I. Introduction and Governing Law
The 13th Month Pay is a mandatory benefit mandated by Presidential Decree No. 851, as clarified by the Revised Guidelines on the Implementation of the 13th Month Pay Law (Memorandum Order No. 28, Series of 1986). It is distinct from Christmas bonuses, gifts, or other incentives which may be granted by collective bargaining agreement (CBA), company policy, or voluntary practice. This memo outlines the mandatory nature of the 13th Month Pay, its computation, exclusions, and the remedies available for non-payment.
II. Coverage: Employers Required to Pay
All employers are required to pay their rank-and-file employees a 13th Month Pay, regardless of the nature of their employment, provided they worked for at least one (1) month during the calendar year. This includes employers of proprietary educational institutions and those already paying their employees a 13th-month benefit or its equivalent. The term “equivalent” refers to any Christmas bonus, mid-year bonus, or other payment that is at least 1/12th of the basic salary earned within a calendar year.
III. Coverage: Excluded Employees
The following employees are excluded from the coverage of P.D. 851:
a) Government employees.
b) Managerial employees, as defined under Article 212(m) of the Labor Code.
c) Field personnel and other employees whose performance is unsupervised by the employer, including those who are paid a fixed amount for performing specific work, irrespective of the time consumed.
d) 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.
Household helpers and persons in the personal service of another are also excluded.
IV. Definition of “Basic Salary” for Computation
“Basic Salary” includes all remunerations or earnings paid by an employer to an employee for services rendered, but excludes:
a) Cost-of-living allowances (COLA), profit-sharing payments, and all allowances and monetary benefits which are not considered, or integrated as part of, the regular or basic salary.
b) Cash equivalents of unused vacation and sick leave credits, overtime pay, premium pay, night shift differential, and holiday pay.
c) Any other bonuses, unless considered part of the basic salary by individual or collective agreement, company practice, or policy.
V. Computation of the 13th Month Pay
The 13th Month Pay is equivalent to one-twelfth (1/12) of the total basic salary earned by an employee within a calendar year. The formula is:
Total Basic Salary Earned During the Calendar Year ÷ 12 Months = 13th Month Pay.
“Total basic salary earned” includes all payments for services rendered, but only the components defined as “basic salary” in Section IV.
VI. Time of Payment
The 13th Month Pay must be paid not later than December 24 of every year. An employer may, however, give one-half (1/2) of the benefit before the opening of the regular school year (e.g., May or June) and the remaining half on or before December 24. Any other scheme may be agreed upon in writing between the employer and the employees, or their collective bargaining agent.
VII. Relationship with Bonuses and Other Benefits
The mandatory 13th Month Pay is separate from, and in addition to, any Christmas bonus, incentive pay, or year-end bonus granted by an employer out of generosity, under a CBA, or company policy. If the total of such voluntary bonuses equals or exceeds the mandated 13th Month Pay, the employer is deemed to have complied. If the voluntary bonus is less, the employer must pay the difference to meet the full 13th Month Pay requirement.
VIII. Prohibition Against Elimination or Diminution
An employer cannot withdraw or eliminate the 13th Month Pay benefit. Furthermore, any existing bonus or benefit granted by practice or policy that exceeds the legal requirement cannot be reduced or eliminated by the employer. Such a unilateral withdrawal constitutes a diminution of benefit, which is prohibited under Article 100 of the Labor Code.
IX. Practical Remedies
For non-payment or underpayment, the employee must first present a written demand to the employer. If unresolved, a complaint for money claims may be filed with the appropriate Department of Labor and Employment (DOLE) Regional Office or, for a more expedient process, directly with the National Labor Relations Commission (NLRC) pursuant to Article 217(a)(6) of the Labor Code. The claim prescribes within three (3) years from the time the cause of action accrued (i.e., from December 25 of the year it was due). The employee may also report the violation to the DOLE for possible inspection and administrative proceedings. In any action, the employee should be prepared to present proof of employment, proof of basic salary (payslips, employment contract), and computation of the alleged deficiency. Employers found liable may be ordered to pay the full amount plus legal interest. Willful refusal to pay may also subject the employer to sanctions under existing labor laws.
