REVISED GUIDELINES on the Implementation of the 13th Month Pay LawThe
"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.
(No. 4 [a], Revised Guidelines on the Implementation of the 13th-Month Pay Law; No. X [C], DOLE Handbook on Workers Statutory Monetary Benefits).Premium pay is not included in the computation of the 13th-month pay.
(Davao Fruits Corporation vs. Associated Labor Union, G. R. No. 85073, Aug. 24, 1993, 225 SCRA 562).In the 2005 case of Honda Phils., Inc. vs. Samahan ng Malayang Manggagawa sa Honda, it was ruled that for employees receiving regular wage, “basic salary” has been interpreted to mean, not the amount actually received by an employee, but 1/12 of their standard monthly wage multiplied by their length of service within a given calendar year. Thus, excluded from the computation of “basic salary” arepayments for sick, vacation and maternity leaves, night differentials, regular holiday pay and premiums for work done on rest days and specialholidays as held previously in San Miguel Corporation [Cagayan Coca-Cola Plant] vs. Inciong, et al., [103 SCRA 139 (1981)]. In Hagonoy Rural Bank vs. NLRC, [349 Phil. 220 (1998)], St. Michael Academy vs. NLRC, [354 Phil. 491 (1998)], Consolidated Food Corporation vs. NLRC, [373 Phil. 751 (1999)] and similar cases, the 13th month pay due an employee was computed based on the employee’s basic monthly wage multiplied by the number of months worked in a calendar year prior to separation from employment.
(Honda Phils., Inc. vs. Samahan ng Malayang Manggagawasa Honda, G. R. No. 145561, June 15, 2005).But in a case where the employer, from 1975 to 1981, freely, voluntarily and continuously included in the computation of its employees’ thirteenth-month pay, payments for sick, vacation and maternity leaves, regular holiday pay and premiums for work done on rest days and special holidays, despite the fact that the law and the government issuances expressly excluded the same, it was ruled that such act of the employer, being favorable to the employees, had ripened into a practice and, therefore, they can no longer be withdrawn, reduced, diminished, discontinued or eliminated.
(Davao Fruits Corporation vs. Associated Labor Unions, et al., G. R. No. 85073, Aug. 24, 1993, 225 SCRA 562).And the same holding was made in the 2004 case of
Sevilla Trading Company vs. A. V. A. Semana, G. R. No. 152456, April 28, 2004, where the employer, for two to three years prior to 1999, added to the base figure, in its computation of the 13th-month pay of its employees, the amount of other benefits received by the employees which are beyond the basic pay. These benefits included overtime premium for regular overtime, legal andspecial holidays; legal holiday pay, premium pay for special holidays; night premium; bereavement leave pay; union leave pay; maternity leave pay;paternity leave pay; company vacation and sick leave pay; and cash conversion of unused company vacation and sick leave. Petitioner-employer claimed that it entrusted the preparation of the payroll to its office staff, including the computation and payment of the 13th-month pay and other benefits. When it changed its person in charge of the payroll in the process of computerizing its payroll, and after audit was conducted, it allegedly discovered the error of including non-basic pay or other benefits in the base figure used in the computation of the 13th-month pay of its employees.
The Supreme Court, however, was unconvinced. It affirmed the ruling of the Voluntary Arbitrator that petitioner’s stance of mistake or error in the computation of the thirteenth month pay is unmeritorious. Petitioner’s submission of financial statements every year requires the services of a certified public accountant to audit its finances. It is quite impossible to suggest that they have discovered the alleged error in the payroll only in 1999. This implies that in previous years it does not know its cost of labor and operations. This is merely basic cost accounting. Also, petitioner failed to adduce any other relevant evidence to support its contention. Aside from its bare claim of mistake or error in the computation of the thirteenth month pay, petitioner merely appended to its petition a copy of the 1997-2002 Collective Bargaining Agreement and an alleged “corrected” computation of the thirteenth month pay. There was no explanation whatsoever why its inclusion of non-basic benefits in the base figure in the computation of their 13th-month pay in the prior years was made by mistake, despite the clarity of statute and jurisprudence at that time. (Sevilla Trading Company vs. A.V. A. Semana, et al., G. R. No. 152456, April 28, 2004).
[excerpt from: Pre-Week Guide on Labor Law 2006 Bar Examinations Prof. Joselito Guianan Chan][
Write up found in the web]
Under the Presidential Decree No. 851, the 13th Month Pay is required by law and will be entitled to every employee working in the Philippines, with the computation of the 13th Month Pay equivalent to the number of months the employee has worked. This is regardless of the amount of the basic salary (See: Memorandum Order No. 28, regarding the removal of the salary ceiling, 13 August 1986), regardless of the employee's designation and employment status, and regardless of the method by which the employee collects his/her compensation.
The Presidential Decree No. 851 otherwise known as the 13th Month Pay is fundamentally a Government implementation of monetary assistance equivalent to the monthly basic salary received by an employee. The 13th Month Pay computation is pro rata, it is based on how many months within the calendar year that the employee has worked for the employer(s). To compute the 13th Month Pay:
(Basic Monthly Pay) ÷ 12 * (Number of Months worked within the Calendar Year)
The term '13th Month Pay' denotes the one twelfth (1/12) of the employee's basic salary within a calendar year. The 13th Month Pay computation is derived from the 12 months of one calendar year.
For an employee to be entitled for the 13th Month Pay, he/she must have worked for the employer at least one month during the calendar year, provided that the employer is covered and is not stated in Section 3 of the decree.
The term 'Basic Salary' denotes the wage or salary the employee receives from the employer(s) for services rendered with the payouts set according to the predetermined schedule agreed by both employer and employee. The term 'calendar year' refers to the Gregorian calendar that starts from January 1 and ends on December 31.
A payment which is deemed not part of the Basic Salary and thus will not be included in the 13th Month Pay computation (but may beincluded in other payments, e.g. Christmas Bonus) includes the following:
Benefits received for regular holidays and night differentials will not be included in the 13th month pay computation.
Premium benefits received for work rendered during rest days and special holidays will not be included in the 13th month pay computation.
Sick leave, Vacation leave and Maternity leave aren't included in the 13th Month Pay computation.
The 13th Month Pay is to be distinguished from the Christmas Bonus, which both categorizes as year-end bonuses. While the 13th Month Pay is mandated by law, the Christmas Bonus isn't. The Christmas bonus is not a required and demandable responsibility,provided that this bonus, as per agreement made by the employer and employee, it is not made part of the compensation or wage benefit of theemployee.
In such instances when a Christmas bonus (or any kind of bonus for that matter) becomes a long-standing policy, withdrawing the benefit istantamount to a reduction of employee benefits prohibited under the Philippine Labor Code.
