13th Month Pay in the Philippines: What AU & NZ Employers Need to Know Before 24 December

What is 13th month pay in the Philippines?

It is a mandatory annual payment of at least one-twelfth of an employee's basic salary earned in the calendar year, due by 24 December. Presidential Decree No. 851 requires it for rank-and-file private sector employees who worked at least one month. For a full year at a steady salary, that means one extra month's pay.

Does 13th month pay apply to offshore staff hired by an Australian or New Zealand business?

Yes, if the person is an employee under Philippine law, wherever the employer is based. Providers of employer-of-record services state that the obligation applies from the moment you employ someone working in the Philippines, and that paying in a foreign currency or calling the person a contractor does not remove it. Genuine independent contractors are outside the rule, but Philippine authorities look at the actual working relationship rather than the contract label. An offshore professional working regular hours, mainly or only for you, sits in the grey area.

That makes classification the first question. Pear Tree arranges engagements through Employer of Record or Contractor of Record cover, and where an Employer of Record is the legal employer in the Philippines it handles the calculation, payment and reporting. Your engagement terms should say how the cost is funded. This is general information, not legal advice, so confirm your position with a Philippine employment lawyer.

How is 13th month pay calculated?

Total basic salary earned in the calendar year divided by twelve. The Department of Labor and Employment's Revised Guidelines (16 November 1987), which implement Memorandum Order No. 28, removed the original PHP 1,000 salary ceiling, so every rank-and-file employee is covered regardless of pay. Managerial employees, government employees, household workers (who have their own law) and employers already paying an equivalent benefit are outside the Decree.

Basic salary excludes overtime, premium pay, night differential, holiday pay, cost-of-living allowances and the cash value of unused leave, unless an agreement or company practice treats them as part of basic pay. An employee who resigns or is terminated during the year is paid in proportion to the time worked, and can demand payment when employment ends.

When is 13th month pay due, and can it be split?

By 24 December, and yes, it can be split. The Revised Guidelines allow half to be paid before the regular school year opens and the balance on or before 24 December, and frequency can be set by agreement with a recognised bargaining agent. Employers report compliance to DOLE by 15 January each year. In 2026, 24 December falls on a Thursday, 62 days after 23 October.

Non-payment is treated as a money claim. Legal commentary indicates a written demand, then a complaint at the nearest DOLE regional office, then the National Labor Relations Commission for larger or disputed claims, with money claims generally prescribing after three years. A misclassified worker can later claim unpaid 13th month pay for the whole period.

How much does 13th month pay add to the cost of an offshore hire?

One-twelfth of annual basic pay, or 8.33%, and it is easy to miss because it arrives once a year. Budget for it as an annual cost on top of the monthly rate unless your engagement terms say it is already included.

The saving remains large, but New Zealand's is more sensitive because its local on-costs are lower. Pear Tree's model is a one-time placement fee plus a flat $400 monthly management fee per hire, and the adjusted figures above keep those inputs unchanged.

What tax applies to 13th month pay?

The first PHP 90,000 of 13th month pay and other benefits combined in a calendar year is exempt from income tax under the Tax Code as amended by the TRAIN Law, and only the excess is taxed at normal graduated rates. That treatment is applied through Philippine payroll for the employee. It is not an Australian or New Zealand withholding matter, but confirm with a registered tax agent how the cost is treated in your own books.

What mistakes do employers make with 13th month pay?

The most common are treating it as a discretionary Christmas bonus, paying after 24 December, including overtime and allowances in the base, forgetting pro-rata payments for leavers, leaving it out of the annual budget, and skipping the January report. A voluntary bonus only substitutes for 13th month pay if it totals at least one-twelfth of basic salary, and an employer who pays less must make up the difference.

The bottom line for Australian and New Zealand employers

Treat 13th month pay as a fixed annual cost of a Philippines-based employee: one-twelfth of basic pay, paid by 24 December, reported in January. Pear Tree, with offices in Sydney, Auckland, Hawke's Bay, Cebu, Manila and Cape Town, has placed talent with 750+ Australian and New Zealand businesses on a direct-hire model, so confirm in your engagement terms how the payment is handled before the deadline.

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About the author

Nick, Co-Founder of Pear Tree, leads sales, partnerships and business development. Pear Tree connects Australian and New Zealand businesses directly with vetted offshore professionals from the Philippines and South Africa, with no agency middleman.