13th Month Pay in the Philippines: A 2025 Compliance Guide for Employers
Published Date: December 12, 2025
Published By: Jac Cantos, Upcloud Accounting
As the year draws to a close, Philippine employers must prepare for the 13th Month Pay. This mandatory benefit is crucial for payroll compliance and impacts accounting, HR, and employee communications.
To help you stay on track and meet your Q4 2025 obligations, Upcloud Accounting has put together a short guide on navigating 13th Month Pay compliance in the Philippines.
What is 13th Month Pay in the Philippines?
The 13th Month Pay is a mandatory benefit introduced to support employees during the Christmas season. Under Presidential Decree No. 851, S. 1975, private employers must provide their rank-and-file employees with an additional monetary benefit each year, equivalent to one-twelfth (1/12) of their annual salary.
Who is Entitled to Receive 13th Month Pay?
This law applies broadly to employees in the Philippines. All rank-and-file employees who have worked for at least one month during the calendar year are entitled to receive the 13th Month Pay from their employer.
Rank-and-file employees are those not in management or supervisory roles, handling day-to-day tasks across industries (administrative staff, clerks, sales personnel, technicians, laborers).
When Must the 13th Month Benefit Be Paid?
Employers must provide the 13th Month Pay to all rank-and-file employees by December 24th each year, ensuring they receive it before the holidays.
If an employee leaves before the payment date, they are still entitled to a prorated 13th Month Pay based on their time worked. While most employers pay this benefit in one lump sum, they can also pay it in installments.
13th Month Pay vs Bonus
The 13th Month Pay is separate from any discretionary bonus (Christmas or performance bonuses). Discretionary bonuses are not mandated by labor laws and should not be confused with the mandatory 13th Month Pay.
The 13th Month Pay must be treated as a distinct payment and not used to replace or supplement any other bonus scheme.
Is 13th Month Pay Taxable or Non-taxable?
Employees can receive up to ₱90,000 in benefits, including the 13th Month Pay, without paying income tax.
If the total value of the 13th Month Pay and other benefits does not exceed ₱90,000, it is tax-exempt. Any amount over ₱90,000 is subject to income tax. Employers must ensure the taxable amount is deducted at source.
Computation of 13th Month Pay
The formula is straightforward:
(Total Basic Salary Earned During the Year) / 12 Months = 13th Month Pay
Basic salary refers to all regular compensation paid to an employee for services rendered. Non-integrated allowances and benefits (Cost of Living Allowance (COLA), profit-sharing, cash equivalents of unused leave) are excluded, unless specifically included in the employment contract.
Example:
Mr. Jay receives a monthly basic salary of ₱14,000. His earnings for the year are as follows:
Mr. Jay’s Total Basic Salary Earned During the Year: ₱154,000
Mr. Jay’s 13th Month Pay Computation: ₱154,000 / 12 Months = ₱12,833.33
13th Month Pay for Resigned or Terminated Employees
Employees who resign or are terminated during the year are still entitled to a prorated 13th Month Pay based on their time employed.
Using the earlier example, if Mr. Jay started work on January 1 but ended employment at the end of August:
Total Basic Salary Earned During the Year: ₱112,000
Mr. Jay’s 13th Month Pay Computation (for 8 months): ₱112,000 / 12 Months = ₱9,333.33
Employers’ Report of Compliance
Employers must submit an annual report to their nearest Department of Labor and Employment (DOLE) Regional Office confirming that they have met the 13th Month Pay requirement.
Employers are required to submit the Compliance Report to DOLE no later than 15 January of the following year. The report should include:
Name of establishment
Address
Principal product or business
Total employment
Total number of workers benefited
Amount granted per employee
Total amount of benefits granted
Name, position, and telephone number of person providing the information
Accounting and Bookkeeping for 13th Month Payments
The 13th Month Pay benefit should not be included in the computation of an employee’s regular wage for overtime, premium pay, fringe benefits, or contributions to SSS, Pag-IBIG, and PhilHealth.
However, given that it is a cash outlay at the end of the year, every company has to accrue 13th-month pay on a monthly basis and manage/allocate funds in Q4. This staggers the expense presentation on a monthly basis rather than a significant one-time expense on the profit or loss statement.
If it is not included in the budget or financial forecasts, a business owner will have financial considerations if they release their payroll bill is going to increase significantly in Q4 and their payroll costs for the year are much higher than anticipated!
Employers should always consider the cost of 13th Month Pay when recruiting a new employee, employers need to consider the full cost to the business when hiring an employee!
Exempted Employers
Certain employers are exempted from having to pay the 13th Month Pay benefit:
Distressed employers with prior authorization from the Secretary of Labor to be qualified for exemption;
The government and its political subdivisions, including government-owned and controlled corporations (GOCC), except those corporations operating essentially as private subsidiaries of the Government;
Employers who are already paying their employees 13th Month Pay or equivalent;
Employers of persons in the personal service of another in relation to such workers; and
Employers of those who are paid on purely commission, boundary, or task basis, and those who are paid a fixed amount for performing specific work, except those workers who are paid on piece-rate basis, in which case the employer shall grant such workers the required 13th Month Pay.
Upcloud Accounting: Your Partner in 13th Month Pay Compliance
Navigating 13th Month Pay compliance can be challenging. Upcloud Accounting offers expert payroll services to ensure accurate calculations, timely payments, and full compliance with Philippine labor laws.
Upcloud Accounting: Virtual Outsourced Accounting and Bookkeeping Services in the Philippines
Upcloud Accounting offers accounting, bookkeeping, tax compliance, and business licensing services specializing with startups and SMEs in the Philippines.
Our goal is to increase efficiency, automation, and transparency across the accounting and finance functions of our clients with our cutting-edge technology. If you want to move your company’s finance function online, contact our Team of Expert Accountants and Bookkeepers directly via [email protected] or visit www.upcloudaccounting.comto learn more about how Upcloud Accounting accounting services can support your PH business!
Disclaimer: This article or blog is only for general knowledge and guidance and is not a substitute for an expert opinion. For technical advice, please consult your tax / legal advisor for your specific business concerns. For comments, suggestions, and feedback, feel free to email us at [email protected].
