‘Tis the season for 13th month pay
Presidential Decree No. 851, dated Dec. 16, 1976, is the law that grants 13th month pay to workers. The 13th month pay shall be paid by employers to their covered employees not later than Dec. 24 of every year.
The law provides that the 13th month pay shall not be less than one-twelfth of the total basic salary earned by an employee within a calendar year. The computation is:
Total basic salary earned during the year / 12 months = proportionate 13th month pay
The term “basic Salary” shall include all remunerations or earnings paid by an employer to an employee for services rendered but may exclude overtime pay, cost-of-living allowances, 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.
Coverage
DOLE Labor Advisory No. 28 emphasizes that rank-and-file employees in the private sector shall be entitled to 13th month pay regardless of their position, designation, or employment status, and irrespective of the method by which their wages are paid, provided they have worked for at least one month during the calendar year.
Kasambahays or domestic workers are also entitled to the 13th month pay by virtue of Republic Act No. 10361, or the Domestic Workers Act (Sec. 25).
In that regard, domestic work refers to work performed in or for a household or households and a domestic worker or kasambahay is defined as any person engaged in domestic work within an employment relationship such as, but not limited to, the following: general househelp, nursemaid or yaya, cook, gardener, or laundry person, but shall exclude any person who performs domestic work only occasionally or sporadically, and not on an occupational basis.
Exclusions
Establishments that are not mandated to pay and those not entitled to receive 13th month pay are:
1. Employees that are not rank-and-file employees;
2. 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;
3. Employers already paying their employees 13-month pay or more in a calendar year or its equivalent, for example in the form of Christmas bonus, profit-sharing, and other bonuses;
4. 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; and
5. Distressed employers, such as those which are currently incurring substantial losses or 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 40 percent of their normal income for the last two years.
Exemptions for distressed employers
In the matter of distressed employers seeking an exemption from the payment of the 13th month pay, the implementing rules provide that prior authorization from the Secretary of Labor and Employment shall be obtained by filing a petition for exemption with the nearest DOLE regional office having jurisdiction over the employer.
Recently, however, DOLE Labor Advisory No. 28, series of 2020, provides that no request or application for exemption from the payment of the 13th month pay or for the deferment of its payment shall be accepted or allowed.
Rank-and-file and managerial employees
Since rank-and-file employees are entitled to the 13th month pay, it is important to identify who these employees are. In that regard, all employees that are not supervisory or managerial are considered rank and file employees.
A supervisory employee is one who in the interest of the employer effectively recommends managerial actions. Their actions are not routinary or clerical in nature but require independent judgment. On the other hand, 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.
In a case decided by the Supreme Court, an employee whose job included the handling of significant amounts of money and property, such as those that are cashiers, auditors and property custodians were still considered as “fiduciary” rank-and-file employees.
The fact that the employee was also an incorporator of the company did not make her a corporate officer or part of management as it was shown that the employee did not actually make any capital contribution to the corporation.
The court declared that the employee was only an incorporator on paper, but not in fact. The court also found that there was no proof that the employee participated in any corporate meeting or exercised functions related to a corporate officer. Accordingly, the employee was entitled to service incentive leave pay, holiday pay, and pro-rated 13th month pay. (Ramil v. Stoneleaf, Inc., G.R. No. 222416, June 17, 2020)
Company practice
Employers may, as a company practice or custom, grant 13th month pay as well as other benefits on a voluntary basis to those employees not otherwise entitled by law. In which case, employees will have a vested right to claim these benefits.
In such a scenario, any benefit and supplement already being enjoyed by the employees cannot be reduced, diminished, discontinued or eliminated by the employer. The principle of non-diminution of benefits is actually founded on the Constitutional mandate to protect the rights of workers, to promote their welfare, and to afford them full protection
There is diminution of benefits when the following requisites are present: (1) the grant or benefit is founded on a policy or has ripened into a practice over a long period of time; (2) the practice is consistent and deliberate; (3) the practice is not due to error in the construction or application of a doubtful or difficult question of law, and (4) the diminution or discontinuance is done unilaterally by the employer.
To be considered as a regular company practice, the employee must prove by substantial evidence that the giving of the benefit is done over a long period of time, and that it has been made consistently and deliberately.
While there is no hard-and-fast rule as to the length of time that company practice should have been exercised in order to constitute voluntary employer practice, the common denominator appears to be the regularity and deliberateness of the grant of benefits over a significant period of time.
For as long as it can be shown that the employer agreed to continue giving the benefit knowing fully well that the employees are not covered by any provision of the law or agreement requiring payment thereof, then this benefit has ripened into a company practice that is demandable by the employee. (Vergara, Jr. v. Coca-Cola Bottlers Philippines Inc., G.R. No. 176985, April 1, 2013)
Accordingly, an employer that has voluntarily given 13th month pay which was ripened into a regular company practice would have to continue provide this benefit.
(The author, Atty. John Philip C. Siao, is a practicing lawyer and founding Partner of Tiongco Siao Bello & Associates Law Offices, an Arbitrator of the Construction Industry Arbitration Commission of the Philippines, and teaches law at the De La Salle University Tañada-Diokno School of Law. He may be contacted at [email protected]. The views expressed in this article belong to the author alone.)
