The complete guide for employers of Filipino staff (2024).

Benefit or Bonus? What is the 13th Month Pay? Is it mandatory? What do other overseas employers of Philippine staff do?

As December arrives and you turn the page on your calendar, you might wonder about this notion of a 13th month. After all, traditional calendars only show 12 months!

The 13th Month Pay is a big deal to your Filipino staff. This customary payment is deeply ingrained in the Philippines' labor practices; the closest many countries have to this is a Christmas bonus, but it is more than just a seasonal windfall; it's a legislative right employees (working for Filipino companies) anticipate throughout the year.

While you're not obligated to mirror every local practice, this one deserves a closer look. Understanding the 13th-month pay is crucial for maintaining staff morale and potentially affecting your business's success with online Filipino workers.

As you weigh the pros and cons, consider how integrating this payment into your payroll could shape the dedication and productivity of your overseas team. Stay with us as we unpack the nuances of this unique pay structure and its impact on the employer-employee relationship within the Philippine context.

Key Takeaways

Key Takeaways
  • Cultural Significance: The 13th month of pay is culturally significant in the Philippines, serving as more than just a benefit but an integral aspect of the Filipino festive season.
  • Impact on Staff Morale: Providing the 13th month's pay is optional for overseas employers hiring staff remotely from the Philippines. However, it is important in increasing employee morale and motivation, particularly for employees who may feel devalued over the holiday season compared to their locally employed friends.
  • Strategic Business Practice: For international businesses, the 13th-month salary is a strategic business move that creates goodwill and a positive company image locally and internationally.
  • Employee Retention Technique: Offering the 13th month's pay can improve employee retention. It is ensuring a steady, loyal team.
  • Understanding Local Norms: Adopting the 13th month's pay demonstrates an awareness and respect for local norms and practices. This is critical for foreign enterprises hiring Filipino employees remotely but is legally required if your business is based in the Philippines.

What is the 13th Month Pay in the Philippines?

You might be wondering what the 13th month pay is all about.

It's a form of monetary benefit employers must give their employees at the end of the year if they have worked one month during the calendar year.

It's a mandatory payment, equivalent to one month's salary, that provides extra financial support to workers during the holiday season.

Importance of the 13th Month Pay

Understanding the 13th-month pay is crucial, as it represents a mandatory benefit that significantly impacts the financial well-being of Filipino employees. The importance of this pay can't be overstated; it's a substantial addition to an annual salary.

Calculating this extra month's pay is based on a simple computation: the total basic salary earned during the year divided by 12. Don't worry. We have a 13th Month calculator in the Employers Area of our website that will help you calculate it quickly.

By providing this, you're mirroring local laws and bolstering financial security for your outsourced staff.

This can foster employee loyalty, as workers feel valued and fairly compensated. Encouraging their dedication and productivity, the 13th-month pay can be a powerful tool in maintaining a stable and motivated workforce.

Understanding the 13th Month Pay Law

Understanding the 13th Month Pay Law

This is a crucial aspect of employee benefits in the Philippines: the 13th month pay law. It's important that you understand Presidential Decree No. 851 as it mandates this benefit. It's vital to comprehend its legal nuances and learn its calculation methods.

Let's break down these points to ensure you're well-informed, whether you are operating within or outside of the Philippines.

The Presidential Decree No. 851

Presidential Decree No. 851 mandates that private sector employers in the Philippines must provide their employees with a 13th-month pay, a bonus payment that supplements workers' regular annual income. This decree sets strict bonus regulations overseen by the Department of Labor and Employment (DOLE) that you must understand to maintain compliance as an employer.

It's essential to grasp the computation methods to accurately calculate this benefit and be aware of any exemptions that may apply to your business.

While these rules do not legally bind you if your company is outside the Philippines, adopting these practices shows a commitment to your outsourced staff's well-being. It aligns with the standards set within the Philippines, fostering goodwill and potentially enhancing the loyalty and performance of your team.

The Law Around the 13th Month

You should be able to familiarize yourself with the intricacies of the 13th Month Pay Law in the Philippines, as it embodies legislation that severely impacts employers and employees. A Filipino company must understand the compliance requirements to fulfill its legal responsibilities, as employees are entitled to receive it.

As an employer, you should grasp the employee entitlement under this law, which includes a mandatory payment equivalent to one-twelfth of the basic salary earned within the calendar year.

The employer obligations are clear: adhere to the computation method stipulated by the law and dispense the 13th-month pay on or before December 24th each year. Ignoring these legal implications can lead to penalties in the Philippines.

Whether you operate within or outside the Philippines, aligning with this practice reflects your commitment to fair labor standards. We recommend that all overseas companies offer this when recruiting for a staff member; it says to the worker, this boss understands me as a Filipino; how bad would I feel at Christmas as all my friends get the 13th-month pay and I do not?

Computation of the 13th Month Pay

Having established the legal obligations surrounding the 13th Month Pay, let's explore how to accurately compute this benefit based on an employee's basic yearly salary. You can read the following bullet points if you are doing it yourself, but if you are a customer of, we have made you a simple-to-use calculator that you can find in the Employer Area of our website.

It's essential to master the various computation methods to ensure compliance with legal standards and to uphold strong employee morale.

  • Divide the total basic salary earned during the year by 12 months to determine the amount.
  • Exclude overtime, holiday pay, and allowances from the calculation.
  • Implement pro-rata calculation for employees who have served less than a year but have completed at least one month of work.
  • Be mindful of the salary threshold and tax implications.
  • Ensure payment is made before December 24th to comply with the law and avoid any negative impact on morale. If you follow our recommended payment of the 1st and 15th of each month, we recommend you split the benefit over these two payments.

Benefits for Employees

Benefits for Employees

When contemplating the 13th month pay for your outsourced staff in the Philippines, it's essential to acknowledge the substantial impact this benefit can have on their financial stability. Providing this additional income assists them with holiday expenses and fosters loyalty and motivation.

This extra payment plays a significant role in making your employees feel appreciated and secure during the festive season.

Go ahead and offer this benefit; it's a meaningful gesture transcending mere obligation! Don't be a Scrooge!

Financial Security During Holiday Season

During the holiday season, ensuring financial security through comprehensive holiday pay and leave policies is crucial for virtual assistants to enjoy peace of mind and celebrate without undue stress.

Here are strategies to keep your finances on track:

  • Prioritize financial planning to ensure you can handle end-of-year costs. It is easy with one staff member, but it can be costly when you have ten.
  • Employ saving strategies early to build a cushion for holiday spending, factor it in, and put the extra aside.
  • When setting the salary for your Online Filipino Specialist, think of it as the yearly amount, but instead of paying it equally over 12 months, you keep aside 1/12 of it to pay with their December pay.

Additional Income for the Festive Period

It's hard as a non-Filipino writing this to explain just how much of a big deal Christmas, the celebrations, and visiting family and friends, as many Filipinos will go home for Christmas if they are not in the fortunate situation of having an online job that allows them to work from home.

I hear tales that shops start putting up Christmas decorations in October before Halloween celebrations are over.

And if you have any Filipinos on your Facebook feed, you will see loads of memes around the 13th month of December. It's a big deal, and by giving the 13th-month pay to your staff online in the Philippines, you are making sure they can take full advantage and join in with family and friends.

Ensuring Employee Loyalty and Motivation

Recognizing your employees' hard work through appreciation and rewards is crucial for fostering their loyalty and motivation. Especially for an employer outside the Philippines who's opted for outsourcing, offering a 13th-month pay can make a significant difference. Your staff will work hard to bolster their pay with raises to make the 13th month sweeter.

Here's how:

  • Employee recognition: Acknowledge achievements and milestones to boost morale.
  • Growth opportunities: Provide training and career advancement options to keep ambitions alive.
  • Fair compensation: Ensure wages meet industry standards, including bonuses like the 13th month pay.
  • Regular feedback: Maintain open communication channels for continuous improvement.
  • Positive work environment: Cultivate a culture where everyone feels valued and respected.
Obligations for Employers

Obligations for Employers

As an employer in the Philippines, you're bound by law to provide 13th-month pay to your employees. If you don't comply, you could face serious legal consequences that could impact your business.

So, keeping accurate records is essential to prove that you've met these obligations.

As an overseas boss, you don't have to do this, but it's good to understand what this entails.

Legal Requirement to Provide 13th Month Pay

Employers in the Philippines are legally required to provide 13th Month Pay to their employees, a mandatory benefit that significantly boosts workers' morale and financial well-being during the holiday season. As you navigate the legal landscape, you'll want to ensure you're on top of:

  • The computation method for the exact payment amount is typically one-twelfth of the total basic salary earned within the year.
  • Eligibility criteria, ensuring all rank-and-file employees receive this benefit, regardless of their employment.
  • Understanding the tax implications to handle any deductions and compliance properly.
  • Knowing the enforcement measures to avoid penalties for non-compliance.
  • Providing this employee benefit timely reflects your commitment to your workforce's rights and welfare.

Consequences for Non-Compliance

If your company is based in the Philippines, failing to provide the mandated 13th Month Pay can lead to severe penalties, fines, and even legal action. You're at risk of facing non-compliance consequences if you overlook this obligation. The penalties for non-compliance aren't just monetary; they could include damage to your reputation and operational disruptions.

Proper Documentation and Record-Keeping

Maintaining meticulous records and documentation is essential for employers, ensuring the accuracy and organization of crucial data such as financial statements, employee information, and customer contracts. Proper documentation and record-keeping are your pillars for data management, helping you maintain control over your business operations.

Here's what you should keep track of:

  • Detailed financial records, including the disbursement of the 13th-month pay
  • Comprehensive employee records with their eligibility for benefits
  • Signed and dated customer contracts for legal and service accountability
  • Accurate timekeeping documents to substantiate payroll calculations
  • Annual reports and compliance forms to avoid penalties

Exceptions and Exemptions to the Law

Under the Philippine labor law, certain groups and employment situations are expressly excluded from the mandate of the 13th-month pay, highlighting the importance of understanding these exceptions and exemptions. Certain conditions, such as employment in managerial positions or those already receiving a salary above a prescribed threshold, may fall under common exemptions.

If you're employing staff from outside the country, while not legally bound, providing the 13th-month pay is a respected practice that can reinforce loyalty and productivity among your team.

Frequently Asked Questions

Do I Need to Pay the 13th Month to My Outsourced Staff in the Philippines?

No. As you are not based in the Philippines, you do not need to pay it. However, many employers using pay it, and you should also consider paying it. The only exception is when you pay a monthly managerial-level wage of more than ₱80,000+. However, all staff should know if they get the 13th month's pay.

The 13th month benefit is 1/12th of the total basic salary earned by the employee in the year. For example, if the staff member has been working with you from January through to December and their basic salary is ₱30,000, they are entitled to ₱30,000 additional payment in December.

Suppose you pay your staff in Philippine pesos directly to their bank account. In that case, it will not affect them, and the only currency fluctuations that impact you will be what the exchange rate is at the time of payment, so sometimes you will win, and it will be in your favor, and sometimes you will lose. If you pay them in any other currency, you will pay them 1/12th of whatever you pay them over a year; in this scenario, the staff member will either win if it's in their favor or lose out a little if it is not.

Yes. Presidential Decree No. 851 mandates that private sector employers in the Philippines must provide their employees with a 13th-month pay.

It is typically given in December when you usually pay your staff. However, it should be delivered before the 24th of December if they are paid later in the month.

If a staff member started working with you after January but before December, say for 3, 6, or 9 months. You would divide the total by 12 to calculate the pay computation for the 13th Month. At, we have made you a simple-to-use 13th month pay calculator that you can find in the Employer Area of our website, and it's free to use.