If you’re considering hiring in the Philippines, there’s one local labor law you absolutely need to know about: 13th month pay. Unlike other countries where year-end bonuses are discretionary, in the Philippines, the 13th month pay is a mandatory benefit under Presidential Decree No. 851. Failing to comply can result in penalties, legal disputes, and damage to your employer reputation.

This guide breaks down what 13th month pay is, who qualifies, how it is calculated, when it must be paid, and how an Employer of Record (EOR) like Team APAC can ensure full compliance.

What Is 13th Month Pay?

13th month pay is an additional monthly salary that Filipino employees are entitled to receive at the end of the year. It is designed to help employees with extra expenses during the holiday season, especially around Christmas. Unlike bonuses tied to performance, 13th month pay is a legal right of employees and not subject to employer discretion.

Who Is Entitled to 13th Month Pay?

According to the Department of Labor and Employment (DOLE), all rank-and-file employees in the private sector who have worked for at least one month during the calendar year are entitled to 13th month pay, regardless of their employment status (permanent, probationary, fixed-term, or seasonal).

Note: Managerial employees and certain commission-based or field personnel may be exempt, but these exemptions must meet strict DOLE guidelines.

How Is 13th Month Pay Calculated?

The basic formula is:

13th Month Pay = Total Basic Salary Earned During the Year ÷ 12

For example, if an employee earned PHP 360,000 in basic salary over the year, their 13th month pay would be:

PHP 360,000 ÷ 12 = PHP 30,000

Only “basic salary” is included in the computation. Allowances, bonuses, and overtime pay are not part of the base.

When Must It Be Paid?

By law, employers must pay the 13th month salary on or before December 24 of every year. Some companies choose to split the payment—half in June and the remainder in December—but the law only requires full payment before Christmas Eve.

Is 13th Month Pay Taxed?

13th month pay is tax-exempt up to PHP 90,000. Amounts beyond that are subject to income tax.

Common Mistakes by Foreign Employers

1. Treating it as optional – It’s not. It’s a statutory obligation.
2. Calculating it on total compensation – Use only basic salary.
3. Missing the December 24 deadline – Late payment can result in DOLE complaints.
4. Overlooking part-time or fixed-term workers – They are eligible if they worked at least one month.

How an EOR Like Team APAC Helps

Complying with local payroll laws in the Philippines can be complex, especially when managing multiple hires remotely. Team APAC acts as the legal employer on your behalf, ensuring:

• Accurate and timely computation of 13th month pay
• Proper payroll processing and tax handling
• Full compliance with DOLE reporting requirements
• Local employee expectations and benefits are met

Final Thoughts

If you’re expanding your team in the Philippines, understanding the 13th month pay isn’t just a legal checkbox—it’s also a critical part of attracting and retaining great local talent. Filipino employees expect it, and failing to deliver can damage your employer brand.

With Team APAC as your EOR partner, you can confidently hire in the Philippines knowing that compliance, payroll, and benefits are handled with precision.