This article is for general information only and is not legal advice. If you have a specific dispute about unpaid 13th month pay or other labor benefits, consult a qualified Philippine labor lawyer.
Every December, millions of Filipino workers expect their 13th month pay — and every year, questions arise about who is entitled to it, how it is computed, and what happens when an employer refuses to pay. The 13th month pay is one of the most important money claims under Philippine labor law, yet it is also one of the most misunderstood. This guide explains the rules under Presidential Decree No. 851, the implementing rules issued by the Department of Labor and Employment (DOLE), and the modern clarifications that apply today, including coverage of resigned employees and the tax exemption under the TRAIN Law.
What Is 13th Month Pay and What Law Governs It?
The 13th month pay is a mandatory cash benefit equivalent to one-twelfth (1/12) of an employee’s basic salary earned within a calendar year. It was institutionalized by Presidential Decree No. 851, signed on December 16, 1975, which requires all employers to pay the benefit to their employees. The implementing rules were issued on December 22, 1975, together with supplementary rules that refined the coverage and exemptions.
Under PD 851, the 13th month pay is due not later than December 24 of every year. The original decree set a salary cap of ₱1,000 per month, but that cap has long been superseded — DOLE guidelines now cover rank-and-file employees regardless of salary level, as discussed below.
Who Is Entitled to 13th Month Pay?
Under Section 4 of the implementing rules, all employees of covered employers are entitled to 13th month pay, regardless of their position, designation, or employment status, and regardless of the method of wage payment — provided they have worked at least one month during the calendar year.
This means the benefit is not limited to regular or permanent employees. Probationary employees, casual workers, project-based employees, and even part-time workers who render at least one month of service within the year are generally covered. The key requirement is the one-month minimum service, not the type of employment contract.
One important modern clarification: while PD 851 originally covered only employees earning ₱1,000 per month or less, DOLE has removed that salary cap. All rank-and-file employees are now covered regardless of salary, per DOLE Labor Advisory. The cap effectively no longer limits coverage — although employers may still voluntarily pay more than the minimum or extend the benefit to employees beyond the rank-and-file level, such as managerial staff.
How Is 13th Month Pay Computed?
The formula is simple: total basic salary earned during the calendar year, divided by 12. For example, an employee who earned a total basic salary of ₱240,000 over the year would receive ₱20,000 as 13th month pay.
Understanding what counts as “basic salary” is where most disputes arise. Basic salary includes all remuneration paid for services rendered, but it excludes:
- Cost-of-living allowances (COLA) under PD 525 or Letter of Instruction No. 174;
- Profit-sharing payments;
- Allowances and monetary benefits not considered part of the regular or basic salary as of December 16, 1975; and
- Overtime pay, earnings, and other remunerations that are not part of the basic salary.
In practice, this means premium pay, holiday pay, night differential, and overtime premiums are excluded from the computation base, while the employee’s regular daily or monthly basic wage is included.
When Must 13th Month Pay Be Paid?
The general rule is that 13th month pay must be paid on or before December 24 of every year. Employers, however, have the option to split the payment: one-half may be paid before the regular school year opens, and the other half on or before December 24. Where a union exists in the workplace, the frequency of payment may also be the subject of a collective bargaining agreement (CBA).
Nothing prevents an employer from paying more than the minimum, or from paying the benefit earlier or in installments more favorable to the employee — the December 24 deadline is the latest date by which payment must be completed.
Which Employers Are Exempted?
Section 3 of the implementing rules lists the employers exempted from the 13th month pay requirement:
- Distressed employers — those currently incurring substantial losses, or non-profit organizations whose income has declined by more than 40% in the last two years, but only with authorization from the DOLE Secretary;
- The government and its political subdivisions, including government-owned or controlled corporations (GOCCs), except those operating as private subsidiaries;
- Employers already paying 13th month pay or its equivalent — such as a Christmas bonus, mid-year bonus, or profit-sharing payment of at least 1/12 of basic salary. If the existing benefit is less than 1/12, the employer must pay the difference;
- Employers of household helpers (kasambahay) and persons in the personal service of another; and
- Employers of workers paid on a purely commission, boundary, or task basis, and workers paid a fixed amount per job — except piece-rate workers, who are covered.
The supplementary rules added further clarifications: contractors and subcontractors (including security agencies) were exempt for 1975 only if their contracts predated December 16, 1975 and could not accommodate the benefit; private school teachers are entitled to 1/12 of their annual basic pay regardless of the number of months actually taught or paid; and new establishments operating for less than one year are not covered, except subsidiaries or branches of foreign or domestic corporations.
Special Rule: 13th Month Pay Is Not Part of Regular Wage
Section 6 of the implementing rules makes clear that the 13th month pay shall not be credited as part of the regular wage for certain purposes. It cannot be used as a basis for computing:
- Overtime and premium pay;
- Fringe benefits;
- SSS, Medicare (PhilHealth), and other premium contributions; and
- Private welfare and retirement plans.
In other words, the 13th month pay is an additional benefit on top of regular wages — it does not inflate the employee’s regular rate for overtime or contribution purposes, and it cannot be treated as a substitute for other statutory benefits.
Resigned Employees and Prohibition on Diminution
Under current DOLE guidelines, employees who resigned or were separated from employment are entitled to a prorated 13th month pay for the months they actually worked during the calendar year. The amount is computed as 1/12 of the basic salary they earned during their period of service, and it must be included in their final pay or released on or before December 24.
Section 10 of the implementing rules also imposes a prohibition on diminution of benefits: employers cannot eliminate or reduce existing supplements, benefits, or favorable practices already enjoyed by employees. If an employer has been granting more than the statutory minimum — for example, a 14th month pay or a higher bonus — that practice cannot be unilaterally withdrawn.
Is 13th Month Pay Taxable?
Under the TRAIN Law (RA 10963), the 13th month pay and other benefits are tax-exempt up to ₱90,000 per year. Only the amount exceeding ₱90,000 is subject to income tax. This exemption is significant for most rank-and-file employees, whose 13th month pay typically falls below the threshold.
What If Your Employer Does Not Pay?
Non-payment of 13th month pay is treated as a money claims case processed under the implementing rules of the Labor Code and the rules of the National Labor Relations Commission (NLRC). An affected employee may:
- File a complaint or money claim with the nearest DOLE regional office, which can conduct inspection and issue compliance orders; or
- File a case with the NLRC, which has jurisdiction over money claims arising from employer-employee relations.
Because the 13th month pay is a statutory benefit, employers cannot waive it, and employees cannot validly agree to receive less than what the law requires. If you believe your employer is withholding your 13th month pay or computing it incorrectly, keep your payslips and employment records, and seek legal assistance promptly — money claims are subject to prescription periods, and evidence becomes harder to gather over time.
Frequently Asked Questions
Who is entitled to 13th month pay?
All rank-and-file employees who have worked at least one month during the calendar year are entitled, regardless of position, designation, employment status, or salary amount.
How is 13th month pay computed?
Divide the total basic salary earned during the calendar year by 12. Basic salary excludes overtime pay, cost-of-living allowances, profit-sharing, and other allowances that are not part of the regular salary.
When must it be paid?
On or before December 24 of every year. Employers may pay half before the school year opens and the remaining half by December 24.
Are resigned employees entitled to 13th month pay?
Yes — they are entitled to a prorated 13th month pay for the months they worked in that calendar year.
Is 13th month pay taxable?
13th month pay and other benefits are tax-exempt up to ₱90,000 under the TRAIN Law. Only the excess is subject to income tax.
What if my employer does not pay?
File a money claim with the nearest DOLE regional office or with the NLRC. Keep your payslips and employment records as evidence.
Related Resources
- Service Incentive Leave in the Philippines: Rules, Computation, and Employee Rights
- Employee Final Pay in the Philippines: What Is Usually Included?
- Workplace Harassment and Discipline in the Philippines: Employee Rights and Employer Duties
- Labor Law Resources at AttyKalibre
Need help with an unpaid 13th month pay or other labor claim? AttyKalibre offers free legal guides and online legal consultations to help you understand your rights and options under Philippine labor law.
Disclaimer: This article is for general information only and does not constitute legal advice. Laws and regulations may change, and their application depends on the specific facts of each case. For advice on your particular situation, consult a qualified Philippine attorney.