Yes. In the Philippines, a small business is generally required to give 13th month pay if it is a private-sector employer and it has covered rank-and-file employees who worked for at least one month during the calendar year. The law does not say that micro, small, family-owned, startup, or low-income businesses are automatically exempt. What matters is the existence of an employer-employee relationship and whether the worker is covered by the 13th month pay rules.

For many small business owners, the confusion comes from practical questions: “What if I only have two employees?” “What if my business lost money?” “What if the worker is probationary, part-time, paid daily, or paid in cash?” For employees, the common concern is simpler: “Am I entitled, and what can I do if I was not paid?”

This guide explains the Philippine rule, who is covered, how to compute 13th month pay, when it must be paid, and what steps workers and small employers can take when there is a dispute.

Quick Answer: Are Small Businesses Exempt from 13th Month Pay?

In most cases, no. A small business is not exempt just because it is small.

Situation	Is 13th month pay required?
Sari-sari store, café, salon, clinic, online shop, or family business with rank-and-file employees	Yes, generally
Employee worked at least one month in the calendar year	Yes, prorated if less than a full year
Probationary, casual, project, seasonal, part-time, or daily-paid employee	Yes, if rank-and-file and worked at least one month
Business says it had low sales or no profit	Still generally required
Managerial employee with real power to hire, fire, discipline, or set management policy	Not mandatorily covered under the 13th month pay law
Pure independent contractor or freelancer with no employer-employee relationship	Usually not covered as an employee
Kasambahay or domestic worker	Covered under the separate Kasambahay Law rules

The core rule is from Presidential Decree No. 851, as later modified by Memorandum Order No. 28, series of 1986, which removed the old salary ceiling and required covered employers to pay rank-and-file employees 13th month pay not later than December 24 every year. (Lawphil)

What Is 13th Month Pay?

13th month pay is a mandatory monetary benefit equal to at least one-twelfth (1/12) of the employee’s total basic salary earned within the calendar year.

It is not the same as a discretionary Christmas bonus. A Christmas bonus is usually voluntary unless it has become part of a company policy, employment contract, collective bargaining agreement, or long-standing company practice. The 13th month pay, on the other hand, is required by law for covered employees.

The basic formula is:

Total basic salary earned during the calendar year ÷ 12 = minimum 13th month pay

DOLE’s workers’ statutory benefits handbook states that all employers are required to pay their rank-and-file employees 13th month pay regardless of the nature of employment and regardless of the method by which wages are paid, provided the employee worked for at least one month during the calendar year.

Legal Basis for 13th Month Pay in the Philippines

The main legal references are:

Presidential Decree No. 851 — the original 13th month pay law.
Memorandum Order No. 28, series of 1986 — removed the old ₱1,000 salary ceiling and extended the benefit to all rank-and-file employees.
Revised Guidelines on the Implementation of the 13th Month Pay Law — explains coverage, exclusions, computation, timing, and treatment of certain employees.
Labor Code of the Philippines — used in distinguishing rank-and-file employees from managerial employees.
DOLE Labor Advisories — DOLE regularly issues year-end reminders and guidelines, such as Labor Advisory No. 16-25 for the 2025 payment cycle, confirming the continuing rule that covered private-sector employers must pay by December 24. (Department of Labor and Employment)

A key point for small businesses: there is no general exemption simply because the employer is an MSME, startup, sole proprietorship, or family business. The revised guidelines and DOLE materials focus on the employee’s coverage and the employer’s legal category, not on the size of the business.

Who Is Entitled to 13th Month Pay?

Covered employees are generally:

Rank-and-file employees
In the private sector
Who worked for at least one month during the calendar year
Regardless of designation, employment status, or method of wage payment

This can include:

Regular employees
Probationary employees
Casual employees
Project employees
Seasonal employees
Part-time employees
Daily-paid employees
Monthly-paid employees
Piece-rate workers
Employees paid a fixed or guaranteed wage plus commission
Employees who resigned or were terminated before December, on a prorated basis

What Does “Rank-and-File” Mean?

A rank-and-file employee is any employee who is not managerial.

A managerial employee is generally someone who has authority to lay down and execute management policies or to hire, transfer, suspend, lay off, recall, discharge, assign, or discipline employees, or effectively recommend those actions.

Job title alone is not controlling. A small business may call someone a “manager,” “supervisor,” or “officer,” but if that person does not actually exercise managerial powers, they may still be treated as rank-and-file for 13th month pay purposes.

Are Probationary Employees Entitled to 13th Month Pay?

Yes. A probationary employee who worked at least one month during the calendar year is generally entitled to prorated 13th month pay.

Example:

Hired: October 1
Monthly basic salary: ₱18,000
Basic salary earned October to December: ₱54,000
13th month pay: ₱54,000 ÷ 12 = ₱4,500

The employee does not need to become regular first.

Are Resigned or Terminated Employees Entitled?

Yes. An employee who resigned or was terminated before the usual December payout is still entitled to proportionate 13th month pay based on the basic salary earned during the year up to separation. DOLE’s handbook states that a resigned or separated employee is entitled to the benefit in proportion to the length of time worked during the year.

In practice, this is usually included in the employee’s final pay or back pay.

Who May Not Be Covered?

Some workers or employers may fall outside the 13th month pay law, but these exceptions should be applied carefully.

Under the revised guidelines, the following are generally not covered by PD 851:

Category	Practical meaning
Government and political subdivisions	Government employees are governed by separate compensation rules, not the private-sector 13th month pay system
Employers already paying 13th month pay or its equivalent	The equivalent must be at least 1/12 of basic salary; if less, the employer should pay the difference
Certain workers paid purely on commission, boundary, or task basis	This applies where there is no fixed or guaranteed wage, subject to important exceptions
Persons doing specific work for a fixed amount regardless of time consumed	Often relevant to genuine independent contractors, but misclassification can be challenged
Household helpers under PD 851	But kasambahays have a separate statutory entitlement under RA 10361

The “household helper” exception under PD 851 should not be misunderstood. Under the Kasambahay Law, or Republic Act No. 10361, domestic workers are entitled to 13th month pay under separate rules. (Labor Law PH Library)

How to Compute 13th Month Pay

The minimum amount is:

Total basic salary earned from January 1 to December 31 ÷ 12

“Basic salary” generally means pay for services rendered. It usually excludes benefits that are not integrated into basic pay, such as:

Overtime pay
Premium pay
Night shift differential
Holiday pay
Cost-of-living allowance, if not integrated
Cash equivalent of unused leave credits
Other allowances not treated as part of basic salary

However, if allowances or benefits are treated as part of basic salary by employment contract, company policy, collective bargaining agreement, or long-standing company practice, they may need to be included in the computation. DOLE’s handbook reflects this distinction.

Sample Computations

Scenario	Computation	13th month pay
Employee earns ₱20,000 monthly and worked January to December	₱240,000 ÷ 12	₱20,000
Employee earns ₱15,000 monthly and worked January to June only	₱90,000 ÷ 12	₱7,500
Employee earns ₱18,000 monthly and was hired October 1	₱54,000 ÷ 12	₱4,500
Daily-paid employee earned total basic salary of ₱156,000 for the year	₱156,000 ÷ 12	₱13,000
Employee had unpaid absences, reducing total basic salary to ₱210,000	₱210,000 ÷ 12	₱17,500

Are Commissions Included?

This depends on the nature of the commission.

In Boie-Takeda Chemicals, Inc. v. De la Serna, the Supreme Court ruled that commissions in the nature of additional pay for extra effort were not part of “basic salary” for computing 13th month pay. (Lawphil)

But in Philippine Duplicators, Inc. v. NLRC, the Supreme Court dealt with sales commissions that were more closely tied to the employees’ regular wage structure, resulting in a different treatment. (Lawphil)

For small businesses, the practical rule is this: do not decide based only on the word “commission.” Look at how the pay scheme actually works. If the worker receives a fixed or guaranteed wage plus commission, the fixed or guaranteed wage is clearly included. Whether the commission is included depends on whether it is truly part of basic compensation or merely extra incentive pay.

When Must Small Businesses Pay 13th Month Pay?

The required 13th month pay must be paid not later than December 24 of every year.

An employer may pay it in two installments, such as:

One-half before the opening of the regular school year; and
The remaining half on or before December 24.

But the total amount paid by December 24 must meet at least the legal minimum.

DOLE also states that employers must file a report of compliance through the DOLE Establishment Report System not later than January 15 of the following year. The report normally includes details such as the establishment name, address, total employment, number of workers benefited, amount granted per employee, and total amount of benefits granted.

Can a Small Business Defer or Skip 13th Month Pay Because Sales Are Low?

Generally, no.

DOLE’s handbook states that no request or application for exemption from payment of 13th month pay, or deferment of payment, shall be accepted and allowed.

This is important for small employers. Cash flow problems are real, especially for cafés, shops, small clinics, salons, contractors, and online sellers. But as a labor standard benefit, 13th month pay should be planned as part of payroll cost throughout the year.

A practical way to budget is to set aside around 8.33% of each covered employee’s monthly basic salary. That approximates one-twelfth of annual basic pay.

Step-by-Step Guide for Small Business Employers

1. List all workers who may be employees

Include everyone who works under your direction or control, even if paid daily, weekly, through GCash, in cash, or under a simple verbal arrangement.

Do not rely only on labels like “freelancer,” “helper,” “reliever,” “contractual,” or “part-time.” In Philippine labor law, the actual working relationship matters.

2. Identify who is rank-and-file

Exclude only those who are truly managerial. In a small business, many “supervisors” are still rank-and-file if they cannot genuinely hire, fire, discipline, or set management policy.

3. Compute total basic salary earned for the year

Use payroll records, payslips, bank transfers, vouchers, cash acknowledgment receipts, or attendance records.

For daily-paid workers, add the basic pay actually earned. Paid leaves are usually included because salary was earned or paid. Unpaid absences are not included because no basic salary was earned for those days.

4. Divide by 12

Apply the formula:

Total basic salary earned ÷ 12

This gives the minimum legal amount. The employer may give more.

5. Pay on or before December 24

Payment may be through payroll, bank transfer, e-wallet, check, or cash, but it is best to have clear proof of payment.

6. Issue or keep proof

Keep:

Payroll register
Payslip or pay summary
Signed acknowledgment receipt
Bank or e-wallet transfer confirmation
Computation sheet
Employee master list
Attendance and leave records

These records matter if DOLE conducts an inspection or if an employee files a Request for Assistance.

7. File the DOLE compliance report by January 15

Employers are expected to submit the required 13th month pay compliance report through DOLE’s reporting system by January 15 of the following year.

What Employees Can Do if a Small Business Does Not Pay

If you are an employee and your employer did not pay your 13th month pay, start by gathering documents and computing the approximate amount.

Step 1: Check if you are covered

Ask:

Did I work for at least one month during the calendar year?
Was I a rank-and-file employee?
Was there an employer-employee relationship?
How much basic salary did I earn during the year?

Step 2: Make your own computation

Use:

Total basic salary earned ÷ 12

Even a rough computation helps when you raise the issue with the employer or DOLE.

Step 3: Send a written request

A simple written request is useful. State:

Your position
Employment dates
Salary rate
Amount you believe is unpaid
Request for payment of 13th month pay

Keep screenshots, email copies, or receiving copies.

Step 4: File a Request for Assistance under DOLE SEnA

Most money claims like unpaid 13th month pay can start with a Request for Assistance (RFA) under the Single Entry Approach, or SEnA.

SEnA is a DOLE conciliation-mediation process designed to settle labor disputes quickly before they become full-blown cases. DOLE’s own SEnA materials describe it as a speedy, impartial, inexpensive, and accessible settlement procedure, with a 30-day mandatory conciliation-mediation period. (Sena Webb App)

You can usually file through:

The DOLE Regional Office covering the workplace
A DOLE Provincial, Field, or District Office
The DOLE Assistance for Request Management System, where available
A Single Entry Assistance Desk

Step 5: Attend the SEnA conference

During SEnA, a DOLE desk officer helps both sides discuss the claim. The officer may ask for payroll records, employment documents, computation sheets, and proof of payment.

If settlement is reached, the agreement is generally put in writing. SEnA rules state that settlement agreements reached before the SEnA desk officer are final and binding. (Supreme Court E-Library)

If no settlement is reached within the required period, the matter may be referred to the proper DOLE office, NLRC Regional Arbitration Branch, or other appropriate agency, depending on the issues.

Documents Commonly Needed for an Unpaid 13th Month Pay Claim

Document	Why it helps
Employment contract, appointment letter, or job offer	Shows position, salary, and employment terms
Payslips or payroll screenshots	Shows actual basic salary paid
Attendance records, schedules, time cards, DTRs	Helps establish days or months worked
Bank, GCash, Maya, or remittance records	Useful when salary was paid electronically
Company ID, chat instructions, work emails	Helps prove employment relationship
Resignation letter or termination notice	Helps determine end date for prorated computation
Written demand or request to employer	Shows you tried to raise the issue
Computation sheet	Helps DOLE and the employer understand the claim

If someone files on behalf of the worker because the worker is abroad, incapacitated, or unavailable, DOLE may require authority such as a Special Power of Attorney. If executed abroad, Philippine offices may ask for consular acknowledgment or apostille, depending on where and how the document was signed.

Common Small Business Scenarios

“We only have three employees. Are we required?”

Yes, generally. The law does not create a blanket exemption for businesses with only a few employees.

“The worker is paid daily. Do we still pay?”

Yes, if the worker is a covered rank-and-file employee. Add the basic salary actually earned during the year and divide by 12.

“The worker was hired in November. Do we pay?”

Yes, if the employee worked for at least one month in the calendar year. The amount is prorated.

“The employee resigned in July. Do we still pay?”

Yes. Compute the total basic salary earned from January to the resignation date, then divide by 12.

“We already gave a Christmas bonus. Is that enough?”

Only if the bonus qualifies as the legal equivalent of 13th month pay and is at least equal to 1/12 of the employee’s total basic salary earned during the year. If the bonus is less, the employer should pay the difference.

“The business is owned by a foreigner. Does that change anything?”

No, not if the business is operating as a Philippine employer with employees in the Philippines. Foreign ownership does not remove Philippine labor standard obligations.

Foreign nationals employed in the Philippines may also be covered if they are employees under Philippine labor law. Work permits, visas, and immigration status are separate issues from whether earned labor benefits must be paid.

“The worker is a freelancer or independent contractor. Is 13th month pay required?”

A genuine independent contractor is usually not entitled to employee benefits like 13th month pay. But if the “contractor” works like an employee — fixed schedule, controlled work methods, company tools, direct supervision, required attendance, and integrated role in the business — the label may be challenged.

In real disputes, DOLE or the proper labor tribunal looks beyond the contract title and examines the actual relationship.

Tax Treatment of 13th Month Pay

13th month pay and other benefits are generally excluded from taxable compensation up to the statutory ceiling, currently commonly applied at ₱90,000 in aggregate for 13th month pay and other benefits under the TRAIN-related tax rules. Amounts above the exempt ceiling may be taxable.

For employees, this means the entire 13th month pay may be tax-free if the total of covered benefits does not exceed the ceiling. For employers, payroll should still properly reflect the payment.

Frequently Asked Questions

Are small businesses required to give 13th month pay in the Philippines?

Yes. A small business is generally required to give 13th month pay to covered rank-and-file employees who worked for at least one month during the calendar year. Business size alone is not an exemption.

Is 13th month pay required for probationary employees?

Yes. Probationary employees are entitled if they are rank-and-file and worked for at least one month in the calendar year. The amount is prorated based on total basic salary earned.

How much is 13th month pay?

The minimum is one-twelfth of the employee’s total basic salary earned within the calendar year. For example, if the employee earned ₱180,000 in basic salary during the year, the minimum 13th month pay is ₱15,000.

When should 13th month pay be paid?

It must be paid not later than December 24 of every year. An employer may pay part earlier, but the full legal amount should be paid by December 24.

Are part-time employees entitled to 13th month pay?

Yes, if they are employees, rank-and-file, and worked for at least one month during the calendar year. Their 13th month pay is based on actual basic salary earned, so it may be lower than a full-time employee’s amount.

Are kasambahays entitled to 13th month pay?

Yes. Although household helpers are treated separately from ordinary private-sector employees under PD 851, kasambahays are entitled to 13th month pay under the Kasambahay Law, Republic Act No. 10361.

Can an employer pay less because the business had losses?

Generally, no. DOLE rules state that applications for exemption or deferment of 13th month pay are not accepted. The benefit should be treated as a regular payroll obligation.

Can a Christmas bonus replace 13th month pay?

Only if it is truly equivalent to at least the required 13th month pay. If the Christmas bonus is less than the legal minimum, the employer should pay the difference. Non-cash gifts, groceries, raffle prizes, and party expenses generally should not be treated as substitutes for mandatory 13th month pay.

What if my employer paid late?

Late payment may be raised with DOLE through SEnA or appropriate labor standards processes. Keep proof of employment, salary, and communications. If the employer pays after the deadline, the employee should still verify that the amount is correct.

Is 14th month pay required in the Philippines?

As of the current legal framework, the mandatory nationwide private-sector benefit is 13th month pay, not 14th month pay. There have been bills proposing 14th month pay, but a bill is not yet a legal obligation unless enacted into law.

Key Takeaways

Small businesses in the Philippines are generally required to pay 13th month pay to covered rank-and-file employees.
There is no automatic exemption for micro, small, startup, family-owned, or low-profit businesses.
The minimum 13th month pay is total basic salary earned during the calendar year ÷ 12.
Covered employees include probationary, part-time, daily-paid, seasonal, project, and resigned employees, if they meet the requirements.
Payment must be made on or before December 24.
Employers should keep payroll records and file the DOLE compliance report by January 15 of the following year.
Employees with unpaid 13th month pay can start with a DOLE SEnA Request for Assistance and bring salary, attendance, and employment records.