13th Month Pay Law and Implementing Rules

PRESIDENTIAL DECREE NO. 851
REQUIRING ALL EMPLOYERS TO PAY THEIR EMPLOYEES
A 13th-MONTH PAY

WHEREAS, it is necessary to further protect the level of real wages from the ravage of worldwide 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.

NOW, THEREFORE, I, FERDINAND E. MARCOS, by virtue of the powers vested in me by the Constitution, do hereby decree as follows:

Section 1. All employers are hereby required to pay all their employees receiving a basic salary of not more than P1,000 a month, regardless of the nature of their employment, a 13th-month pay not later than December 24 of every year.

Sec. 2. Employers already paying their employees a 13th-month pay or its equivalent are not covered by this Decree.

Sec. 3. This Decree shall take effect immediately.

Done in the City of Manila, this 16th day of December 1975.

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IMPLEMENTING RULES:

RULES AND REGULATIONS IMPLEMENTING
PRESIDENTIAL DECREE NO. 851

By virtue of the powers vested in me by law, the following rules and regulations implementing Presidential Decree No. 851 are hereby issued for the guidance of all concerned.

Section 1. Payment of 13th-month Pay. – All employers covered by Presidential Decree No. 851, hereinafter referred to as the “Decree”, shall pay to all their employees receiving a basic salary of not more than P1,000 a month a thirteenth-month pay not later than December 24 of every year.

Sec. 2. Definition of certain terms. – As used in this issuance:

(a) “Thirteenth-month pay” shall mean one twelfth (1/12) of the basic salary of an employee within a calendar year;

(b) “Basic salary” shall include all remunerations or earnings paid by an employer to an employee for services rendered but may not include cost-of-living allowances granted pursuant to Presidential Decree No. 525 or Letter of Instructions No. 174, profit-sharing payments, and all allowances and monetary benefits which are not considered or integrated as part of the regular or basic salary of the employee at the time of the promulgation of the Decree on December 16, 1975.

Sec. 3. Employers covered. – The Decree shall apply to all employers except to:

(a) Distressed employers, such as (1) those which are currently incurring substantial losses or (2) in the case of non-profit institutions and organizations, where their income, whether from donations, contributions, grants and other earnings from any source, has consistently declined by more than forty (40%) percent of their normal income for the last two (2) years, subject to the provision of Section 7 of this issuance;

(b) 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;

(c) Employers already paying their employees 13-month pay or more in a calendar year or its equivalent at the time of this issuance;

(d) Employers of household helpers and persons in the personal service of another in relation to such workers; and

(e) Employers of those who are paid on purely commission, boundary, or task basis, and those who are paid a fixed amount for performing a specific work, irrespective of the time consumed in the performance thereof, except where the workers are paid on piece-rate basis in which case the employer shall be covered by this issuance insofar as such workers are concerned.

As used herein, workers paid on piece-rate basis shall refer to those who are paid a standard amount for every piece or unit of work produced that is more or less regularly replicated, without regard to the time spent in producing the same.

The term “its equivalent” as used in paragraph c) hereof shall include Christmas bonus, mid-year bonus, profit-sharing payments and other cash bonuses amounting to not less than 1/12th of the basic salary but shall not include cash and stock dividends, cost of living allowances and all other allowances regularly enjoyed by the employee, as well as non-monetary benefits. Where an employer pays less than 1/12th of the employees basic salary, the employer shall pay the difference.

Sec. 4. Employees covered. – Except as provided in Section 3 of this issuance, all employees of covered employers shall be entitled to benefit provided under the Decree who are receiving not more than P1,000 a month, regardless of their position, designation or employment status, and irrespective of the method by which their wages are paid, provided that they have worked for at least one month during the calendar year.

Sec. 5. Option of covered employers. – A covered employer may pay one-half of the 13th-month pay required by the Decree before the opening of the regular school year and the other half on or before the 24th day of December of every year.

In any establishment where a union has been recognized or certified as the collective bargaining agent of the employees therein, the periodicity or frequency of payment of the 13th-month pay may be the subject of agreement.

Nothing herein shall prevent employers from giving the benefits provided in the Decree to their employees who are receiving more than One Thousand (P1,000) Pesos a month or benefits higher than those provided by the Decree.

Sec. 6. Special feature of benefit. – The benefits granted under this issuance shall not be credited as part of the regular wage of the employees for purposes of determining overtime and premium pay, fringe benefits, as well as premium contributions to the State Insurance Fund, social security, medicare and private welfare and retirement plans.

Sec. 7. Exemption of Distressed employers. – Distressed employers shall qualify for exemption from the requirement of the Decree upon prior authorization by the Secretary of Labor. Petitions for exemptions may be filed within the nearest regional office having jurisdiction over the employer not later than January 15, 1976. The regional offices shall transmit the petitions to the Secretary of Labor within 24 hours from receipt thereof.

Sec. 8. Report of compliance. – Every covered employer shall make a report of his compliance with the Decree to the nearest regional labor office not later than January 15 of each year.

The report shall conform substantially with the following form:

REPORT ON COMPLIANCE WITH P.D. NO. 851

1. Name of establishment
2. Address
3. Principal product or business
4. Total employment
5. Total number of workers benefited
6. Amount granted per employee
7. Total amount of benefits granted
8. Name, position and tel. no. of person giving information

Sec. 9. Adjudication of claims. – Non-payment of the thirteenth-month pay provided by the Decree and these rules shall be treated as money claims cases and shall be processed in accordance with the Rules Implementing the Labor Code of the Philippines and the Rules of the National Labor Relations Commission.

Sec. 10. Prohibition against reduction or elimination of
benefits. – Nothing herein shall be construed to authorize any employer to eliminate, or diminish in any way, supplements, or other employee benefits or favorable practice being enjoyed by the employee at the time of promulgation of this issuance.

Sec. 11. Transitory Provision. – These rules and regulations
shall take effect immediately and for purposes of the 13th-month pay for 1975, the same shall apply only to those who are employees as of December 16, 1975.

Manila, Philippines, 22 December 1975.

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SUPPLEMENTARY RULES AND REGULATIONS
IMPLEMENTING P.D. NO. 851

To insure uniformity in the interpretation, application and enforcement of the provisions of Presidential Decree No. 851 and its implementing regulations, the following clarifications are hereby made for the information and guidance of all concerned:

1. Contractors and Subcontractors, including Security and Watchman Agencies, are exempt for the year 1975 subject to the following conditions:

(a) that the contracts of such enterprises were entered into before December 16, 1975;

(b) that such enterprises have complied with all labor standards laws during the year;

(c) that the contract cannot really accommodate 13-month pay or its equivalent; and

(d) that the contract does not provide for cost escalation clause.

This exemption is without prejudice on the part of the workers to negotiate with their employers or to seek payment thereof by filing appropriate complaints with the Regional Offices of the Department of Labor.

2. Private school teachers, including faculty members of colleges and universities, are entitled to 1/12 of their annual basic pay regardless of the number of months they teach or are paid within a year.

3. New establishments operating for less than one year are not covered except subsidiaries or branches of foreign and domestic corporations.

4. Overtime pay, earnings and other remunerations which are not part of the basic salary shall not be included in the computation of the 13th-month pay.

5. In view of the lack of sufficient time for the dissemination of the provisions of P.D. No. 851 and its Rules and the unavailability of adequate cash flow due to the long holiday season, compliance and reporting of compliance with this Decree are hereby extended up to March 31, 1976 except in private schools where compliance for 1975 may be made not later than 30 June 1976.

6. Nothing herein shall sanction the withdrawal or diminution of any compensation, benefits or any supplements being enjoyed by the employees on the effective date of this issuance.

Manila, January 16, 1976

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PRESIDENTIAL DECREE NO. 851

ADMINISTRATIVE ORDER NO. 2,
SERIES OF 1976

In the interest of public service and efficiency, more particularly to facilitate the disposition of cases involving petitions for exemption, complaints, enforcement and implementation of P.D. No. 851 and its implementing rules and regulations, the following guidelines shall be followed:

I. Petition for exemption

1. The Regional Office concerned shall transmit immediately the petition for exemption to the Chairman, Wage Commission with comments and recommendations, if any.

The petition shall contain a sworn statement on the inability to implement the Decree and the reasons, therefore, and shall be accompanied by the following documents and statements:

(a) A certified true copy of the income tax returns for the last two (2) years;

(b) A certified copy of the financial reports for the last two (2) years filed with the Government entities, such as the Securities and Exchange Commission, Department of Trade, Department of Industries and Board of Investments;

(c) A detailed sworn statement of the actual monthly losses not covered by the report required under paragraph (b) above and such other proofs or documents as may be required by the Chairman, Wage Commission to establish such exemption.

2. The Chairman, Wage Commission and the duly designated staff, shall evaluate all petitions for exemption and make appropriate recommendations within 20 working days from receipt of the petition to the Secretary of Labor.

3. Whenever a petition for exemption has been filed, and complaint for
non-compliance shall be held in abeyance pending the disposition or resolution of the petition for exemption.

II. Complaint, enforcement and/or implementation

1. All complaints for non-payment of the 13th-month pay shall be filed with the Field Services Division of the Regional Office concerned. The Regional Director shall direct the said Division to conduct an inspection and investigation in connection with the complaint filed.

2. The Field Service Division of the Regional Office concerned shall see to it that all covered employees comply with P.D. No. 851.

The Regional Director shall submit a monthly progress report of compliance with the Decree.

The reports of the Regional Offices shall be submitted to the LSS and BLS, and shall contain the following:

(a) The total number of establishments;
(b) total number of workers benefited; and
(c) total amount of benefits paid.

3. The Regional Office shall compile, analyze and evaluate compliance reports and update the listing of establishments on the basis of the reports submitted.

Any prior order, circular, instruction or memorandum or parts thereof, inconsistent herewith are hereby revoked.

This Order shall take effect immediately.

Manila, 9 January 1976.

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REVISED GUIDELINES ON THE IMPLEMENTATION
OF THE 13TH MONTH PAY LAW.

1. Removal of Salary Ceiling.

On August 13, 1986, President Corazon C. Aquino issued Memorandum Order No. 28 which provides as follows:

“Section 1 of Presidential Decree No. 851 is hereby modified to the extent that all employers are hereby required to pay all their rank-and-file employees a 13th month pay not later than December 24 of every year.”

Before its modification by the aforecited Memorandum Order, P.D. No. 851 excludes from entitlement to the 13th month pay those employees who were receiving a basic salary of more than P1,000.00 a month. With the removal of the salary ceiling of P1,000.00, all rank and file employees are now entitled to a 13th month pay regardless of the amount of basic salary that they receive in a month if their employers are not otherwise exempted from the application of P.D. No. 851. Such employees are entitled to the benefit regardless of their designation or employment status, and irrespective of the method by which their wages are paid, provided that they have worked for at least one (1) month during a calendar year.

2. Exempted Employers.

The following employers are still not covered by P.D. No. 851:

a. The Government and any of its political subdivisions, including government-owned and controlled corporations, excepts those corporations operating essentially as private subsidiaries of the Government;

b. Employers already paying their employees a 13th month pay or more in a calendar year or its equivalent at the time of this issuance;

c. Employers of household helpers and persons in the personal service of another in relation to such workers; and

d. 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 where the workers are paid on piece-rate basis in which case the employer shall grant the required 13th month pay to such workers.

As used herein, workers paid on piece-rate basis shall refer to those who are paid a standard am
ount for every piece or unit of work produced that is more or less regularly replicated, without regard to the time spent in producing the same.

The term “its equivalent” as used on paragraph (b) hereof shall include Christmas bonus, mid-year bonus, cash bonuses and other payments amounting to not less than 1/12 of the basic salary but shall not include cash and stock dividends, cost of living allowances and all other allowances regularly enjoyed by the employee, as well as non-monetary benefits. Where an employer pays less than required 1/12th of the employees basic salary, the employer shall pay the difference.

3. Who are Rank-and File Employees.

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.

The above distinction shall be used as guide for the purpose of determining who are rank-and-file employees entitled to the mandated 13th month pay.

4. Amount and payment of 13th Month Pay

(a) Minimum of the Amount. — The minimum 13th month pay required by law shall not be less than one-twelfth of the total basic salary earned by an employee within a calendar year. For the year 1987, the computation of the 13th month pay shall include the cost of living allowances (COLA) integrated into the basic salary of a covered employee pursuant to Executive Order 178.

E.O. No. 178 provides, among other things, that the P9.00 of the daily COLA of P17.00 for non-agricultural workers shall be integrated into the basic pay of covered employees effective 1 May 1987, and the remaining P8.00 effective 1 October 1987. For establishments with less than 30 employees and paid-up capital of P500,000 or less, the integration of COLAs shall be as follows: P4.50 effective on 1 May 1987; P4.50 on 1 October 1987; and P8.00 effective 1 January 1988. Thus, in the computation of the 13th month pay for 1987, the COLAs integrated into the basic pay shall be included as of the date of their integration.

Where the total P17.00 daily COLA was integrated effective 1 May 1987 or earlier the inclusion of said COLA as part of the of the basic pay for the purpose of computing the 13th month pay shall be reckoned from the date of actual integration.

The “basic salary” of an employee for the purpose of computing the 13th month pay shall include all remunerations or earning paid by this employer for services rendered but 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 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.

(b) Time of Payment. — 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 (½) 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.

5. 13th Month Pay for Certain Types of Employees.

(a) Employees Paid by Results. — Employees who are paid on piece work basis are by law entitled to the 13th month pay.

Employees who are paid a fixed or guaranteed wage plus commission are also entitled to the mandated 13th month pay, based on their total earnings during the calendar year, i.e., on both their fixed or guaranteed wage and commission.

(b) Those with Multiple Employers. — Government employees working part time in a private enterprise, including private educational institutions, as well as employees working in two or more private firms, whether on full or part time basis, are entitled to the required 13th month pay from all their private employers regardless of their total earnings from each or all their employers.

(c) Private School Teachers. — Private school teachers, including faculty members of universities and colleges, are entitled to the required 13th month pay, regardless of the number of months they teach or are paid within a year, if they have rendered service for at least one (1) month within a year.

6. 13th Month Pay of Resigned or Separated Employee.

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. Thus, if he worked only from January up to September his proportionate 13th month pay should be equivalent of 1/12 his total basic salary he earned during that period.

The payment of the 13th month pay may be demanded by the employee upon the cessation of employer-employee relationship. This is consistent with the principle of equity that as the employer can require the employee to clear himself of all liabilities and property accountability, so can the employee demand the payment of all benefits due him upon the termination of the relationship.

7. Non-inclusion in Regular Wage.

The mandated 13th month pay need not be credited as part of regular wage of employees for purposes of determining overtime and premium pays, fringe benefits insurance fund, Social Security, Medicare and private retirement plans.

8. Prohibitions against reduction or elimination of benefits.

Nothing herein shall be construed to authorize any employer to eliminate, or diminish in any way, supplements, or other employee benefits or favorable practice being enjoyed by the employee at the time of promulgation of this issuance.

(Sgd.) FRANKLIN M. DRILON
Secretary

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