13th month pay is provided to covered rank-and-file employees who have rendered at least one (1) month of service. The 13th month pay is given to rank-and-file employees. The benefit should pay not later than December 24.
1. Concepts
13th month pay is an additional pay given to rank-and-file employees, regardless of the nature of their employment and irrespective of the methods by which their wages are paid, provided they worked for at least one (1) month during a calendar year. (pp. 37 to 41, 2020 DOLE-BWC Handbook on Workers’ Statutory Monetary Benefits, henceforth “DOLE-BWC Handbook”)
The 13th-month pay mandated by Presidential Decree (P.D.) No. 851 represents an additional income based on wage but not part of the wage. It is equivalent to one-twelfth (1/12) of the total basic salary earned by an employee within a calendar year. All rank-and-file employees, regardless of their designation or employment status and irrespective of the method by which their wages are paid, are entitled to this benefit, provided that they have worked for at least one month during the calendar year. If the employee worked for only a portion of the year, the 13th-month pay is computed pro rata. (Central Azucarera de Tarlac v. Central Azucarera de Tarlac Labor Union-NLU, G.R. No. 188949, 26 July 2010)
a. Purpose
When P.D. 851 or the 13th Month Pay Law was passed, its objective was to give an additional income to low-paid employees considering that various circumstances, such as protection of real wages from world-wide inflation, there being no increase in the minimum wage for several years, as well as affording them opportunity to celebrate the Christmas season with the additional pay.
Presidential Decree No. 851, otherwise known as the 13th Month Pay Law, which required all employers to pay their employees a 13th month pay, was issued to protect the level of real wages from the ravages of worldwide inflation. It was enacted on December 16, 1975 after it was noted that there had been no increase in the minimum wage since 1970 and the Christmas season was an opportune time for society to show its concern for the plight of the working masses so that they may properly celebrate Christmas and New Year. (Honda Phils., Inc. v. Samahan ng Malayang Manggagawa sa Honda, G.R. No. 145561, 15 June 2005)
UST Faculty Union v. NLRC, University of Santo Tomas, Inc., En Banc, G.R. No. 90445, 02 October 1990
⦁ In providing for a 13th month pay, P.D. No. 851 intended to uniformly provide low-paid employees with additional income. This is clear from the preamble to the decree which states:
WHEREAS, it is necessary to further protect the level of real wages from the ravage of world-wide inflation;
WHEREAS, there has been no increase in the legal minimum wage rates since 1970;
WHEREAS, the Christmas season is an opportune time for society to show its concern for the plight of the working masses so they may properly celebrate Christmas and New Year.
⦁ The law wanted to uniformly provide low-paid employees with additional income because on the average their salaries for twelve (12) months were grossly inadequate to meet the expenses for day-to-day subsistence. This additional income took the form of an extra month’s salary to be given in December.
The above-case captures the purpose behind the passage of the 13th month pay law.
a. Managerial employees
Managerial employees are those who are vested with powers or prerogatives to lay down and execute management policies and/or to hire, transfer, suspend, layoff, recall, discharge, assign, or discipline employees, or to effectively recommend such managerial actions. (Ibid.)
It should be emphasized that managerial employees have requirements as provided to be so-called as such. Meaning, the designation or title given to employee is not determinative of whether or not the employee is indeed a manager. To avoid paying 13th month pay, some employers give employees the designation or title of “manager” even if they are actually not performing the duties and functions of a manager. This is not correct and may result in employee claims for 13th month pay against the employer.
Ramil v. Stoneleaf, Inc., G.R. No. 222416, 17 June 2020
[BACKGROUND]
⦁ [The employee was hired as a Spa Supervisor and Massage Therapist by the employer, a Spa and Wellness Center. She received a monthly salary of P10,000.00 and P100.00 per massage service rendered. She was also an incorporator/director in the Company’s Articles of Incorporation. Sometime later, she was terminated from his employment. When he filed for illegal dismissal with monetary claims, one of the issues pertained to her claim for 13th month pay. To which the employer argued against alleging that she was a managerial employee.]
[RESOLUTION]
⦁ The Court concurs with the NLRC’s conclusion that [the employee] is not a managerial employee, but a rank-and-file employee. Specifically, she is a fiduciary rank-and-file employee. Wesleyan University Phils. v. Reyes defines a fiduciary rank-and-file employee as one who in the normal and routine exercise of his/her functions regularly handle significant amounts of money or property. Cashiers, auditors, and property custodians are some of the employees in the second class.
⦁ Here, [the employee] regularly handles significant amounts of money or property in the normal and routine exercise of her functions. She was in charge of the facilities of the spa by making sure it is in good condition and that the items needed are in full stock all the time. She was also in charge of the sales of the spa when she took over the duties of the receptionist/cashier. In fact, [the employer] admitted in its Comment that she was entrusted with the finances of the spa, including the handling of cash receipts, billings statements, and the care of the spa’s property. Therefore, [the employee] is a fiduciary rank-and-file employee, and she is entitled to service incentive leave pay, holiday pay, and pro-rated 13th month pay. She is also entitled to attorney’s fees equivalent to 10% of the monetary award, because she was compelled to file a complaint to protect her interests.
⦁ The Court disagrees with [the employer’s] argument that [the employee] is a corporate officer. While the Articles of Incorporation states that she is one of the incorporators, [the employer] was unable to rebut [the employee’s] claim that she has no capital contribution to the corporation. She is merely an incorporator on paper, but not in fact. There was no proof that she participated in any corporate meeting or exercised functions related to a corporate officer.
⦁ The Court observes that [the employer] was not able to demonstrate how [the employee] recommends managerial actions that would make her a managerial employee. What is clear was [the employer’s] admission that [the employee] oversees the daily operation of the spa and supervises the employees. [The employer] admitted the scope of assignment given to her.
⦁ In sum, [the employee] was able to overcome the burden of proving that she is a fiduciary rank-and-file employee, while [the employer] was unable to show evidence that she is a corporate officer. [The employee] is entitled to service incentive leave pay, holiday pay, pro-rated 13th month pay, and attorney’s fees equivalent to 10% of the monetary award. Pursuant to Nacar v. Gallery Frames, the monetary awards are subject to 6% interest per annum from the finality of this decision until fully paid.
Based on the above case, it is not the designation or title given to the employees that matter. Rather, it is whether in truth and in fact the employee is performing managerial duties and functions to be properly categorized as a managerial employee.
c. Rank-and-file employees
Rank-and-file employees are defined as those who are not managerial employees as earlier. (Ibid.)
d. “Paid on task basis”
Employees who are “paid on task basis” are excluded from the coverage of 13th month pay.
David v. Macasio, G.R. No. 195466, 02 July 2014
[BACKGROUND]
⦁ [The employee was a butcher for the employer, a hog dealer. When he claimed 13th month pay, the employer responded that he is not entitled thereto since he is paid on a “pakyaw” or task basis. The Labor Arbiter and the NLRC ruled in favor of the employer. However, the Court of Appeals ruled in favor of the employee.]
⦁ The CA explained that as a task basis employee, [he] is excluded from the coverage of holiday, SIL and 13th month pay only if he is likewise a “field personnel.”
[RESOLUTION]
⦁ With respect to the payment of 13th month pay however, we find that the CA legally erred in finding that the NLRC gravely abused its discretion in denying this benefit to [the employee].
⦁ The governing law on 13th month pay is PD No. 851.
⦁ As with holiday and SIL pay, 13th month pay benefits generally cover all employees; an employee must be one of those expressly enumerated to be exempted. Section 3 of the Rules and Regulations Implementing P.D. No. 85154 enumerates the exemptions from the coverage of 13th month pay benefits. Under Section 3(e), “employers of those who are paid on xxx task basis, and those who are paid a fixed amount for performing a specific work, irrespective of the time consumed in the performance thereof” are exempted.
⦁ Note that unlike the IRR of the Labor Code on holiday and SIL pay, Section 3(e) of the Rules and Regulations Implementing PD No. 851 exempts employees “paid on task basis” without any reference to “field personnel.” This could only mean that insofar as payment of the 13th month pay is concerned, the law did not intend to qualify the exemption from its coverage with the requirement that the task worker be a “field personnel” at the same time.
From the above case, 13th month pay is not due to employees who are “paid on task basis.”
2. Covered and Exempted employers
GENERAL RULE: All employers are required to pay 13th Month Pay. (13th Month Pay Law; DOLE-BWC Handbook)
EXCEPTIONS: The following employers are exempted from paying 13th Month Pay:
1) The government and any of its political subdivisions, including government-owned and controlled corporations, except those corporations operating essentially as private subsidiaries of the government;
2) Employers who are already paying their employees thirteenth- month pay or more in a calendar year or its equivalent at the time of the issuance of P.D. 851;
3) Persons in the personal service of another in relation to such workers; and,
4) 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 those workers who are paid on piece-rate basis, in which case their employer shall grant them thirteenth-month pay. (DOLE-BWC Handbook)
3. The Computation
a. The benefit and formula
The 13th month pay shall not be less than one-twelfth (1/12) of the total basic salary earned by an employee in a calendar year. (Ibid.)
The formula for computing 13th month pay:
Total basic salary earned during the year / 12 months = proportionate 13th month pay
Central Azucarera de Tarlac v. Central Azucarera de Tarlac Labor Union-NLU, G.R. No. 188949, 26 July 2010
[BACKGROUND]
⦁ On January 16, 1976, the Supplementary Rules and Regulations Implementing P.D. No. 851 was issued. The Supplementary Rules clarifies that overtime pay, earnings, and other remuneration that are not part of the basic salary shall not be included in the computation of the 13th-month pay.
⦁ On November 16, 1987, the Revised Guidelines on the Implementation of the 13th-Month Pay Law was issued. Significantly, under this Revised Guidelines, it was specifically stated that the minimum 13th-month pay required by law shall not be less than one-twelfth (1/12) of the total basic salary earned by an employee within a calendar year.
⦁ Furthermore, the term “basic salary” of an employee for the purpose of computing the 13th-month pay was interpreted to include all remuneration or earnings paid by the employer for services rendered, but does not include allowances and monetary benefits which are not 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.
⦁ Based on the foregoing, it is clear that there could have no erroneous interpretation or application of what is included in the term “basic salary” for purposes of computing the 13th-month pay of employees. From the inception of P.D. No. 851 on December 16, 1975, clear-cut administrative guidelines have been issued to insure uniformity in the interpretation, application, and enforcement of the provisions of P.D. No. 851 and its implementing regulations.
St. Michael Academy v. NLRC, Bolosiño, G.R. No. 119512, 13 July 1998
[RESOLUTION]
⦁ Public respondent NLRC modified the Labor Arbiter’s monetary awards to [the employees] by applying the three-year prescriptive period on several money claims and deleting the award of service incentive leave pay as well as moral and exemplary damages. Not satisfied, [the employers] maintain that public respondent NLRC gravely abused its discretion when it affirmed the Labor Arbiter’s award of 13th month pay and unpaid vacation leave pay to [the employees] despite the latter’s failure to specifically pray for them in their pleadings. [The employers] contend that a prayer “for such other benefits provided by the Labor Code” should be limited to those benefits which follow as a matter of course based on the allegations of the parties and the evidence presented. They urge that it should clearly appear that a party is entitled to the benefit but, through inadvertence or ignorance, failed to specifically include it in the prayer.
⦁ We [the Supreme Court] hold that the respondent Commission did not gravely abuse its discretion in granting 13th month pay differential to [the employees]. We have granted statutory benefits to employees although they have failed to pray for them in their complaint. Technical rules of pleading are not enforced strictly in labor cases especially where they will defeat the substantive rights of employees. We find no reason to depart from this ruling demanded by broad consideration of substantial justice. Nevertheless, we take exception to the complete award of 13th month pay to each [of the employees] as there appears a clear mistake in the computation. The payroll sheets show the 13th month pay actually paid by [the employers] to [the employees]. For the second half of 1989, [the employees] did not receive their proportionate 13th month pay; for the year 1990, they received only one-half; for 1991, they were paid an incomplete amount; for 1992, they also received one-half of the 13th month pay plus one-month subsidy.
⦁ It appears that public respondent computed the 13th month pay differential by multiplying the daily wage rate by the number of days each [of the employees] worked in [the employer’s school]. This is incorrect. According to No. 4 (a) of the Revised Guidelines on the Implementation of the 13th Month Law (Presidential Decree 851) dated November 16, 1987, the 13th month pay of an individual is (not less than) one-twelfth (1/12) of the total basic salary earned by an employee within a calendar year. Moreover, in No. 6 thereof, it is provided that 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.
⦁ Following these guidelines, the proportionate 13th month pay of [the employees] for the second half of 1989 should be computed by multiplying their basic monthly wage at that time by 7/12. For the year 1990, [the employees], except Golo, should be given the remaining half of the 13th month pay. For the year 1991, [the employees], except Rebadulla, should be given the differential. For 1992, no differential is due to [the employees] since [the employers] paid all of them an amount over and above their proportionate 13th month pay.
As shown in the above case, the 13th month pay shall not be less than one-twelfth (1/12) of the total basic salary earned by the employee.
b. Basic salary earned
The term “basic salary” shall include all remunerations or earnings paid by his or her employer for services rendered. It 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 shift differential and holiday pay, and cost of living allowance (COLA). (DOLE-BWC Handbook)
However, these salary-related benefits should be included as part of the basic salary in the computation of the 13th month pay if these are treated as part of the basic salary of the employees, through individual or collective agreement, company practice or policy. (Ibid.)
Thus, the 13th month pay is proportionate if the covered employee does not have a complete attendance on/before December 24, the last day of paying the 13th month pay. (Ibid.)
For employees receiving regular wage, we have interpreted “basic salary” to mean, not the amount actually received by an employee, but 1/12 of their standard monthly wage multiplied by their length of service within a given calendar year. Thus, [the Supreme Court ash directed to] exclude from the computation of “basic salary” payments for sick, vacation and maternity leaves, night differentials, regular holiday pay and premiums for work done on rest days and special holidays. (Honda Phils., Inc. v. Samahan ng Malayang Manggagawa sa Honda, G.R. No. 145561, 15 June 2005)
1) Commissions
Sales commissions may or may not be included in the computation of 13th month pay – depending on whether the commissions are integrated or regularly received with the salary without any condition for their entitlement.
Philippine Duplicators, Inc. v. NLRC, Philippine Duplicators Employees Union-TUPAS, En Banc, G.R. No. 110068, 15 February 1995
[ISSUE: Whether or not the sales commissions provided by the Company, should be included in the basic salary for 13th month pay computation.]
[RESOLUTION]
⦁ The Third Division [of the Supreme Court] in Duplicators found that:
In the instant case, there is no question that the sales commission earned by the salesmen who make or close a sale of duplicating machines distributed by petitioner corporation, constitute part of the compensation or remuneration paid to salesmen for serving as salesmen, and hence as part of the “wage” or salary of petitioner’s salesmen. Indeed, it appears that petitioner pays its salesmen a small fixed or guaranteed wage; the greater part of the salesmen’s wages or salaries being composed of the sales or incentive commissions earned on actual sales closed by them. No doubt this particular galary structure was intended for the benefit of the petitioner corporation, on the apparent assumption that thereby its salesmen would be moved to greater enterprise and diligence and close more sales in the expectation of increasing their sales commissions. This, however, does not detract from the character of such commissions as part of the salary or wage paid to each of its salesmen for rendering services to petitioner corporation.
⦁ In other words, the sales commissions received for every duplicating machine sold constituted part of the basic compensation or remuneration of the salesmen of Philippine Duplicators for doing their job. The portion of the salary structure representing commissions simply comprised an automatic increment to the monetary value initially assigned to each unit of work rendered by a salesman. Especially significant here also is the fact that the fixed or guaranteed portion of the wages paid to the Philippine Duplicators’ salesmen represented only 15%-30% of an employee’s total earnings in a year…
⦁ Considering the above circumstances, the Third Division held, correctly, that the sales commissions were an integral part of the basic salary structure of Philippine Duplicators’ employees salesmen. These commissions are not overtime payments, nor profit-sharing payments nor any other fringe benefit. Thus, the salesmen’s commissions, comprising a pre-determined percent of the selling price of the goods sold by each salesman, were properly included in the term “basic salary” for purposes of computing their 13th month pay.
⦁ In Boie-Takeda the so-called commissions “paid to or received by medical representatives of Boie-Takeda Chemicals or by the rank and file employees of Philippine Fuji Xerox Co.,” were excluded from the term “basic salary” because these were paid to the medical representatives and rank-and-file employees as “productivity bonuses.”4 The Second Division characterized these payments as additional monetary benefits not properly included in the term “basic salary” in computing their 13th month pay. We note that productivity bonuses are generally tied to the productivity, or capacity for revenue production, of a corporation; such bonuses closely resemble profit-sharing payments and have no clear director necessary relation to the amount of work actually done by each individual employee. More generally, a bonus is an amount granted and paid ex gratia to the employee; its payment constitutes an act of enlightened generosity and self-interest on the part of the employer, rather than as a demandable or enforceable obligation…
⦁ If an employer cannot be compelled to pay a productivity bonus to his employees, it should follow that such productivity bonus, when given, should not be deemed to fall within the “basic salary” of employees when the time comes to compute their 13th month pay.
⦁ It is also important to note that the purported “commissions” paid by the Boie-Takeda Company to its medical representatives could not have been “sales commissions” in the same sense that Philippine Duplicators paid its salesmen Sales commissions. Medical representatives are not salesmen; they do not effect any sale of any article at all. In common commercial practice, in the Philippines and elsewhere, of which we take judicial notice, medical representatives are employees engaged in the promotion of pharmaceutical products or medical devices manufactured by their employer. They promote such products by visiting identified physicians and inform much physicians, orally and with the aid of printed brochures, of the existence and chemical composition and virtues of particular products of their company. They commonly leave medical samples with each physician visited; but those samples are not “sold” to the physician and the physician is, as a matter of professional ethics, prohibited from selling such samples to their patients. Thus, the additional payments made to Boie-Takeda’s medical representatives were not in fact sales commissions but rather partook of the nature of profit-sharing bonuses.
⦁ The doctrine set out in the decision of the Second Division is, accordingly, that additional payments made to employees, to the extent they partake of the nature of profit-sharing payments, are properly excluded from the ambit of the term “basic salary” for purposes of computing the 13th month pay due to employees. Such additional payments are not “commissions” within the meaning of the second paragraph of Section 5 (a) of the Revised Guidelines Implementing 13th Month Pay.
⦁ [W]hat particular types of earnings and remuneration are or are not properly included or integrated in the basic salary are questions to be resolved on a case to case basis, in the light of the specific and detailed facts of each case. In principle, where these earnings and remuneration are closely akin to fringe benefits, overtime pay or profit-sharing payments, they are properly excluded in computing the 13th month pay. However, sales commissions which are effectively an integral portion of the basic salary structure of an employee, shall be included in determining his 13th month pay.
⦁ We recognize that both productivity bonuses and sales commissions may have an incentive effect. But there is reason to distinguish one from the other here. Productivity bonuses are generally tied to the productivity or profit generation of the employer corporation. Productivity bonuses are not directly dependent on the extent an individual employee exerts himself. A productivity bonus is something extra for which no specific additional services are rendered by any particular employee and hence not legally demandable, absent a contractual undertaking to pay it. Sales commissions, on the other hand, such as those paid in Duplicators, are intimately related to or directly proportional to the extent or energy of an employee’s endeavors. Commissions are paid upon the specific results achieved by a salesman-employee. It is a percentage of the sales closed by a salesman and operates as an integral part of such salesman’s basic pay.
⦁ Finally, the statement of the Second Division in Boie-Takeda declaring null and void the second paragraph of Section 5(a) of the Revised Guidelines Implementing the 13th Month Pay issued by [the former DOLE Secretary], is properly understood as holding that that second paragraph provides no legal basis for including within the term “commission” there used additional payments to employees which are, as a matter of fact, in the nature of profit-sharing payments or bonuses. If and to the extent that such second paragraph is so interpreted and applied, it must be regarded as invalid as having been issued in excess of the statutory authority of the Secretary of Labor. That same second paragraph however, correctly recognizes that commissions, like those paid in Duplicators, may constitute part of the basic salary structure of salesmen and hence should be included in determining the 13th month pay; to this extent, the second paragraph is and remains valid.
c. The term “its equivalent”
The term “its equivalent” as used in No. 2 above shall include Christmas bonus, midyear bonus, cash bonuses, and other payments amounting to not less than one-twelfth (1/12) of the basic salary but shall not include cash and stock dividends, cost of living allowance, and all other allowances regularly enjoyed by the employee, as well as non-monetary benefits. (DOLE-BWC Handbook)
1) To avoid “double burden” on the employer
[W]here such additional income [i.e. the 13th month pay], whether granted by the employer voluntarily or agreed upon by the employer and the employees in a CBA, or its equivalent is already given by the employer, whether in December or in some other date, the 13th month pay need not be given. If, on the other hand, an amount less than that required by law is given, the employer has only to pay his employees the deficiency. In both instances, the purpose of the law is met… (UST Faculty Union v. NLRC, University of Santo Tomas, Inc., En Banc, G.R. No. 90445, 02 October 1990)
[W]hat the law wants to prevent is the imposition of a “double burden” upon the employer who is already paying the equivalent of a 13th month pay. The law exempts from the payment of the 13th month pay employers who are already giving its equivalent. Otherwise the goal of uniformly providing employees with additional income will not be met. Another inequity will result; while most employees will be paid thirteen (13) months salary, some, by virtue of P.D. No. 851, will be receiving salary for fourteen (14) months. (Ibid.)
DOLE Philippines, Inc. v. Leogardo, Jr., En Banc, G.R. Nos. L-60018 and 60019, 23 October 1982
[BACKGROUND]
⦁ To comply with the provision of P.D. 851 on the 13th month pay, [the Company] paid its workers on December 29, 1975 the difference between 1/12th of their yearly basic salary and their year-end productivity bonus. In doing so, [the Company] relied on Section 2 of the decree, as interpreted by the MOLE’s [now DOLE’s] implementing rules. The same method of computation was followed in the payment of the year-end productivity bonus and the 13th month pay for the years 1976, 1977 and 1978.
[RESOLUTION]
⦁ [T]he year-end productivity bonus granted by [the Company] to [complainants] pursuant to their CBA is, in legal contemplation, an integral part of their 13th month pay, notwithstanding its conditional nature. When, therefore, [the Company], in order to comply with the mandate of PD No. 851, credited the year-end productivity bonus as part of the 13th month pay and adopted the procedure of paying only the difference between said bonus and 1/12th of the worker’s yearly basic salary, it acted well within the letter and spirit of the law and its implementing rules. For in the event that “an employer pays less than one-twelfth of the employees’ basic salary, all that said employer is required to do under the law is to pay the difference.”
⦁ To hold otherwise would be to impose an unreasonable and undue burden upon those employers who had demonstrated their sensitivity and concern for the welfare of their employees. A contrary stance would indeed create an absurd situation whereby an employer who started giving his employees the 13th month pay only because of the unmistakable force of the law would be in a far better position than another who, by his own magnanimity or by mutual agreement, had long been extending to his employees the benefits contemplated under PD No. 851, by whatever nomenclature these benefits have come to be known. Indeed, PD No. 851, a legislation benevolent in its purpose, never intended to bring about such oppressive situation.
d. Incorrect computation may ripen into a company policy or practice
Employers should be careful in computing 13th month pay that may result in paying more than what is required by law. Such an incorrect computation for several years may result in the ripening of the incorrect 13th month pay computation into a company policy or practice.
Central Azucarera de Tarlac v. Central Azucarera de Tarlac Labor Union-NLU, G.R. No. 188949, 26 July 2010
[BACKGROUND]
⦁ [The employer has incorrectly computed the 13th month pay resulting in paying the employees more than what is required by law for a period of 30 years.]
[RESOLUTION]
⦁ As correctly ruled by the CA, the practice of [the employer] in giving 13th-month pay based on the employees’ gross annual earnings which included the basic monthly salary, premium pay for work on rest days and special holidays, night shift differential pay and holiday pay continued for almost thirty (30) years and has ripened into a company policy or practice which cannot be unilaterally withdrawn.
⦁ Article 100 of the Labor Code, otherwise known as the Non-Diminution Rule, mandates that benefits given to employees cannot be taken back or reduced unilaterally by the employer because the benefit has become part of the employment contract, written or unwritten. The rule against diminution of benefits applies if it is shown that the grant of the benefit is based on an express policy or has ripened into a practice over a long period of time and that the practice is consistent and deliberate. Nevertheless, the rule will not apply if the practice is due to error in the construction or application of a doubtful or difficult question of law. But even in cases of error, it should be shown that the correction is done soon after discovery of the error.
⦁ The argument of [the employer] that the grant of the benefit was not voluntary and was due to error in the interpretation of what is included in the basic salary deserves scant consideration. No doubtful or difficult question of law is involved in this case. The guidelines set by the law are not difficult to decipher. The voluntariness of the grant of the benefit was manifested by the number of years the employer had paid the benefit to its employees. [The employer] only changed the formula in the computation of the 13th-month pay after almost 30 years and only after the dispute between the management and employees erupted. This act of [the employer] in changing the formula at this time cannot be sanctioned, as it indicates a badge of bad faith…
⦁ Furthermore, petitioner cannot use the argument that it is suffering from financial losses to claim exemption from the coverage of the law on 13th-month pay, or to spare it from its erroneous unilateral computation of the 13th-month pay of its employees. Under Section 7 of the Rules and Regulations Implementing P.D. No. 851, distressed employers shall qualify for exemption from the requirement of the Decree only upon prior authorization by the Secretary of Labor.20 In this case, no such prior authorization has been obtained by petitioner; thus, it is not entitled to claim such exemption.
However, it should be noted that in another case, the rule on 13th month pay ripening to a company policy or company practice does not apply to managerial employees. The reason is that the law itself does not allow the managerial employees to received 13th month pay since it is only for rank-and-file employees. Hence, if the employer has been incorrectly paying 13th month pay to its managerial employees and later on learns of the mistake and corrects it, the managerial employees cannot contest such change since they are not entitled thereto by law from the very beginning.
4. Conditions for entitlement
The only condition for entitlement: the rank-and-file employee should have at least thirty (30) calendar days of service. (Ibid.)
a. Paid not later than December 24
The 13th month pay should be given to the employees not later than December 24 of every year. (Ibid.)
It is without prejudice to the employer dividing the payment, i.e. paying half of the 13th month pay before opening of the regular school year and then the remaining balance on/before December 24. (Ibid.)
5. Certain types of employees
The 13th month pay benefit applies to and should be paid to certain types of employees as discussed hereunder.
a. Piece-rate, fixed or commission-based
13th month pay is required to be paid to employees who are paid on a piece-rate, those paid a fixed or guaranteed wage plus commission (based on earnings during the calendar year), those with multiple employers. (Ibid.)
Philippine Agricultural Commercial and Industrial Workers Union (PACIWU-TUCP) v. NLRC, Vallacar Transit, Inc., G.R. No. 107994, 14 August 1995
[ISSUE: Whether or not bus drivers and conductors paid on “purely commission basis” but are automatically entitled to basic wage, is entitled to 13th month pay.]
[RESOLUTION]
⦁ [E]very employee receiving a commission in addition to a fixed or guaranteed wage or salary, is entitled to a 13th month pay. For purposes of entitling rank and file employees a 13th month pay, it is immaterial whether the employees concerned are paid a guaranteed wage plus commission or a commission with guaranteed wage inasmuch as the botton line is that they receive a guaranteed wage…
⦁ In the case at bench, while the bus drivers and conductors of respondent company are considered by the latter as being compensated on a commission basis, they are not paid purely by what they receive as commission. As admitted by respondent company, the said bus drivers and conductors are automatically entitled to the basic minimum pay mandated by law in case the commissions they earned be less than their basic minimum for eight (8) hours work. Evidently therefore, the commissions form part of the wage or salary of the bus drivers and conductors. A contrary interpretation would allow an employer to skirt the law and would result in an absurd situation where an employee who receives a guaranteed minimum basic pay cannot be entitled to a 13th month pay simply because he is technically referred to by his employer per the CBA as an employee compensated on a purely commission basis. Such would be a narrow interpretation of the law, certainly not in accord with the liberal spirit of our labor laws. Moreover, what is controlling is not the label attached to the remuneration that the employee receives but the nature of the remuneration and the purpose for which the 13th month pay was given to alleviate the plight of the working masses who are receiving low wages…
⦁ Misplaced legal hermeneutics cannot be countenanced to evade paying the rank and file what is due to them under the law.
⦁ Commission is the recompense, compensation, reward of an employee, agent, salesman, executor, trustee, receiver, factor, broker or bailee, when the same is calculated as a percentage on the amount of his transactions or on the profit of the principal. While said commissions may be in the form of incentives or encouragement to inspire said bus drivers and conductors to put a little more zeal and industry on their jobs, still, it is safe to say that the same are direct remunerations for services rendered, given the small remuneration they receive for the services they render, which is precisely the reason why private respondent allowed the drivers and conductors a guaranteed minimum wage. The conclusion is ineluctable that said commissions are part of their salary…
⦁ In sum, the 13th month pay of the bus drivers and conductors who are paid a fixed or guaranteed minimum wage in case their commissions be less than the statutory minimum, and commissions only in case where the same is over and above the statutory minimum, must be equivalent to one-twelfth (1/12) of their total earnings during the calendar year.
b. Resigned, terminated, separated
Resigned, terminated, or separated employees are entitled to their proportionate 13th month pay. (Ibid.)
6. Not included as regular wage
13th month pay is not included as regular wage for purposes of determining overtime and premium payments, fringe benefits, contributions to the State Insurance Fund, Social Security System, National Health Insurance Program, and private retirement plans. (Ibid.)
7. Non-taxable if total bonuses do not exceed limit
13th month pay and other benefits, such as productivity incentives and Christmas bonus, not exceeding Ninety Thousand Pesos (₱90,000.00) are exempt from taxation. (BIR Revenue Regulations No. 11-2018, Amending Certain Provisions of Revenue Regulations No. 298, as Amended, to Implement Further Amendments Introduced by Republic Act No. 10963)
8. Pandemic
In this time of the pandemic, should the employer implement a temporary work suspension or be required to close due to a lockdown measure, 13th month pay is still due to the employees which will follow the formula/computation on basic salary earned.
9. Employment contract, company policies, CBA
The above discussion may be superseded by any stipulation favorable to the employee via an employment contract, company policies, collective bargaining agreement, or analogous thereto.
References
⦁ Presidential Decree No. 851, a.k.a. 13th Month Pay Law
⦁ Section 32 B, Chapter VI of R. A. No. 8424 (National Internal Revenue Code of the Philippines), as amended by Sec. 1 of R.A. No. 10653.
⦁ BIR Revenue Regulations No. 11-2018, Amending Certain Provisions of Revenue Regulations No. 298, as Amended, to Implement Further Amendments Introduced by Republic Act No. 10963
⦁ 2022 DOLE-BWC Handbook on Workers’ Statutory Monetary Benefits
Related
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/Updated: February 12, 2023
