13th month pay Philippines: rules and calculation

The 13th month pay is a legal entitlement for employees in the Philippines. It is not a bonus. It comes from Presidential Decree No. 851, and the rules for applying it are in the Revised Guidelines on the Implementation of the 13th Month Pay Law issued by the Department of Labor and Employment (DOLE) in 1987. DOLE restates the rules each year. Its advisory for 2025, Labor Advisory No. 16, s. 2025, confirmed the same minimum and the same 24 December deadline.

If you hire a Filipino staff member directly from Australia, plan for this payment from the day you set their salary.

Who is covered under PD 851

The Revised Guidelines cover all rank-and-file employees of private employers, whatever their salary, job title, employment status or method of pay, as long as they have worked at least one month in the calendar year.

• Rank-and-file means everyone who is not a managerial employee. Managerial employees are those who make or carry out management policy, or who can hire, fire, discipline or effectively recommend those actions.
• Piece-rate workers are covered.
• People with more than one employer are owed a 13th month pay by each employer.

The guidelines exempt:

• the government and its agencies;
• employers already paying a 13th month pay or more, or its equivalent, in the year;
• employers of household helpers and people in personal service; and
• employers of workers paid purely on commission, boundary or task basis, or a fixed amount for a specific piece of work.

An Australian business that hires someone directly in the Philippines is usually in the same position as any other private employer. Most offshore roles in Australian service businesses, such as bookkeepers, admin assistants and loan processors, are rank-and-file.

13th month pay computation

The minimum is one-twelfth of the total basic salary earned in the calendar year.

Basic salary means pay for services rendered. Under the Revised Guidelines it does not include, unless your contract, policy or practice treats them as part of basic salary:

• overtime pay;
• premium pay and holiday pay;
• night shift differential;
• cost-of-living allowances;
• the cash value of unused vacation and sick leave.

Worked example

A full-year employee on a basic salary of ₱60,000 a month:

Step	Amount
Basic salary earned, January to December (₱60,000 × 12)	₱720,000
13th month pay (₱720,000 ÷ 12)	₱60,000

For a full year at a steady salary, the 13th month pay equals one month’s basic salary.

Part-year employees

If your hire started on 1 July on ₱60,000 a month, their basic salary earned for the year is ₱360,000. Their 13th month pay is ₱360,000 ÷ 12 = ₱30,000.

Unpaid leave and unpaid absences reduce basic salary earned, so they reduce the 13th month pay too.

When to pay it

Pay it no later than 24 December. The guidelines allow you to split it, paying half before the regular school year opens and the other half by 24 December.

Staff who leave during the year are owed a proportionate amount: one-twelfth of the basic salary they earned from 1 January to their last day, payable when they leave. Include it in the final pay.

Bonuses and the 13th month

If you already pay a Christmas or mid-year bonus, it can count as the 13th month pay, but only if it is at least one-twelfth of the year’s basic salary. If it is less, you must pay the difference. Non-cash benefits, regular allowances and profit-share dividends do not count.

Tax

13th month pay and other benefits are exempt from Philippine income tax up to a combined ₱90,000 a year. Amounts above that are taxable. How this applies depends on how your staff member is paid and who handles their tax, so check with a Philippine payroll provider or accountant.

Budgeting from Australia

For a direct employer, the 13th month pay adds roughly 8.3% (one-twelfth) to the year’s basic salary cost. Practical steps:

• Put it in the contract. State the 13th month entitlement and when you will pay it.
• Accrue it monthly. Set aside one-twelfth of each month’s basic salary so December is not a surprise.
• Watch the exchange rate. You will likely pay in pesos or convert from AUD. A weaker Australian dollar in December raises the cost.
• Pay on time. Allow for international transfer times so the money lands before 24 December.

Some managed agencies, such as Staff Domain, include 13th month pay in an all-inclusive monthly price. If you are weighing that against hiring directly, see direct hire vs offshore staffing agency.

The 13th month sits alongside the other statutory items for employees, including holiday pay on Philippine public holidays and the regional minimum wage. Whether these apply to your arrangement depends on whether your hire is an employee or a contractor. See direct hire vs EOR vs contractor.

This page is general information, current at 12 October 2026. It is not legal or tax advice. For your situation, speak to a Philippine employment lawyer or payroll provider.