A – 13th Month Pay
▪ P.D. 851 is the legal basis for 13th month pay.
▪ The 13th month pay is given to rank-and-file employees.
▪ The benefit should pay not later than December 24.
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. 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.)
b. 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 [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 [The employee was a butcher for the employer, a hog dealyer. 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 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 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.)
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)
e. 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 [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. (Emphasis supplied.) 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.)
5. Certain types of employees
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.)
b. Resigned, terminated, separated
Resigned, terminated, or separated employees are entitled to their proportionate 13th month pay. (Ibid.)
5. 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)
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.
▪ 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