CONTENTS

PRESIDENTIAL DECREE NO. 851 ................................................................................................................... 1

RULES AND REGULATIONS IMPLEMENTING PRESIDENTIAL DECREE NO. 851 .................................. 1
SUPPLEMENTARY RULES AND REGULATIONS IMPLEMENTING P.D. NO. 851 .................................... 3
REVISED GUIDELINES ON THE IMPLEMENTATION OF THE 13TH MONTH PAY LAW. ........................ 3
13TH MONTH PAY AND BONUS COMPARED................................................................................................. 6
TH
13 MONTH PAY LAW – CLARIFICATION ..................................................................................................... 6

PRESIDENTIAL DECREE NO. 851

WHEREAS, it is necessary to further protect the level of real wages from the ravage of worldwide inflation;

WHEREAS, there has been no increase in the legal minimum wage rates since 1970;

WHEREAS, the Christmas season is an opportune time for society to show its concern for the plight of the working
masses so they may properly celebrate Christmas and New Year.

NOW, THEREFORE, I, FERDINAND E. MARCOS, by virtue of the powers vested in me by the Constitution, do
hereby decree as follows:

Section 1. All employers are hereby 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.

Sec. 2. Employers already paying their employees a 13th-month pay or its equivalent are not covered by this Decree.

Sec. 3. This Decree shall take effect immediately.

Done in the City of Manila, this 16th day of December 1975.

RULES AND REGULATIONS IMPLEMENTING PRESIDENTIAL DECREE NO. 851

By virtue of the powers vested in me by law, the following rules and regulations implementing Presidential Decree No.
851 are hereby issued for the guidance of all concerned.

Section 1. Payment of 13th-month Pay. - All employers covered by Presidential Decree No. 851, hereinafter referred
to as the "Decree", shall pay to all their employees receiving a basic salary of not more than P1,000 a month a
thirteenth-month pay not later than December 24 of every year.

Sec. 2. Definition of certain terms. - As used in this issuance:

(a) "Thirteenth-month pay" shall mean one twelfth (1/12) of the basic salary of an employee within a calendar year;

(b) "Basic salary" shall include all remunerations or earnings paid by an employer to an employee for services
rendered but may not include cost-of-living allowances granted pursuant to Presidential Decree No. 525 or Letter of
Instructions No. 174, profit-sharing payments, and all allowances and monetary benefits which are not considered or
integrated as part of the regular or basic salary of the employee at the time of the promulgation of the Decree on
December 16, 1975.
Sec. 3. Employers covered. - The Decree shall apply to all employers except to:
(a) Distressed employers, such as (1) those which are currently incurring substantial losses or (2) in the case of non-
profit institutions and organizations, where their income, whether from donations, contributions, grants and other
earnings from any source, has consistently declined by more than forty (40%) percent of their normal income for the
last two (2) years, subject to the provision of Section 7 of this issuance;
(b) 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;

(c) Employers already paying their employees 13-month pay or more in a calendar year or its equivalent at the time of
this issuance;

(d) Employers of household helpers and persons in the personal service of another in relation to such workers; and

(e) Employers of those who are paid on purely commission, boundary, or task basis, and those who are paid a fixed
amount for performing a specific work, irrespective of the time consumed in the performance thereof, except where
the workers are paid on piece-rate basis in which case the employer shall be covered by this issuance insofar as
such workers are concerned.
As used herein, workers paid on piece-rate basis shall refer to those who are paid a standard amount for every piece
or unit of work produced that is more or less regularly replicated, without regard to the time spent in producing the
same.

The term "its equivalent" as used in paragraph c) hereof shall include Christmas bonus, mid-year bonus, profit-
sharing payments and other cash bonuses amounting to not less than 1/12th of the basic salary but shall not include
cash and stock dividends, cost of living allowances and all other allowances regularly enjoyed by the employee, as
well as non-monetary benefits. Where an employer pays less than 1/12th of the employees basic salary, the
employer shall pay the difference.

Sec. 4. Employees covered. - Except as provided in Section 3 of this issuance, all employees of covered employers
shall be entitled to benefit provided under the Decree who are receiving not more than P1,000 a month, regardless of
their position, designation or employment status, and irrespective of the method by which their wages are paid,
provided that they have worked for at least one month during the calendar year.

Sec. 5. Option of covered employers. - A covered employer may pay one-half of the 13th-month pay required by the
Decree before the opening of the regular school year and the other half on or before the 24th day of December of
every year.

In any establishment where a union has been recognized or certified as the collective bargaining agent of the
employees therein, the periodicity or frequency of payment of the 13th-month pay may be the subject of agreement.

Nothing herein shall prevent employers from giving the benefits provided in the Decree to their employees who are
receiving more than One Thousand (P1,000) Pesos a month or benefits higher than those provided by the Decree.

Sec. 6. Special feature of benefit. - The benefits granted under this issuance shall not be credited as part of the
regular wage of the employees for purposes of determining overtime and premium pay, fringe benefits, as well as
premium contributions to the State Insurance Fund, social security, medicare and private welfare and retirement
plans.

Sec. 7. Exemption of Distressed employers. - Distressed employers shall qualify for exemption from the requirement
of the Decree upon prior authorization by the Secretary of Labor. Petitions for exemptions may be filed within the
nearest regional office having jurisdiction over the employer not later than January 15, 1976. The regional offices
shall transmit the petitions to the Secretary of Labor within 24 hours from receipt thereof.

Sec. 8. Report of compliance. - Every covered employer shall make a report of his compliance with the Decree to the
nearest regional labor office not later than January 15 of each year.

The report shall conform substantially with the following form:

REPORT ON COMPLIANCE WITH P.D. NO. 851

1. Name of establishment
2. Address
3. Principal product or business
4. Total employment
5. Total number of workers benefited
6. Amount granted per employee
7. Total amount of benefits granted
8. Name, position and tel. no. of person giving information
Sec. 9. Adjudication of claims. - Non-payment of the thirteenth-month pay provided by the Decree and these rules
shall be treated as money claims cases and shall be processed in accordance with the Rules Implementing the Labor
Code of the Philippines and the Rules of the National Labor Relations Commission.

Sec. 10. Prohibition against reduction or elimination of

benefits. - Nothing herein shall be construed to authorize any employer to eliminate, or diminish in any way,
supplements, or other employee benefits or favorable practice being enjoyed by the employee at the time of
promulgation of this issuance.

Sec. 11. Transitory Provision. - These rules and regulations shall take effect immediately and for purposes of the
13th-month pay for 1975, the same shall apply only to those who are employees as of December 16, 1975.

Manila, Philippines, 22 December 1975.

SUPPLEMENTARY RULES AND REGULATIONS IMPLEMENTING P.D. NO. 851

To insure uniformity in the interpretation, application and enforcement of the provisions of Presidential Decree No.
851 and its implementing regulations, the following clarifications are hereby made for the information and guidance of
all concerned:

1. Contractors and Subcontractors, including Security and Watchman Agencies, are exempt for the year 1975 subject
to the following conditions:
(a) that the contracts of such enterprises were entered into before December 16, 1975;

(b) that such enterprises have complied with all labor standards laws during the year;

(c) that the contract cannot really accomodate 13-month pay or its equivalent; and

(d) that the contract does not provide for cost escalation clause.
This exemption is without prejudice on the part of the workers to negotiate with their employers or to seek payment
thereof by filing appropriate complaints with the Regional Offices of the Department of Labor.

2. Private school teachers, including faculty members of colleges and universities, are entitled to 1/12 of their annual
basic pay regardless of the number of months they teach or are paid within a year.

3. New establishments operating for less than one year are not covered except subsidiaries or branches of foreign
and domestic corporations.

4. Overtime pay, earnings and other remunerations which are not part of the basic salary shall not be included in the
computation of the 13th-month pay.

5. In view of the lack of sufficient time for the dissemination of the provisions of P.D. No. 851 and its Rules and the
unavailability of adequate cash flow due to the long holiday season, compliance and reporting of compliance with this
Decree are hereby extended up to March 31, 1976 except in private schools where compliance for 1975 may be
made not later than 30 June 1976.

6. Nothing herein shall sanction the withdrawal or diminution of any compensation, benefits or any supplements being
enjoyed by the employees on the effective date of this issuance.

Manila, January 16, 1976

REVISED GUIDELINES ON THE IMPLEMENTATION OF THE 13TH MONTH PAY LAW.

1. Removal of Salary Ceiling.

On August 13, 1986, President Corazon C. Aquino issued Memorandum Order No. 28 which provides as follows:
"Section 1 of Presidential Decree No. 851 is hereby modified to the extent that all employers are hereby required to
pay all their rank-and-file employees a 13th month pay not later than December 24 of every year."chan robles virtual
law library

Before its modification by the aforecited Memorandum Order, P.D. No. 851 excludes from entitlement to the 13th
month pay those employees who were receiving a basic salary of more than P1,000.00 a month. With the removal of
the salary ceiling of P1,000.00, all rank and file employees are now entitled to a 13th month pay regardless of the
amount of basic salary that they receive in a month if their employers are not otherwise exempted from the
application of P.D. No. 851. Such employees are entitled to the benefit regardless of their designation or employment
status, and irrespective of the method by which their wages are paid, provided that they have worked for at least one
(1) month during a calendar year.

2. Exempted Employers.

The following employers are still not covered by P.D. No. 851:

a. The Government and any of its political subdivisions, including government-owned and controlled corporations,
excepts those corporations operating essentially as private subsidiaries of the Government;

b. Employers already paying their employees a 13th month pay or more in a calendar year or its equivalent at the
time of this issuance;

c. Employers of household helpers and persons in the personal service of another in relation to such workers; and

d. 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 where the
workers are paid on piece-rate basis in which case the employer shall grant the required 13th month pay to such
workers.

As used herein, workers paid on piece-rate basis shall refer to those who are paid a standard amount for every piece
or unit of work produced that is more or less regularly replicated, without regard to the time spent in producing the
same.

The term "its equivalent" as used on paragraph (b) hereof shall include Christmas bonus, mid-year bonus, cash
bonuses and other payments amounting to not less than 1/12 of the basic salary but shall not include cash and stock
dividends, cost of living allowances and all other allowances regularly enjoyed by the employee, as well as non-
monetary benefits. Where an employer pays less than required 1/12th of the employees basic salary, the employer
shall pay the difference.chan robles virtual law library

3. Who are Rank-and File Employees.

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.

The above distinction shall be used as guide for the purpose of determining who are rank-and-file employees entitled
to the mandated 13th month pay.

4. Amount and payment of 13th Month Pay

(a) Minimum of the Amount. — The minimum 13th month pay required by law shall not be less than one-twelfth of
the total basic salary earned by an employee within a calendar year. For the year 1987, the computation of the 13th
month pay shall include the cost of living allowances (COLA) integrated into the basic salary of a covered employee
pursuant to Executive Order 178.

E.O. No. 178 provides, among other things, that the P9.00 of the daily COLA of P17.00 for non-agricultural workers
shall be integrated into the basic pay of covered employees effective 1 May 1987, and the remaining P8.00 effective
1 October 1987. For establishments with less than 30 employees and paid-up capital of P500,000 or less, the
integration of COLAs shall be as follows: P4.50 effective on 1 May 1987; P4.50 on 1 October 1987; and P8.00
effective 1 January 1988. Thus, in the computation of the 13th month pay for 1987, the COLAs integrated into the
basic pay shall be included as of the date of their integration.
Where the total P17.00 daily COLA was integrated effective 1 May 1987 or earlier the inclusion of said COLA as part
of the of the basic pay for the purpose of computing the 13th month pay shall be reckoned from the date of actual
integration.

The "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.

(b) Time of Payment. — The required 13th month pay shall be paid not later than December 24 of each year. An
employer, however, may give to his employees one half (½) 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.

5. 13th Month Pay for Certain Types of Employees.

(a) Employees Paid by Results. — Employees who are paid on piece work basis are by law entitled to the 13th
month pay.

Employees who are paid a fixed or guaranteed wage plus commission are also entitled to the mandated 13th month
pay, based on their total earnings during the calendar year, i.e., on both their fixed or guaranteed wage and
commission.

(b) Those with Multiple Employers. — 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 required 13th month pay from all their private employers regardless of their total earnings
from each or all their employers.chan robles virtual law library

(c) Private School Teachers. — Private school teachers, including faculty members of universities and colleges, are
entitled to the required 13th month pay, regardless of the number of months they teach or are paid within a year, if
they have rendered service for at least one (1) month within a year.

6. 13th Month Pay of Resigned or Separated Employee.

An employee who has resigned or whose services were terminated at any time before the time for payment of the
13th month pay is entitled to this monetary benefit in proportion to the length of time he 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 the service. Thus, if he worked only from January up to September his proportionate 13th month pay should be
equivalent of 1/12 his total basic salary he earned during that period.

The payment of the 13th month pay may be demanded by the employee upon the cessation of employer-employee
relationship. This is consistent with the principle of equity that as the employer can require the employee to clear
himself of all liabilities and property accountability, so can the employee demand the payment of all benefits due him
upon the termination of the relationship.

7. Non-inclusion in Regular Wage.

The mandated 13th month pay need not be credited as part of regular wage of employees for purposes of
determining overtime and premium pays, fringe benefits insurance fund, Social Security, Medicare and private
retirement plans.

8. Prohibitions against reduction or elimination of benefits.

Nothing herein shall be construed to authorize any employer to eliminate, or diminish in any way, supplements, or
other employee benefits or favorable practice being enjoyed by the employee at the time of promulgation of this
issuance.
(Sgd.) FRANKLIN M. DRILON
Secretary

13TH MONTH PAY AND BONUS COMPARED

In general terms, we may distinguish the term christmas bonus from 13th month pay thus:

* 13th month pay is mandatory and shall be received by all employees who have worked at least one month within a
calendar year and is thus demandable; a bonus, being an act of liberality or a gift from the employer cannot be
demanded unless certain conditions apply.

*The law provides for what shall comprise the 13th month pay; a bonus depends fully on the generosity (or the
absence of such) of the employer.

*All classes of employees (regular, probationary, piece rate, contractual, etc.) are entitled to the 13th month pay; an
employer may provide conditions as to who shall be entitled to various classes of bonuses.

*The 13th month pay shall be paid on or before December 24; the release of Christmas bonuses and/or other forms
of bonuses may be released at any time upon the discretion of the employer/management.

There are however instances when a bonus, even though clearly an act of generosity on the part of the employer,
may become demandable. In instances where the granting of a bonus have already become a long-standing practice
or policy, the employer can no longer withdraw and to do so is tantamount to a diminution of benefits. This is
prohibited under the Labor Code.

13TH MONTH PAY LAW – CLARIFICATION

Dear PAO,

My husband was employed as a managerial employee at the C. Philippines. On October 30, 2009, he resigned from
his job. Every year he was receiving bonus that was considered as 13th month pay, but after his resignation, his
former company did not give him his bonus.

My husband inquired from the company about his non-receipt of the said bonus (13th month pay) and the company
said that he is no longer entitled with the said bonus because it was given when he was already resigned. He was
also told that he was not entitled to a 13th month pay because he is not a rank and file employee. Is my husband
entitled to a 13th month pay? Aside from my husband’s last pay, are there other benefits that my husband is entitled
to receive? Do I need to execute a quitclaim if I already received his last pay?

J. S. L.

Dear JSL,

For this issue, we shall be answering first your query about the 13th month pay. Your other questions shall be tackled
in the next issue. Presidential Decree (PD) 851 which is the subject of your query requires all employers to pay their
employees receiving a basic salary of not more than P1,000.00 a month, regardless of the nature of the employment,
a 13th month pay not later than December 24 of every year. On August 13, 1986, then-President Corazon C. Aquino
issued Memorandum Order No. 28 wherein P.D. 851 was modified to the extent that all employers are required to
pay all their rank and file employees a 13th month pay not later than December 24 of the year. With the removal of
the salary ceiling, all rank and file employees are now entitled to a 13th month pay regardless of the amount of basic
salary that they receive in a month if their employers are not otherwise exempted from the application of PD 851.

Prescinding from the foregoing, it is clear that only rank-and-file employees are covered by the provisions of the
decree. Managerial employees are excluded from enjoyment of the same. A managerial employee is one who is
vested with powers or 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
other employees not falling within the definition are considered rank-and-file employees (Article 212, Labor Code).

You mentioned that your husband was holding a managerial position in his company prior to his resignation and if he
was discharging the powers or prerogatives as mentioned above, it is clear that he is not entitled to receive a 13th
month pay. You could have been mistaken in your allegation that your husband was receiving a bonus in the form of
a 13th month pay because there is a difference between the two. A 13th month pay consists of 1/12 of the basic
salary of an employee within a calendar year. This is mandated only to be given to all rank-and-file employees
employed by an employer not specifically exempted by law. On the other hand, bonus is an extra renumeration given
by an employer to his employees out of the latter’s generosity. Unlike the 13th month pay, it is not mandated by law
to be given to every employee, as the giving of the same may be contingent on certain pre-conditions. A condition
that an employee must be in the company at the time the bonus was given for that employee to be entitled to receive
such bonus is not far-fetched.

-http://www.manilatimes.net/index.php/news/nation/10852-explaining-13th-month-pay-and-bonus-