Under the Presidential Decree No. 851, or what is otherwise known as the 13th Month Pay Law, the 13th month pay in the Philippines is mandatory and will be received by every employee in the Philippines who have rendered service for at least one month within a calendar year, regardless of his/her salary (amended with the removal of the salary ceiling, See: Memorandum Order No. 28, August 13, 1986).

The term 13th Month Pay' denotes the one twelfth (1/12) of the employee's basic salary within a calendar year. The term 'Basic Salary' denotes the wage or salary the employee receives from the employer(s) for services rendered with the payouts set according to the predetermined schedule agreed by both employer and employee. The term 'calendar year' refers to the Gregorian calendar that starts from January 1 and ends on December 31.

The 13th Month Pay is fundamentally a Government implementation of monetary assistance equivalent to the monthly basic salary received by an employee. This is computed pro rata - according to how many months within the calendar year that the employee has worked for the employer(s), computed as follows:

(Basic Monthly Pay) ÷ 12 * (Number of Months worked within the Calendar Year)

Those not covered by the Labor Code's 13th Month Pay Law are as follows:

• Distressed businesses which are at present sustaining significant losses, or whose profits have consistently declined by more than forty (40%) percent of their usual income for the last two (2) years may qualify for exemption from the requirement of the Decree (See: Presidential Decree No. 851, Section 7).
  
  
• Non-profit institutions and organizations, such as those where their income rely on contributions, donations, grants and other similar earnings from any source.
  
  
• The Government and any of its businesses in the political sector, which include government-owned and controlled businesses, with the exception of those operating wholly as private subsidiaries of the Government.
  
  
• An employee who is already enjoying a yearly 13th Month Pay or its equivalent.
  
  
• An employee who is in the personal service of another, such as household helpers, personal stylists, personal assistants, directly employed butlers, attendants, and individuals related to such workers.
  
  
• An employee whose nature of compensation is based purely on commission, task dependent, boundary, and those who are paid a fixed amount for performing a specific work, irrespective of the time consumed.

(This article cites the Presidential Decree No. 851 and Memorandum Order No. 28. By no means shall this article be used to substitute Presidential Decree No. 851)