In the Philippines, the 13th month pay is more than just an extra paycheck—it’s a legally mandated benefit that employees look forward to, especially during the holiday season. But for many, the details of how it’s calculated, whether it’s taxable, and how it appears in the 13th Month Pay Summary can be confusing.
This guide explains the rules, deductions, and benefits of the 13th month pay, giving both employees and employers a clear understanding of this important payroll component.
What Is the 13th Month Pay?
The 13th month pay is a mandatory benefit provided to all rank-and-file employees in the Philippines, as required by Presidential Decree No. 851.
It is equivalent to one-twelfth (1/12) of an employee’s total basic salary earned within a calendar year.
Example: If your monthly basic salary is ₱20,000 and you worked the entire year, your 13th month pay will be: ₱20,000 × 12 months ÷ 12 = ₱20,000
Who Is Entitled to 13th Month Pay?
- Covered Employees: All rank-and-file employees, regardless of position, provided they have worked at least one month during the year.
- Exemptions: Managerial employees, government workers, household helpers, and employees paid purely on commission are generally excluded.
When Is the 13th Month Pay Given?
Employers must release the 13th month pay on or before December 24 of every year. Some companies, however, give half in June and the remaining half in December.
Are There Deductions on 13th Month Pay?
Yes, but with important details:
- Tax-Free: If the total 13th month pay and other benefits (like bonuses) do not exceed ₱90,000, it is exempt from income tax.
- Taxable: Any amount above ₱90,000 is subject to income tax based on applicable tax rates.
- No SSS, PhilHealth, or Pag-IBIG deductions apply to 13th month pay.
How Is the 13th Month Pay Summary Computed?
The 13th Month Pay Summary shows the computation based on total basic salary earned during the year.
Formula:
Total Basic Salary Earned (Jan–Dec) ÷ 12 = 13th Month Pay
Benefits of the 13th Month Pay
For Employees
- Extra financial support during the holiday season
- Encourages employee loyalty and morale
- Helps with personal budgeting and year-end expenses
For Employers
- Compliance with Philippine labor law
- Improved employee satisfaction and retention
- Opportunity to reward and motivate the workforce
Common Misconceptions About 13th Month Pay
- It’s the same as a Christmas bonus – Wrong. The 13th month pay is mandatory, while a Christmas bonus is discretionary.
- It includes allowances and overtime – Wrong. Only basic salary is included in the computation.
- It is always taxable – Wrong. Only amounts above ₱90,000 are taxable.
Conclusion
The 13th Month Pay Summary is a crucial payroll report that ensures employees receive what they are legally entitled to, while also helping employers stay compliant with labor laws.
By understanding the rules, deductions, and benefits, both employees and employers can avoid confusion, prevent disputes, and fully maximize this year-end benefit.