Published 20 December 2019, The Daily Tribune

December is the month of the year when workers in the private sector are excited for the cheers that the Christmas season brings including, although obviously not limited to, receiving an extra month pay. This monetary benefit is statutorily called 13th month pay. As everyone may not have a good grasp of the law governing the 13th month pay, I shall endeavor to provide basic pointers on this particular benefit.

The 13th month pay benefit is mandated by Presidential Decree (PD) 851 and is “primarily given to alleviate the plight of workers and to help them cope with the exorbitant increases in the cost of living” (Honda Phils. Inc. vs. Samahan ng Malayang Manggagawa sa Honda, GR 145561, 15 June 2005).

PD 851 decrees that all rank-and-file employees who have worked for at least one month during a calendar year are entitled to receive 13th month pay regardless of their designation or employment status and irrespective of the method by which their wages are paid. This benefit is automatically vested in the employee who has at least worked for one month during the calendar year, and thus, may not be lost or forfeited (Archilles Manufacturing Corporation vs NLRC GR 107225, 2 June 1995).

The 13th month pay must be given not later than 24 December of every year. Employers may advance one-half of the 13th-month pay before the opening of the regular school year.

Not all employers are however covered by the law. The following employers are exempt:

a. 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;

b. Employers already paying their employees 13th month pay or more in a calendar year or its equivalent; and
c. 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 piece-rate workers.

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 13th month pay from all their private employers regardless of their total earnings from each or all their employers.

Formerly, employers of domestic workers or kasambahays were exempted from the coverage of PD 851, but upon of the passage of the Batas Kasambahay, kasambahays are now entitled to 13th month pay.

Seafarers are not entitled to 13th month pay since the law contemplates land-based workers, and not seafarers who generally earn more than domestic land-based workers (Petroleum Shipping Limited vs NLRC, GR 148130, 16 June 2006).

Distressed employers, who are currently incurring substantial losses, may be exempted from the requirement of PD 851 upon prior authorization by the Secretary of Labor. Non-profit institutions and organizations may also be exempted if their income, whether from donations, contributions, grants and other earnings from any source, has consistently declined by more than 40 percent of their normal income for the last two years (Section 3[a] and 7, Rules and Regulations Implementing PD 851).

Equivalents of 13th month pay include Christmas bonus, mid-year bonus, cash bonuses and other payments amounting to not less than 1/12 of the basic salary (Producers Bank of the Philippines vs NLRC, GR 100701, 28 March 2001). But benefits in the form of food or free electricity and yearend rewards for loyalty and service are not proper substitutes for the 13th month pay (Framanlis Farms Inc. vs. Minister of Labor et al., GR 72616-17, 8 March 1989).

The 13th month pay shall not be less than one-twelfth (1/12) of the total basic salary earned by an employee within a calendar year.

What do we mean by “basic salary”?

“Basic salary” under PD 851 includes 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.

Cost-of-living allowances, profit-sharing payments, cash equivalents of unused vacation and sick leave credits, maternity leaves, overtime pay, premiums for work done on rest days and special holidays, night shift differential, holiday pay and other allowances and monetary benefits not considered part of employee’s basic salary are all excluded in computing the 13th month pay. But if these benefits are treated as part of the basic salary whether by individual or collective agreement, company practice or policy, then the same should be included in the computation (Central Azucarera de Tarlac vs Central Azucarera de Tarlac Labor Union-NLU, GR 188949, 26 July 2010).

Resigned or terminated employees are still entitled to receive their 13th month pay in proportion to the length of time they 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 service.

Is the 13th month pay benefit taxable?

The 13th month pay and other equivalent benefits, not exceeding P90,000, are excluded in the gross income and thus, exempt from taxation. Any excess will be subjected to income tax (Section 32 (B)(7)(e) of the National Internal Revenue Code, as amended by the TRAIN Law).

Employers are reminded that they have the duty to report their compliance with PD 851 to the nearest regional labor office not later than 15 January of each year. Non-compliance may expose employers to administrative charge.

One of my wishes for you this Christmas is, may your 13th month pay be utilized productively and judiciously.

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