Every December, the same question echoes through Philippine workplaces: "How much is my 13th month pay?" For employees it's one of the most anticipated payouts of the year. For employers, it's a legal obligation with specific rules, and getting the computation wrong is a common, costly mistake.
This guide breaks down exactly how 13th month pay works, what counts toward it, and how to compute it in the situations that trip people up.
What is 13th month pay?
13th month pay is a government-mandated benefit under Presidential Decree No. 851. It is not a bonus and not discretionary, covered employers are legally required to pay it. The whole point is to give rank-and-file employees an additional month's worth of basic pay, spread across the year and released before the holidays.
Who is entitled to it?
All rank-and-file employees who have worked for at least one month during the calendar year are entitled to 13th month pay, regardless of how they are paid or their position, as long as they are not classified as managerial. This includes resigned and terminated employees. They're entitled to a prorated amount for the portion of the year they worked.
The basic formula
The core formula is simple:
13th Month Pay = Total Basic Salary Earned During the Year ÷ 12
The key phrase is basic salary earned. This is not the same as gross pay. Basic salary generally excludes items such as overtime pay, holiday and premium pay, night-shift differential, cost-of-living allowances, and the cash value of unused leave. Including these by mistake is the single most common computation error.
Example 1: A full-year employee
Suppose an employee earns a fixed basic salary of ₱20,000 per month and works the entire year with no unpaid absences. Their total basic salary earned is ₱20,000 × 12 = ₱240,000. Dividing by 12 gives a 13th month pay of ₱20,000: equal to one month's basic salary, exactly as intended.
Example 2: A mid-year hire
Now suppose an employee with the same ₱20,000 monthly basic salary was hired on July 1 and worked six full months. Their total basic salary earned is ₱20,000 × 6 = ₱120,000. Dividing by 12 gives ₱10,000. Because they only worked half the year, they receive a prorated half of a full month's pay.
Example 3: An employee with unpaid absences
This is where care is needed. If an employee has unpaid absences, those days reduce their basic salary earned, which in turn lowers the 13th month pay. Imagine the same ₱20,000-per-month employee who, over the year, accumulated unpaid absences totaling ₱8,000 in deductions. Their basic salary earned is ₱240,000 − ₱8,000 = ₱232,000, and their 13th month pay is ₱232,000 ÷ 12 = ₱19,333.33. Paid leave does not reduce the figure; only unpaid time does.
When must it be paid?
13th month pay must be released on or before December 24 each year. Some employers choose to split it, half mid-year and half in December, which is allowed, but the full amount must still be settled by the deadline. Employers are also required to report compliance to DOLE.
Is 13th month pay taxable?
13th month pay and other benefits are tax-exempt up to a combined ceiling of ₱90,000. Any amount beyond that threshold is added to taxable income and subject to withholding tax. For most rank-and-file employees, the benefit falls entirely within the exemption, but for higher earners, the excess must be taxed correctly.
Common mistakes to avoid
Using gross pay instead of basic salary. Allowances, overtime, and premiums don't belong in the base.
Forgetting to prorate. New hires and separated employees earn a proportionate amount, not a full month.
Ignoring unpaid absences. They lower basic salary earned and therefore the 13th month pay.
Missing the deadline. Late payment exposes the business to penalties and complaints.
Let your payroll system handle it
13th month pay is exactly the kind of computation that should run automatically. A payroll system that already tracks each employee's basic salary earned, net of unpaid absences and separate from allowances and premiums, can compute 13th month pay for your entire workforce in minutes, ready for HR to review, prorating new hires and leavers without manual spreadsheets.
BeavHR does this out of the box, using the same payroll data you've maintained all year. If you'd like to see a clean 13th month run before the December rush, book a demo and we'll walk you through it.
What about probationary and contractual staff?
Entitlement doesn't depend on employment status. Probationary employees, project-based workers, and fixed-term staff are all entitled to 13th month pay as long as they're rank-and-file and have worked at least one month during the year. What changes is only the amount. It's always based on the actual basic salary they earned for the days they worked, then prorated using the same divide-by-twelve formula. When in doubt, compute from basic salary earned and you'll arrive at the right figure.
A few more scenarios
Daily-paid employees
For daily-paid staff, base the computation on the actual basic wage earned for the days they worked during the year, then divide by 12. Days not worked simply don't add to basic salary earned, so the proration happens on its own.
Employees who resigned or were terminated mid-year
Separated employees are entitled to a prorated 13th month pay for the portion of the year they worked, released as part of their final pay. Compute from basic salary earned up to their last day, divided by 12. See Final Pay and the Certificate of Employment.
Employees on extended or unpaid leave
Paid days count toward basic salary earned; unpaid days, including leave without pay, do not. Statutory maternity benefits are paid by the SSS and sit outside "basic salary earned," so they neither add to nor reduce the 13th month base beyond the paid/unpaid distinction.
Frequently asked questions
Is 13th month pay taxable?
13th month pay and other benefits are tax-exempt up to a combined ceiling of ₱90,000. Any amount above that ceiling is added to taxable income and subject to withholding tax.
Do resigned or terminated employees still get 13th month pay?
Yes. Separated employees are entitled to a prorated amount based on the basic salary they earned for the part of the year they worked, typically released as part of their final pay.
How do maternity leave or leave without pay affect 13th month pay?
13th month pay is based on basic salary earned. Paid working days count; unpaid days, including leave without pay and the unpaid portion of extended leaves, reduce basic salary earned and therefore the 13th month pay. Statutory maternity benefits are paid by the SSS and do not form part of "basic salary earned."
Are commission-based or daily-paid employees entitled?
Rank-and-file employees are entitled regardless of how they are paid. For daily-paid staff, compute from the actual basic wage earned for days worked; for employees paid partly on commission, generally only the guaranteed basic component forms part of the base. When in doubt, compute from basic salary earned.
Related reading
- The Complete Guide to Philippine Payroll Compliance
- Holiday Pay, Overtime & Night Differential
- The Employer's Payroll Calendar
Disclaimer: This article is general information, not legal or tax advice, and Philippine rules and rates change over time. Always confirm the current requirements with the official agencies, DOLE, BIR, SSS, PhilHealth, and Pag-IBIG, or your legal counsel before acting. Last reviewed: July 2026.