MALACAÑANG

Manila

PRESIDENTIAL DECREE No. 851 December 16, 1976

REQUIRING ALL EMPLOYERS TO PAY THEIR EMPLOYEES A 13th-MONTH PAY

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.

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

Section 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 13-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.

Section 2. Definition of certain terms As used in this issuance.

(a) "Thirteenth-moth 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.

Section 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 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.

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.

Section 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.

Section 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.

Section 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.

Section 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.

Section 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 PD 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

Section 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.

Section 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.
Section 11. Transitory Provision These rules and regulations shall take effect immediately and for
purposes of the 13-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 P.D. 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 13-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.

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: chanroblesvirtuallawlibrary

"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."

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: chanroblesvirtuallawlibrary

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.

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.

(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