The Department of Labor and Employment (DOLE) is looking at allowing some organizations, specially the micro, small, and medium enterprises (MSMEs) severely hit by the COVID-19 crisis, to apply for non-payment or the deferment of the 13th month pay to their workers.
To help you understand what the law says about the granting of 13th month pay, I have put together this quick guide.
What is 13th month pay?
Simply, the 13th month pay is an additional amount of compensation, usually calculated from a single month salary. The 13th month pay is set by a statute called Presidential Decree 851, that's why every employee is entitled to receive it. Typically, it is paid at year end to be used for the Christmas holidays.
PD 851 makes 13th month pay mandatory
The 13th month pay is mandatory under the labor code and by Presidential Decree 851. It is a very popular employee benefit as it allows workers to pay for the expenses of the Christmas and New Year’s holidays. It has to be paid out by December 24 or the end of the contract, whichever is sooner.
How does the 13th month pay work?
13th month pay is calculated based on either a single month salary, or four weeks salary, depending on how compensation and payroll are structured. Every level of employee is entitled to 13th month pay as long as they have worked at least one month during the calendar year. It is calculated as 1/12 of the total basic salary earned during the year.
What happens if an employer doesn’t pay the 13th month pay?
Because the 13th month pay is mandated by statute, then every employer is obligated to comply just as with any employment-related law. Failure to make these payments can result in penalties for employers, as well as create ill will among employees who have come to expect a 13th month pay.
Exemptions
Under the law, there are 5 instances when an employer is not required to grant a 13th month pay:
(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 of 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.
In a virtual press briefing, Labor Secretary Silvestre Bello III said the issue on the grant of 13th-month pay needs to be discussed by the management and employees.
“Since the businesses are not doing well and the management cannot afford to give such pay, they may defer it. That might be the more acceptable formula to address the issue of the payment of the 13th-month pay. They cannot pay it right now, maybe they can settle it next year or next month. That’s an option. The other option is, if the company is distressed, (you) are excused. But you have to prove that you are distressed," Bello added.
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