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.

Managerial employees;
Those covered under the civil service law;

Those already receiving 13th month pay or its equivalent. Christmas bonus, midyear 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;
Household helpers and persons in the personal service of another; and
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:

Commission as an incentives or encouragement to ensure productivity, i.e.,

productivity bonus; and
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 case1. 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 2. 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

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

(In computation see cases no. 3 sevilla trading)

Cases
1. (Boie Takeka case, G.R. No. 92174 December 10, 1993)
2. (Philippine Duplicators v. NLRC, 1993. G.R. No. 110068 November 11,
1993)
3. (Sevilla Trading v. AVA Tomas, GR No. 152456.) 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.
In Sevilla Trading Company vs. A.V.A. Tomas E. Semana for almost three (3) years,
petitioner Sevilla Trading Company (Sevilla Trading) included the following benefits in
the computation of the 13th month pay:
1. the overtime premium for regular overtime, legal and special holidays,
2. legal holiday pay, premium pay for special holidays
3. night premium
4. bereavement leave pay
5. union leave pay
6. maternity leave pay

7. paternity leave pay

8. company vacation and sick leave pay
9. cash conversion of unused company vacation and sick leave.
This computation is beyond what is prescribed under the 13th Month Pay Law. Under the same
law and its implementing rules, only the basic salary, i.e. excluding what is provided as fringe
benefits or allowances, of an employee is used as a basis in the determination of his 13th month
pay and any compensation or remuneration which is deemed not part of the basic pay is excluded
as basis in the computation of the mandatory bonus.
Sevilla Trading, upon discovery of the mistake of its payroll officer, applied the provisions of the
law on 13th month pay and excluded the above-mentioned benefits from the computation. Hence,
this reduced the 13th month pay received by its employees, causing the employees union to
contest the matter. The Supreme Court ruled that the inclusion of Sevilla Trading over the years
of non-basic benefits of its employees in the computation of the 13th month pay may only be
construed as a voluntary act on its part and putting the blame on its personnel is inexcusable. The
High Court proceeded to declare that such practice of Sevilla Trading constitutes a voluntary
practice which cannot be unilaterally withdrawn by the employer without violating Art. 100 of
the Labor Code.

4. (R&E Transport v. Latag, G.R. No. 155214.) 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.
5. (PACIWU v. NLRC, GR No 107994.) 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.
6. (TSPIC Corp v. TSPIC Employees Union G.R. No. 163419 February 13, 2008 ) the
Supreme Court laid down the elements of diminution of benefits: (1) the grant or benefit
is founded on a policy or has ripened into a practice over a long period; (2) the practice is
consistent and deliberate; (3) the practice is not due to error in the construction or
application of a doubtful or difficult question of law; and (4) the diminution or
discontinuance is done unilaterally by the employer.

7.

(Central Azucarera De Tarlac vs. Central Azucarera De Tarlac Labor Union G.R. No.
188949 July 26, 2010) the petitioner Central Azucarera de Tarlac had been giving the
13th month pay to its employees on the basis of their basic monthly salary together with
their overtime pay, night premium pay and vacation and sick leaves. However, in 2006,
after almost thirty (30) years, the petitioner Company changed the basis of the
computation to only the basic monthly pay. The labor union questioned the change in the
computation. The High Court held that the practice of Central Azucarera de Tarlac 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.

References

Presidential Decree No. 851, effective December 16, 1975.

Revised Rules and Regulations Implementing Presidential Decree No. 851