Sem. Emmarlone Salva Ravago III-Philosophy August 2, 2010 Presidential Decree No.

851 (13th Month Pay Law) Presidential Decree No. 851 (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 P.D. 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 was 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 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 basic salary (such as the cash equivalent of unused vacation and sick leave credits, overtime, premium, night differential and holiday pay, and costof-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. It is important to note that 13th month pay is not per se equivalent to 1 month basic salary, although such is the case for some employees, particularly those working all year round. The basis of 13th month pay is the salary for entire year divided by 12. In other words, 13th month pay is equivalent to the average basic salary in one whole calendar year.

Example: 1. An employee has basic salary of fixed P12,000.00 per month. How much is the 13th month pay? Answer: P12,000.00. Computation: (P12,000.00 x 12 months) 12 = P12,000.00 2. Assuming the same employee above worked only for 9 months, how much is his 13th month pay? Answer: P9,000.00. Computation: (P12,000.00 x 9 months) 12 = P9,000.00 Time of Payment of 13th Month Pay The required 13th month pay shall be paid not later than December 24 of each year. However, an employer 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: 1. Managerial employees. 2. Those covered under the civil service law. 3. Those already receiving 13th month pay or its equivalent: such as Christmas bonus, mid-year 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. 4. Household helpers and persons in the personal service of another. 5. 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 1.) 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 P.D. 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 on the fixed wage. Computation In the computation of the basic salary of employees paid partly on commission basis, we must distinguish between the two types of commissions: 1. Commission as an incentive or encouragement to ensure productivity, i.e., productivity bonus; and 2. Commission as a direct remuneration for service rendered. Commission that take the form of an incentive or encouragement to ensure productivity, e.g., productivity bonus, should not be included in the computation. In other words, only the fix wage portion of the salary is included while the commission is excluded . For the purpose of computation of 13th month pay, the following formula may be used to determine the basic salary: 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. Hence the formula for basic salary is: Basic salary = Fixed wage + Commission 2.) 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. 3.) 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. 4.) 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/she worked during the year, provided it is at least one month. The payment may be demanded by the employee upon the cessation of employment. References: 1. Presidential Decree No. 851, effective December 16, 1975. 2. Revised Rules and Regulations Implementing Presidential Decree No. 851. Definition of Some Terms: 1.) Commission - a service charge assessed by an agent in return for arranging the purchase or sale of a security or real estate. The commission must be fair and reasonable, considering all the relevant factors of the transaction. Commissions vary widely from broker to broker. 2.) Those covered under the civil service law Civil Service Defined What does it mean when someone says he or she is a civil service employee or a civil servant? It means that person works for a government agency. Civil service encompasses employment in Federal, state, and local government agencies. Types of Jobs Jobs are as varied as they are in the private sector. Every occupation imaginable can be performed in a civil service environment. As a matter of fact, many jobs are almost limited to governmental agencies. For example, the majority of teachers, librarians, and public safety professionals work in the public sector. Source: http://www.laborlaw.usc-law.org/2010/02/21/13th-month-pay-law/