The 13th month pay is a Philippine employer obligation, not a bonus, and it falls due on or before 24 December. It is one twelfth of the total basic salary the person earned during the calendar year. Presidential Decree No. 851 created it in 1975 and nothing in your contract wording makes it discretionary.
Which is awkward, because sixty five days from now a lot of Australian founders will discover they budgeted twelve salaries for a team that is owed thirteen.
Outstaffer sells an employer of record service across APAC, so treat what follows as interested. It is also just the law, and the law is free to read.
A Thirteenth Month Of Pay Is Law, Not A Christmas Bonus
The decree as written covered only employees earning up to one thousand pesos a month. Memorandum Order No. 28, dated 13 August 1986, removed that ceiling. In Boie-Takeda Chemicals v. De la Serna, decided on 10 December 1993, the Supreme Court confirmed that the order "did not repeal, supersede or abrogate P.D. 851" and "merely modified Section 1 of the decree by removing the P1,000.00 salary ceiling".
Every rank and file employee is covered, whatever they earn.
The Revised Guidelines on the Implementation of the 13th Month Pay Law set the floor at one twelfth of total basic salary earned within the calendar year, payable not later than 24 December.
What counts as basic salary?
Basic salary only. The Court in that same decision took the term "in its common, generally-accepted meaning, i.e., as a rate of pay for a standard work period exclusive of such additional payments as bonuses and overtime", and struck down the part of the guidelines that had swept commissions in. Night differential, holiday premiums and allowances sit outside it.
That cuts both ways. A loaded package with a thin base produces a small thirteenth month.
What The Obligation Does To Your December Cashflow
Across a full year the thirteenth month adds 8.33 per cent to your Philippine basic payroll. That number is survivable. The quarter is not. Between 1 October and 24 December you pay October, November and December salaries plus the thirteenth month, which is four months of basic salary inside one quarter.
If three people in Manila are on a combined basic of AUD 6,000 a month, the quarter costs AUD 24,000 rather than AUD 18,000. The extra AUD 6,000 lands in the same eight weeks your Australian clients go quiet for Christmas. It is the same mechanic that makes every salary movement drag a thirteenth of itself behind it, concentrated into one invoice.
The employee keeps all of it at these levels. Section 32(B)(7)(e) of the Tax Code, as amended by Republic Act No. 10963, excludes 13th month pay and other benefits from gross income up to ninety thousand pesos. The gross is the cost.
What if the hire started in August?
Still owed, pro rata. Someone who started on 1 August has earned five twelfths of a month's basic by 24 December. A six month old hire is carrying half a salary you have not accrued.
Your Provider May Already Be Carrying It
The honest counter is that many Australian founders have run Philippine teams for years and never felt this, because a competent employer of record accrues the thirteenth month monthly and prices it into the bundled rate. If that is your arrangement, nothing changes in December.
The exposure sits with direct engagements and with providers who quote a salary pass through. The same ambiguity decides whether an employer of record or your own Philippine entity is cheaper at two staff: what the number includes, not what it is.
Related reading
- Superannuation on a Philippines hire: the real rule
- The cheapest compliant way to hire a bookkeeper in the Philippines
Ask One Question Before November
Send your provider one line this week: is the December invoice one month or two, and is the thirteenth month already accrued. Get it in writing. If the answer takes more than a day, you have learned something about the contract.
This is general information, not tax or legal advice. Get advice on your own arrangement.
If you would rather the obligation sat with somebody whose job it is, run a role through our platform and the statutory cost arrives already priced. Or budget the extra month yourself, which is also a decision.
So what does your December invoice actually say?
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