13th month pay in the Philippines, explained for foreign employers
What it is, what it costs, and why your team counts on it.

If you employ people in the Philippines, there’s a thirteenth paycheck in your year whether you planned for it or not.

It’s the 13th month, set by law. Foreign budgets miss it because nothing in an Australian, American or British payroll looks like it.

Your Filipino staff don’t see it as a bonus. For anyone employed locally, it’s part of their pay.

The 13th month isn’t a reward for a good year. It’s one twelfth of the year’s pay, owed in December.

It’s required by law, not handed out at the company’s discretion.
A Christmas bonus only counts if it’s at least as much.

Presidential Decree 851 requires Philippine employers to pay rank-and-file employees a 13th month every year.

Covered: rank-and-file employees with at least one month worked in the calendar year, any status, any pay method.

Not covered: managerial employees. Whether yours get one is a contract decision. Make it before the offer.

A year-end bonus counts only if it’s at least the same amount. A ₱10,000 Christmas gift doesn’t replace a ₱45,000 13th month.

The amount is one twelfth of the basic salary earned that year.
Not the salary in December. The salary across the year.

Add up basic salary earned January to December. Divide by 12.

"Basic salary" is narrower than what you pay. Overtime, night differential, holiday premiums, allowances and unused leave cash-outs usually sit outside it, unless contract or company practice brings them in.

Joiners, raises and leavers all get a share.
It follows what they actually earned.

• Joined in April. Ana at ₱45,000 for 9 months: ₱405,000 ÷ 12 = ₱33,750.
• Raise in July. ₱40,000 for 6 months, then ₱45,000 for 6: ₱510,000 ÷ 12 = ₱42,500.
• Leaves in August. A pro-rated amount on what she earned to her last day, paid with her final pay.

The 13th month is part of what a leaver is owed. People remember their last payslip, and so do the colleagues they tell.

It’s due by December 24.
It can be paid in two halves.

Pay it by December 24, or in two parts: half earlier in the year, the rest by December 24.

Ana’s ₱45,000 lands in the same month as her December salary. For a team of ten, that’s a second December payroll.

Up to ₱90,000 of it is tax-free.
Combined with other benefits, per employee, per year.

The 13th month and other benefits are tax-exempt up to ₱90,000 a year combined. The excess is taxed.

Ana’s ₱45,000 sits inside the ceiling. It mostly matters for senior hires on ₱90,000 a month or more.

Contractors don’t get one by law.
The local offer they’re comparing you to does.

If Ana is a contractor paid through Wise, no law requires a 13th month.

Any local company hiring her as rank-and-file staff has to pay one. So when a recruiter calls, she’s comparing twelve paychecks to thirteen, plus contributions, sometimes an HMO card.

That gap loses good people. Not the work. The offer next to it.

Budget it as a thirteenth paycheck, not a December surprise.
It’s the biggest single line in the employer add-on.

Set aside one twelfth of salary every month, and December stops being a spike.

Ana, employed properly, per month:

At her salary it’s bigger than SSS. Unlike SSS, PhilHealth and Pag-IBIG, it has no cap. It grows with every raise.