Comprehensive guide for fixed-term, project-based, seasonal, probationary, and regular employees who separate before December 31.

1) Legal Basis & Coverage

Primary source: Presidential Decree (PD) No. 851 and its Implementing Rules & Regulations (IRR), as amended and clarified by Department of Labor and Employment (DOLE) issuances and Supreme Court jurisprudence.

Who is covered?

All rank-and-file employees in the private sector—regardless of position, designation, or method of payment—who have worked for at least one (1) month within the calendar year.
Coverage includes daily-paid, weekly-paid, monthly-paid, piece-rate workers, and those with fixed-term, project-based, or seasonal contracts, provided they are rank-and-file.

Who is not covered?

Government employees (including GOCCs with original charters).
Household helpers / persons in the personal service of another.
Those paid purely on commission, boundary, or task basis (e.g., certain sales agents, taxi drivers under pure boundary), unless the pay scheme in practice forms part of basic salary or the worker is piece-rate (piece-rate workers are covered).

Key principle: The 13th-month pay is a statutory benefit distinct from company bonuses, and it cannot be waived by the employee.

2) What Counts as “Basic Salary”

Included in the base:

The employee’s basic salary actually earned within the calendar year.

Generally excluded:

Overtime pay, premium pay, night shift differential, holiday pay, hazard pay.
Allowances (COLA, transportation, meal, representation, tool, and similar).
Cash value of unused leaves, cash awards, and performance bonuses unless (as a matter of contract, policy, or consistent practice) they are expressly integrated into basic salary.
SSS-paid maternity benefits and other government-paid monetary benefits (not employer wage payments).

Practical effect: If an absence or tardiness reduces wage earnings, it also reduces the 13th-month pay because the law looks at basic salary actually earned.

3) Core Formula (Including Proration)

Statutory formula: [ \textbf{13th-Month Pay} = \frac{\text{Total Basic Salary Earned in the Calendar Year}}{12} ]

“Total Basic Salary Earned” runs January 1 to December 31 (or the portion thereof actually worked).
Proration happens automatically when an employee starts mid-year or separates before year-end (resignation, end of fixed term/project, authorized/just cause termination, retirement, death).

4) Contract End Scenarios & Entitlement

Whether the contract ends in March, June, or October, the employee is entitled to the proportionate 13th-month pay based on actual basic salary earned from January 1 (or date hired) up to the date of separation.

Typical cases:

Fixed-term contract ends (e.g., 6 months): pay 1/12 of basic salary earned during the months actually worked.
Project completion: covered; compute based on basic earnings while engaged on the project.
Seasonal workers: covered for days/months actually worked in the season within the year.
Probationary employees: covered; prorate based on days/months worked.
Resignation: covered; prorate up to last day of work.
Termination for just cause or authorized cause: covered; prorate up to separation date.
Retirement or death mid-year: covered; pay to the retiree or, in case of death, to the heirs.

5) Timing of Payment Upon Separation

General rule (year-end): 13th-month must be paid not later than December 24 each year.
If the employee separates earlier: the prorated 13th-month should be released with the final pay, following DOLE guidance on final pay timelines (commonly within 30 days from separation unless a more favorable company practice applies).

Best practice for employers: Settle the prorated 13th-month in the final pay alongside last salary, unused leave conversions (if any), and other due amounts.

6) Tax Treatment (TRAIN Act)

The 13th-month pay and other benefits are income tax-exempt up to ₱90,000 aggregate per year.
Any excess over ₱90,000 (when combined with other “13th-month and other benefits”) is subject to withholding tax under the National Internal Revenue Code (as amended by TRAIN).

7) Step-by-Step Computation Examples

A. Fixed-Term Ends Mid-Year

Monthly basic salary: ₱25,000
Employment: January 1 – June 30
Basic salary earned: ₱150,000 (₱25,000 × 6)
13th-month pay: ₱150,000 ÷ 12 = ₱12,500

B. Hired Mid-Year, Then Resigned

Monthly basic salary: ₱20,000
Employment: April 10 – October 9
April basic earned (assuming 30-day month; adjust to actual payroll practice): ₱20,000 × 21/30 = ₱14,000
May–September: ₱20,000 × 5 = ₱100,000
October earned (9 days): ₱20,000 × 9/31 ≈ ₱5,806
Total basic earned: ~₱119,806
13th-month pay: ₱119,806 ÷ 12 ≈ ₱9,984

C. Daily-Paid Worker (No-Work-No-Pay)

Daily rate: ₱650; Actual days worked Jan–Aug: 160 days
Basic salary earned: ₱650 × 160 = ₱104,000
13th-month pay: ₱104,000 ÷ 12 = ₱8,666.67

Note: Use the actual basic earnings from payroll, not estimated calendar factors, to avoid disputes.

8) Special Payroll Questions

Maternity Leave:

SSS maternity benefit is not employer wage; it does not form part of basic salary. 13th-month is computed on actual employer-paid basic salary within the year (periods without salary do not accrue 13th-month). If the employer supplements pay as basic salary (per policy/contract), that portion can be included.

Unpaid Leaves / Suspensions:

No basic salary earned → no accrual for those periods.

Commission & Productivity Pay:

If purely commission-based, typically excluded from coverage.
If a fixed wage plus commissions, only the fixed basic wage forms the 13th-month base (unless the commission is contractually integrated into basic salary).

Piece-Rate:

Covered; compute from total piece-rate basic earnings for the year ÷ 12.

Retroactive Wage Increases:

If a wage increase is made retroactive to covered months, recompute the 13th-month to reflect the higher basic for those months.

Multiple Employers in a Year:

Each employer computes 13th-month on the basic earnings with that employer only. The ₱90,000 tax-exempt cap is aggregate across all employers.

Deductions/Offsets:

Employers cannot refuse or reduce statutory 13th-month as a penalty. Lawful deductions remain governed by the Labor Code (e.g., for cash advances with written authorization), but not in a way that defeats the benefit.

9) Documentation & Employer Compliance

Employer obligations:

Compute and pay the prorated 13th-month accurately and on time (with final pay for separated employees; by Dec 24 for active employees).
Maintain payroll records showing the basis of computation (basic earnings per month).
File DOLE reports if required by issuances (some years DOLE has required compliance reports).

Employee recourse for non-payment:

Raise the issue internally (HR/payroll).
If unresolved, file a money claim with DOLE Regional/Field Office or the National Labor Relations Commission (NLRC), depending on the nature of the dispute.

10) Quick Compliance Checklist (At Contract End)

Confirm last day worked and total basic salary earned YTD.
Apply Formula: Total basic earnings ÷ 12.
Exclude non-basic components (OT, premium, NSD, allowances, SSS maternity benefits, etc.).
Recompute for retroactive wage increases (if any).
Release with final pay (best practice: within 30 days from separation).
Apply tax rules (TRAIN ₱90,000 cap for 13th-month & other benefits).
Provide payslip showing computation details.

11) Sample Contract Clause (Employer-Friendly & Law-Compliant)

13th-Month Pay. The Employee shall be entitled to 13th-month pay in accordance with PD 851 and its IRR. The 13th-month pay shall be computed as one-twelfth (1/12) of the Employee’s basic salary actually earned within the calendar year and shall exclude items not constituting basic salary under applicable law. If employment commences or ends during the year, the 13th-month pay shall be computed on a prorated basis using the Employee’s basic salary earned up to separation. The Employer shall release the prorated 13th-month pay with the Employee’s final pay, subject to applicable taxes and lawful deductions.

12) Frequently Asked Edge Cases

End of project on December 10: Still prorate on earnings through Dec 10; release with final pay (not later than the company’s final-pay timetable).
Separation due to redundancy in July with separation package: 13th-month is separate; compute on basic earnings Jan–July. The separation pay is governed by Article 298 (authorized causes) and is not part of 13th-month.
Resigned employee claims full 1/12 of annual rate: Not correct—law looks at basic actually earned, not the contracted annualized rate.
Employee with negative leave balance causing salary deduction: Reduced basic earnings means reduced 13th-month.
Death of employee in service: Pay prorated 13th-month to legal heirs with other final entitlements.

13) Bottom Line

If you worked at least one month in the private sector within the year, you’re entitled to a prorated 13th-month pay when your contract ends—computed strictly from basic salary actually earned and released with your final pay. Employers should document computations clearly, observe the December 24 statutory deadline for active employees, follow the ₱90,000 TRAIN tax cap, and pay separated employees’ prorated benefit together with final pay in a timely manner.