation date.

Is the 13th month pay 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 service providers are based in the Philippines, they are still covered by the Philippine jurisdiction and are therefore accountable for failing to do so.

Failure to give 13th month pay to employees
Failure to give 13th month pay to employees

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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