Handling Bonuses, 13th Month Pay, and Additional Income in the Philippines

October 11, 2023

In the Philippines, the culture of giving bonuses and additional income to employees is deeply ingrained. These extra earnings, including the 13th-month pay, provide financial relief and motivation for workers. In this blog post, we will explore the intricacies of managing these additional earnings and provide statistics to help you understand their significance in the Philippine setting.

The 13th Month Pay

As mandated by Presidential Decree No. 851, the 13th-month pay is a vital aspect of Filipino compensation packages. It is a requirement for employers to provide this additional income to their employees on or before December 24th of each year. The 13th-month pay should be equivalent to 1/12th of an employee's basic salary within the calendar year.

As of the last available statistics in 2020, the 13th-month pay accounted for an average of 6.3% of the total compensation received by employees in the Philippines.

Performance Bonuses

Performance-based bonuses are common in the Philippines These bonuses can vary significantly across industries and organizations, often ranging from one month's salary to even more substantial sums.This additional employee benefit usually serves as a reward for those who excel in their roles.

According to a survey by the Employers Confederation of the Philippines (ECOP), in 2021, around 83% of companies in the Philippines reported providing performance-based bonuses to their employees.

Taxation of Bonuses

It's essential to understand how bonuses are taxed in the Philippines to ensure accurate payroll management. The Bureau of Internal Revenue (BIR) provides guidelines on tax treatment for bonuses, with the tax rate dependent on the amount of the bonus. As an example, bonuses up to PHP 90,000 are exempt from income tax, while those exceeding this amount are subject to taxation.

Additional Income Sources

Aside from the 13th-month pay and performance bonuses, some employees in the Philippines may receive extra income through various means, such as commissions, incentives, or allowances. These additional earnings can significantly impact the overall compensation of an employee Consequently, the employee’s tax computation may also be affected, depending on the nature and amount of this bonus.

Based on the Philippine Statistics Authority (PSA) data, in 2020, additional income sources accounted for an average of 12.1% of the total compensation of employees.

Handling bonuses, the 13th-month pay, and additional income is a crucial part of payroll management in the Philippines. These extra earnings provide financial security and motivation to employees, making them an integral part of the compensation structure.

Employers must understand the legal obligations and tax implications associated with these additional income sources to ensure compliance with labor laws and regulations. By doing so, companies can maintain employee satisfaction, foster motivation, and build a positive workplace culture while adhering to the unique payroll practices of the Philippines.

If you need any help on your HR & Payroll System Requirements, feel free to send us a message 😊

Let’s get started

Learn how PDY HR and Payroll solutions can help your business. Request for a free, commitment-free demo today.


© 2021 PAYDAY.PH. All Rights Reserved.   |  Privacy Policy