It’s the holiday season once again, and what is something that workers highly anticipate aside from the holiday break? That’s right—our 13th-month pay!
For those just starting in the workplace, the 13th-month pay is a statutory benefit that an employee should receive under the Presidential Decree (P.D.) No. 851. The decree acknowledges the importance of financial stability during the holiday season. It is roughly equivalent to an employee’s monthly basic salary.
WHEREAS, the Christmas season is an opportune time for society to show its concern for the plight of the working masses so they may properly celebrate Christmas and New Year
Stated in UST Faculty Union vs. National Labor Relations Commission, “The law wanted to uniformly provide low-paid employees with additional income because on the average their salaries for twelve (12) months were grossly inadequate to meet the expenses for day-to-day subsistence. This additional income took the form of an extra months salary to be given in December”.
What exactly is 13th-month pay and who is entitled to receive it?
To be exact, it refers to one twelfth (1/12) of the basic salary of an employee within a calendar year.
Section 2 (a). “Thirteenth-month pay” shall mean one twelfth (1/12) of the basic salary of an employee within a calendar year;
(b) “Basic salary” shall include all remunerations or earnings paid by an employer to an employee for services rendered but may not include cost-of-living allowances granted pursuant to Presidential Decree No. 525 or Letter of Instructions No. 174, profit-sharing payments, and all allowances and monetary benefits which are not considered or integrated as part of the regular or basic salary of the employee at the time of the promulgation of the Decree on December 16, 1975.
As stated in Central Azucarera de Tarlac v. Central Azucarera de Tarlac Labor Union-NLU, all rank-and-file employees of private companies, regardless of their designation or employment status and irrespective of the method by which their wages are paid, are entitled to this benefit, provided that they have worked for at least one month during the calendar year. If the employee worked for only a portion of the year, the 13th-month pay is computed pro rata.
In other words, it doesn’t matter if you’re a regular, on probation, project-based, or part-time, nor does it matter if you’re paid monthly, weekly, or daily—if you have rendered at least one month of work, you are automatically entitled to this benefit.
This also includes those:
- Paid on a piece-rate basis
- Fixed or guaranteed wage plus commission
- With multiple employers
- Who resigned and terminated from employment
- On maternity leave and received salary differential
- Household workers under the Republic Act No. 10361, or the Kasambahay Law (Domestic Workers Act)
Excluded from 13th-month pay are:
- Managerial and executive positions
- Freelancers, independent contractors, consultants, etc., under a service contract and not part of a company’s payroll
- Purely commission-based or boundary-based workers
When should I receive my 13th-month pay?
Under the law, an employee or worker should receive the 13th-month payment on or before December 24 of the calendar year. Any employers who violate or fail to comply may be reported and penalized by the Department of Labor and Employment (DOLE).
How to compute 13th-month pay?
To illustrate, for those who have rendered a full year of work:
For those who have not worked for a full year (considered pro-rated/pro-rata):
What is considered “basic salary”?
Basic salary refers to the fixed remuneration or earnings paid by an employer to an employee for services they have rendered.
Included in the computation of the benefit are:
- Paid leaves and, consequently, unpaid absences should be deducted
- Cost-of-living allowances, if they are integrated into the employee’s basic pay
- Salary-related benefits, if integrated into the employee’s basic pay
According to the 2024 DOLE-BWC Handbook on Workers’ Statutory Monetary Benefits, the following are excluded from the computation of 13th-month pay:
- Overtime pay, holiday pay, and night shift differential
- Premium pay
- Fringe benefits
- Contributions to the State Insurance Fund, Social Security System, and National Health and Insurance Program
- Private retirement plans contributions
Is 13th-month pay taxable?
Yes, but only if it exceeds the tax exemption threshold for this pay, which is ₱90,000. Hence, if the total of your 13th-month pay and other benefits is ₱90,000, the amount above the threshold is considered taxable and must be included in your gross income.
To illustrate, if an employee receives a 13th-month pay of ₱80,000 and a separate bonus of ₱40,000, totaling ₱120,000, the excess over ₱90,000 tax-exempt limit is ₱30,000, which is subject to income tax.
₱80,000 13th-month pay + ₱40,000 separate bonus = ₱120,000
₱120,000 total – ₱90,000 tax-exempt limit = ₱30,000
= ₱30,000 subject to income tax
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Author/s: Patricia Minimo
About the author: Patricia is STLAF's Legal Writer-Researcher. She is a Communication graduate from the University of the Philippines – Baguio with a major in Journalism and a minor in Speech Communication.