13th-Month Pay: What Counts and What Doesn't in Your Year-End Computations

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13th-Month Pay: What Counts and What Doesn't in Your Year-End Computations

Published: July 2026 | Category: Labor Standards

Presidential Decree No. 851 mandates that all rank-and-file employees who have worked for at least one (1) month within a calendar year are entitled to 13th-month pay. This must be paid on or before December 24th annually.

The Core Computation Formula:

                13th Month Pay = (Total Basic Salary Earned Inside the Calendar Year) / 12
            

What is Excluded from "Basic Salary"?

Unless specified otherwise by your company policy or an existing Collective Bargaining Agreement (CBA), the basic salary does not include:

Cost of Living Allowances (COLA)
Unused vacation or sick leave cash conversions
Overtime pay, night shift differentials, and holiday premiums
Discretionary or performance-based profit bonuses

Note on Absences: Maternity leave periods and unpaid absences reduce the "Total Basic Salary Earned" numerator, naturally adjusting the final prorated calculation downward.

*Disclaimer: This article was prepared with the assistance of artificial intelligence and, while carefully reviewed, may contain inaccuracies; it does not constitute formal legal advice, and readers should consult a qualified attorney regarding their specific circumstances. Read our full firm caveat at the top of this hub.*

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