The 13th month pay

The Christmas season has come and employees of both the government and the private sector are going to receive, by legal mandate, their 13th month pay. The Philippines is perhaps the only country in Asia, and even in the whole world, where the number of compensable months for workers exceed 12. This workers’ benefit is a unique Filipino creation. This was started in 1975, during Martial Law, by virtue of Presidential Decree 851. And yet, until now, many employers and employees are still unclear and confused in its implementation and interpretation. Even HR managers are often caught unprepared to explain to both management and personnel some of the fine nuances of the law. Let us then try to clarify some issues.

No less than the Supreme Court has explained that the intent of the law is really to give an additional income to the workers and to give the same during the season of too much expenses. The original decree only granted this benefit to employees receiving not more than P1,000 (it was a big amount then ) a month in basic salary. President Corazon C. Aquino removed the salary ceiling in 1986. Not entitled to this benefit, however, are those who are paid purely based on commission, or boundary system. All other workers are entitled regardless of status, casual, contractual or regular, probationary or permanent, as long as they have worked for at least one month in any particular year.

To be included in the computation of the 13th month pay are all earnings paid by the employer, except allowances and other monetary benefits that are not deemed integrated into the basic pay, like overtime pay, night differential and holiday premium, unused vacation leave, sick leave and other leaves. The total amount earned by the employee as basic pay should be divided by 12  in order to derive the correct amount to be paid. Companies which have already granted additional income during the season, even if given another name as benefit, shall be considered to have already complied with the law. In one case, an employer claimed that since he has already paid his workers much more than minimum, the excess should be credited as compliance with law. The High Court said no. 

In one case (Sarah Lee, GR 149013, 31 Aug 2006), the Supreme Court decided that managerial employees are not entitled to 13th month pay. We hasten to add however, that when these managers have already been granted this benefit for a long time, it could no longer be withdrawn, based on the time-honored principle of non-diminution of benefits. This benefit shall be paid on or before the 24th of December. The employer however may opt to give half of the same in the opening of classes in June. Any employer who fails or refuses to pay may be sued before the National Labor Relations Commission, under Article 217 of the Labor Code. DOLE compliance officers will inspect all establishments to determine payment of this benefit, among others. Any complaint of non-payment or underpayment must be filed within three years or they shall be deemed waived or has prescribed.

Employees with multiple employers are entitled to multiple 13th month pay, one from each employer. And so, a government official who teaches at night in some private university is entitled to this benefit. If he teaches in two or three schools, then he is entitled to 13th month pay from every employer. Resigned, retired and dismissed employees (even for a just cause) are entitled to proportionate 13th month pay. Their total basic earnings for the year from January to the date of the cessation of employment, divided by 12 shall constitute their 13th month pay. For teachers in private schools, the computation of this benefit shall not include overload allowance (Letran case, GR 156225, 29 Jan 2008).

The 13th month pay shall be included as part of the retirement benefits as provided under Article 287 of the Labor Code (Capitol Wireless case, GR 117174, 13 Nov 1996). The amount received by the workers as 13th month pay is not taxable (RA 7833, 08 Dec1994). The workers are not legally authorized to stage a strike based on non-payment of this benefit. They have to go to arbitration, either voluntary, if unionized or compulsory, if the workers do not have a union. These benefits cannot be diminished, reduced or withdrawn. This a legal obligation by the employers. This cannot be waived in advance since such waivers are contrary to public policy, hence, void.

Lastly, there is no law granting 14th month or 15th month bonus. These are an exercise of management prerogatives due to compassion or sound discretion. These cannot be demanded by workers as a matter of right. However, if this has been given for a long time, repeatedly, and has ripened into a company practice, it has become part of the terms of employment. Hence, unilateral withdrawal is taboo. Any further inquiry may be addressed to the writer through the Freeman or our Facebook account.