13th month pay
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Presidential Decree No. 851, which was issued by President Ferdinand Marcos on 16 December 1975, requires all employers to pay their employees receiving a basic salary of not more than P1,000 a month, regardless of the nature of the employment, a 13th month pay, not later than December 24 of every year. The cap of P1,000 was later removed, as will be discussed below. On 16 November 1987, then Labor Secretary Franklin Drilon issued the Revised Guidelines on the Implementation of the 13th Month Law.
Removal of salary ceiling
On 13 August 1986, President Corazon C. Aquino issued Memorandum Order No. 28 which provides that: "Section 1 of Presidential Decree No. 851 is hereby modified to the extent that all employers are hereby required to pay all their rank-and-file employees a 13th month pay not later than December 24 of every year." Before its modification by the aforecited Memorandum Order, P.D. No. 851 excludes from entitlement to the 13th month pay those employees who were receiving a basic salary of more than P1,000.00 a month.
With the removal of the salary ceiling of P1,000.00, all rank and file employees are now entitled to a 13th month pay regardless of the amount of basic salary that they receive in a month if their employers are not otherwise exempted from the application of P.D. No. 851. Such employees are entitled to the benefit regardless of their designation or employment status, and irrespective of the method by which their wages are paid, provided that they have worked for at least one (1) month during a calendar year.
Who are rank-and file employees
The Labor Code distinguishes a rank-and-file employee from a managerial employee. It provides that a managerial employee is one who is vested with powers of prerogatives to lay down and execute management policies and/or to hire, transfer, suspend, lay-off, recall discharge, assign or discipline employees, or to effectively recommend such managerial actions. All employees not falling within this definition are considered rank-and-file employees. This distinction shall be used as guide for the purpose of determining who are rank-and-file employees entitled to the mandated 13th month pay. See Employee.
13th month pay for certain types of employees
- Employees paid by results. Employees who are paid on piece work basis are by law entitled to the 13th month pay. Employees who are paid a fixed or guaranteed wage plus commission are also entitled to the mandated 13th month pay, based on their total earnings during the calendar year, i.e., on both their fixed or guaranteed wage and commission.
- Those with multiple employers. Government employees working part time in a private enterprise, including private educational institutions, as well as employees working in two or more private firms, whether on full or part time basis, are entitled to the required 13th month pay from all their private employers regardless of their total earnings from each or all their employers.
- Private school teachers. Private school teachers, including faculty members of universities and colleges, are entitled to the required 13th month pay, regardless of the number of months they teach or are paid within a year, if they have rendered service for at least one (1) month within a year.
The following employers are still not covered by P.D. No. 851:
- The Government and any of its political subdivisions, including government-owned and controlled corporations (GOCCs), excepts those corporations operating essentially as private subsidiaries of the Government.
- Employers already paying their employees a 13th month pay or more in a calendar year or its equivalent at the time of this issuance. The term "its equivalent" shall include Christmas bonus, mid-year bonus, cash bonuses and other payments amounting to not less than 1/12 of the basic salary but shall not include cash and stock dividends, cost of living allowances and all other allowances regularly enjoyed by the employee, as well as non-monetary benefits. Where an employer pays less than required 1/12th of the employees basic salary, the employer shall pay the difference.
- Employers of household helpers and persons in the personal service of another in relation to such workers.
- Employers of those who are paid on purely commission, boundary, or task basis, and those who are paid a fixed amount for performing specific work, irrespective of the time consumed in the performance thereof, except where the workers are paid on piece-rate basis in which case the employer shall grant the required 13th month pay to such workers. Workers paid on piece-rate basis shall refer to those who are paid a standard amount for every piece or unit of work produced that is more or less regularly replicated, without regard to the time spent in producing the same.
Time of Payment
The required 13th month pay shall be paid not later than December 24 of each year. An employer, however, may give to his employees one half (1/2) of the required 13th month pay before the opening of the regular school year and the other half on before the 24th of December of every year. The frequency of payment of this monetary benefit may be the subject of agreement between the employer and the recognized/collective bargaining agent of the employees.
The minimum 13th month pay required by law shall not be less than one-twelfth of the total basic salary earned by an employee within a calendar year. The "basic salary" of an employee for the purpose of computing the 13th month pay shall include all remunerations or earning paid by this employer for services rendered but does not include allowances and monetary benefits which are not considered or integrated as part of the regular or basic salary, such as the cash equivalent of unused vacation and sick leave credits, overtime, premium, night differential and holiday pay, and cost-of-living allowances. However, these salary-related benefits should be included as part of the basic salary in the computation of the 13th month pay if by individual or collective agreement, company practice or policy, the same are treated as part of the basic salary of the employees.
Presidential Decree No. 851, as amended, requires an employer to pay its rank and file employees a 13th month pay not later than 24 December of every year. However, employers not paying their employees a 13th month pay or its equivalent are not covered by said law. The term "its equivalent" was defined by the law’s implementing guidelines as including Christmas bonus, mid-year bonus, cash bonuses and other payment amounting to not less than 1/12 of the basic salary but shall not include cash and stock dividends, cost-of-living-allowances and all other allowances regularly enjoyed by the employee, as well as non-monetary benefits.
The 13th-month pay of an employee is based on the "basic salary," which includes all remunerations or earnings paid by an employer to an employee for services rendered. However, 13th-month pay does not include cost-of-living allowances (COLA) granted pursuant to P.D. No. 525 or Letter of Instruction No. 174, profit-sharing payments, and all allowances and monetary benefits which are not considered or integrated as part of the regular or basic salary of the employee. Maternity benefits, like other benefits granted by the SSS, are are not included in computing the employee's 13th-month pay. Overtime pay, earnings and other remunerations are also excluded from "basic salary" in the computation of the 13th-month pay. The phrase "earnings and other remunerations," which are deemed NOT part of the basic salary, includes payments for:
- 1. Sick leave
- 2. Vacation leave
- 3. Maternity leave
- 4. Premium for works performed on rest days and special holidays, pay for regular holidays and night differentials.
However, if these items which are legally excluded from the computation of 13th month pay are included by the employer in its previous computations and such act ripens into a "company practice," then these items can't be excluded without violating the prohibition against diminution or elimination of benefits.
Non-inclusion in regular wage
The mandated 13th month pay need not be credited as part of regular wage of employees for purposes of determining overtime and premium pays, fringe benefits insurance fund, Social Security, Medicare and private retirement plans.
13th month pay of resigned or separated employee
An employee who has resigned or whose services were terminated at any time before the time for payment of the 13th month pay is entitled to this monetary benefit in proportion to the length of time he worked during the year, reckoned from the time he started working during the calendar year up to the time of his resignation or termination from the service. Thus, if he worked only from January up to September his proportionate 13th month pay should be equivalent of 1/12 his total basic salary he earned during that period.
The payment of the 13th month pay may be demanded by the employee upon the cessation of employer-employee relationship. This is consistent with the principle of equity that as the employer can require the employee to clear himself of all liabilities and property accountability, so can the employee demand the payment of all benefits due him upon the termination of the relationship.
Entitlement in case of dismissal
The computation for the 13th month pay should properly begin from the first day of employment. On the other hand, the computation should only be up to the last day of work. To extend the period to the date of finality of the NLRC resolution would negate the absence of illegal dismissal, or to be more precise, the want of dismissal in this case. Besides, it would be unfair to require the employer to pay the employees the said benefits beyond the last day of work when they did not render any service beyond that date. These benefits are given by law on the basis of the service actually rendered by the employee. There is no cause for granting said incentive to one who has already terminated his relationship with the employer.
Distinguished from Bonus
The term "bonus" is defined as "an amount granted and paid to an employee for his industry and loyalty which contributed to the success of the employer’s business and made possible the realization of profits. It is an act of generosity granted by an enlightened employer to spur the employee to greater efforts for the success of the business and realization of bigger profits. The granting of a bonus is a management prerogative, something given in addition to what is ordinarily received by or strictly due the recipient. Thus, a bonus is not a demandable and enforceable obligation, except when it is made part of the wage, salary or compensation of the employee."
Generally speaking, therefore, a "bonus" is a gift or reward given voluntarily by an employer outside of an employee’s regular compensation for his or her industry and/or contribution to making the employer’s enterprise succesful or profitable. A "bonus" is different from 13th-month pay in the following respects:
- 13th month pay is mandatory and shall be received by all employees who have worked at least one month within a calendar year, and who receive a monthly pay of more than PhP1,000 and is thus demandable; a bonus, being an act of liberality or a gift from the employer cannot be demanded unless certain conditions apply.
- The law provides for what shall comprise the 13th month pay; a bonus depends fully on the generosity (or the absence of such) of the employer.
- All classes of employees (regular, probationary, piece rate, contractual, etc.) are entitled to the 13th month pay; an employer may provide conditions as to who shall be entitled to various classes of bonuses.
- The 13th month pay shall be paid on or before December 24; the release of Christmas bonuses and/or other forms of bonuses may be released at any time upon the discretion of the employer/management.
There are however instances when a bonus, even though clearly an act of generosity on the part of the employer, may become demandable. In instances where the granting of a bonus have already become a long-standing practice or policy, the employer can no longer withdraw and to do so is tantamount to a diminution of benefits. This is prohibited under the Labor Code.
- ↑ JPL Marketing Promotions vs. Court of Appeals, et al., G.R. No. 151966, 8 July 2005
- ↑ San Miguel Corporation (Cagayan Coca-Cola Plant) vs. Inciong, G.R. No. L-49774, 24 February 1981
- ↑ JPL Marketing Promotions vs. Court of Appeals, et al., G.R. No. 151966, 8 July 2005
- ↑ Producers Bank of the Philippines vs. NLRC, G.R. No. 100701, 28 March 2001