13th Month Pay Law

With the Christmas season upon us, we now touch upon the provisions of Presidential Decree 851 as amended by Memorandum Order No. 28 or the 13th month pay law. This law was passed in 1975 to enable the working masses to properly celebrate Christmas and New Year by giving them an additional source of income.

Under Section 1 of the law, all employers are  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. 
The Implementing Rules also provides that at least one month service during the calendar year is needed for an employee to be entitled to 13th month pay.

The absence of an express provision in the CBA obligating the employer to pay the members of a union thirteenth month pay is also immaterial. It cannot be disputed that the tenor of P.D. 851 as amended by Memorandum Order No. 28 is mandatory in so providing that “all employers are hereby required to pay all their rank and file employees a thirteenth month pay not later than December 24 of every year.” Non-compliance with this mandate cannot be excused by the simple expedient of pointing to the absence of a similar provision in the CBA for this would contravene the basic rule that an existing law enters into and forms part of a valid contract without the need for the parties to expressly make reference to it. Not withstanding therefore the absence of any contractual agreement, the payment of a thirteenth month pay being a statutory grant, compliance with the same is mandatory and is deemed incorporate in the CBA.

Although P.D. 851 as amended by Memorandum Order No. 28 requires all employers to pay all their rank and file employees a thirteenth month pay, the rule is subject to certain exceptions. Excluded from the coverage, under Section 2 of the law, are “employers already paying their employees a thirteenth month pay or more in a calendar year or its equivalent at the time of the issuance of the law. What the law wants to prevent is the imposition of a “double burden” upon the employer who is already paying the equivalent of a 13th month pay. The law exempts from the payment of the 13th month pay employers who are already giving its equivalent. Otherwise the goal of uniformly providing employees with additional income will not be met. Another inequity will result; while most employees will be paid thirteen (13) months salary, some by virtue of P.D. No. 851, will be receiving salary for fourteen (14) months. 

Construing the term “its equivalent”, the same was defined as inclusive of “Christmas bonus, mid-year bonus, profit-sharing payments and other cash bonuses amounting to not less that 1/12th of the basic salary but shall not include cash and stock dividend, cost of living allowances and all other allowances regularly enjoyed by the employee, as well as non-monetary benefits. A bonus is an amount granted and paid to an employee for his industry and loyalty which contributed to the success of the employer’s business and made possible the realization of profits. It is an act of generosity of the employer and granted by an enlightened employer to spur the employee to greater efforts for the success of the business and realization of bigger profits.

In 1986, President Cory Aquino issued Memorandum Order No. 28 to remove the P1,000.00 salary ceiling, which entitled all rank and file employees to 13th month pay regardless of salary rate.