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Feb 21

13th Month Pay Law

Employee Wages and Benefits 2010-02-21 Presidential Decree No. 851 (otherwise known as Thirteenth Month Pay Law), as amended by Memorandum Order No. 28, requires all employers to pay their employees a 13th month pay not later than December 24 of every year. Historical Backdrop. Originally, when PD 851, issued by Pres. Marcos, took effect on December 16, 1975, only employees receiving a basic salary of not more than P1,000 a month were entitled to 13th pay. On August 13, 1986, Pres. Aquino, through Memorandum Order No. 28, removed the salary ceiling of P1,000. With the removal of the salary ceiling, all rank and file employees become entitled to a 13th month pay regardless of the amount of their monthly basic salary (unless their employers are exempted from the application of PD 851). Employees Covered by 13th Month Pay Law. All rank-and-file employees, regardless of their designation or employment status, and irrespective of the method by which their wages are paid, who have worked at least one month during the calendar year are entitled to 13th month pay.
Rank and File Employees Meaning.

As stated above, only rank-and-file employees are entitled to 13th month pay. Managerial employees are excluded from the coverage of the law. 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. Amount of 13th Month Pay. The 13th month pay shall be in the amount not less than 1/12 of the total basic salary earned by the employee within the calendar year.
Computation

Only basic salary is included in the computation of 13th month pay. 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, shall be excluded from the computation. 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. Time of Payment of 13th Month Pay. 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 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. Employees excluded from coverage of 13th month pay law. 1. Managerial employees; 2. Those covered under the civil service law; 3. Those already receiving 13th month pay or its equivalent. Christmas bonus, mid-year bonus, cash bonuses and other payments amounting to not less than 1/12 of the basic salary are treated as equivalent of 13th month pay; 4. Household helpers and persons in the personal service of another; and 5. Those paid on purely commission, boundary, or task basis, and those who are paid fixed amount for performing specific work except those paid on a piece-rate basis. 13th Month Pay of Certain Types of Employees
Employees paid on commission basis.

Employees paid on a purely commission basis are not entitled to 13th month pay. They are expressly excluded from the coverage of PD 851. However, employees paid on partly

commission basis, i.e., those guaranteed with a fixed wage aside from the commission, are entitled to 13th month pay. Computation. In the computation of the basic salary of employees paid partly on commission basis, we must distinguish between the two types of commission: 1. Commission as an incentives or encouragement to ensure productivity, i.e., productivity bonus; and 2. Commission as a direct remuneration for service rendered. Commission that take the form of an incentives or encouragement to ensure productivity, e.g., productivity bonus, does not form part of the basic salary. As such, it may be excluded from the computation of 13th month pay. Only the fixed or guaranteed wage is required to be included in the computation (see Boie Takeka case, 1993.) Basic salary = Fixed wage (commission is excluded) On the other hand, commission that takes the form of a direct remuneration for services rendered should be included in the computation of the basic salary. That is, it should be added to the guaranteed wage of the employee in computing his basic salary (see Philippine Duplicators v. NLRC, 1993.) Basic salary = Fixed wage + Commission
13th Month Pay of Employees with Multiple Employers.

Employees with multiple employers are entitled to 13th month pay from all their private employers. Thus, if an employee works in two or more private firms, he is entitled to the pay from both or all of them. If he is a government employee, but works part time in a private enterprise, he is entitled to 13th month pay from the private enterprise.
13th Month Pay of Private School Teachers.

Private school teachers are entitled to 13th month pay regardless of the numbers of months they work in a year, provided it is at least one month.
Payment of 13th Month Pay to Resigned or Separated Employees.

Employees who resigned or were separated during the calendar year shall be entitled to 13th month pay in proportion to the length of time he worked during the year, provided it is at least one month. The payment may be demanded by the employee upon the cessation of employment.
Example

1. Assuming an employee earning a basic salary of P12,000.00 per month had worked for at least 9 months at the time of his separation, how much is his 13th month pay? Answer: P9,000.00. Computation: (P12,000.00 x 9 months) 12 = P9,000.00 Cases 1. For 2 to 3 years, Sevilla Trading, allegedly by mistake, added the night premium, maternity leave pay, etc., in the computation 13th month pay. The court ruled that the inclusion may no longer be withdrawn if it has already ripened into a company practice. Nota bene: There is no specific rule as to how many years are necessary to constitute company practice. (Sevilla Trading v. AVA Tomas, GR No. 152456.) 2. Employees paid according to boundary system are not entitled to 13th mo pay. Boundary system is where the employees do not receive fixed wages, but retain only those sums in excess of the boundary or fee they pay to the owners or operators of their vehicles. They are akin to employees paid on purely commission basis. (R&E Transport v. Latag, G.R. No. 155214.) 3. Drivers who are paid on commission basis, but with guaranteed minimum wage in case their commission be less than their basic minimum, are entitled to 13th month pay. (PACIWU v. NLRC, GR No 107994.) References 1. Presidential Decree No. 851, effective December 16, 1975. 2. Revised Rules and Regulations Implementing Presidential Decree No. 851 Last Edited: Sunday, December 18, 2011 Caveat: Subsequent court and administrative rulings, or changes to, or repeal of, laws, rules and regulations may have rendered the whole or part of this article inaccurate or obsolete.