The 13th month pay of workers is "mandatory" under the law, which has not yet been amended, Malacanang said Monday in response to the Department of Labor and Employment’s (DOLE) proposal to defer giving workers the yearend additional salary due to the effect of coronavirus pandemic.
“The law has not been amended. That is the law. That is a mandatory provision of the Labor Code,” Presidential spokesperson Harry Roque said in an online briefing.
Roque said the DOLE would have to take into consideration the current law governing the 13th-month pay.
This developed as Albay Rep. Joey Sarte Salceda, House Ways and Means Committee chair, proposed that the government provide loans to COVID-19-hit enterprises, at "highly favorable rates and long maturity periods," so they could pay their workers’ 13th month salaries.
Salceda’s proposal is contained in a three-page aide memoire sent Monday to House Speaker Alan Peter Cayetano and Majority Leader Ferdinand Martin G. Romualdez.
“We do not believe this is a sound course of action to take in terms of boosting economic activity," Salceda said.
"While the DOLE argues that this is permitted in the implementing rules and regulations of PD (Presidential Decree) 851, we believe this will be subject to legal and constitutional controversy, as the letter of the law appears not to intend to allow this leeway,” the lawmaker said.
Under PD No. 851, employers from the private sector are required to pay their rank-and-file employees a 13th month pay not later than December 24 every year.
The 13th month pay is equivalent to one twelfth (1/12) of an employee’s basic annual salary.
The Palace said the mandatory 13th month pay should not be confused with the “Christmas bonus” commonly practiced by local business setting because that bonus is not a demandable and enforceable obligation, and can only be released upon an employer’s voluntary discretion.
In terms of both economic and legal considerations, the DOLE proposal appears to be unsound, said Salceda, who also co-chairs the Economic Stimulus and Recovery Cluster-Defeat COVID-19 Committee.
He said the government can, however, exempt “distressed businesses from providing these benefits to management-level workers and executives.”
Considering that rank-and-file benefits are direct labor costs, Salceda said, their deductibility from taxable income should be on peso-per-peso basis.
Should enterprises incur losses due to labor costs, the government has already extended the availment period for net operating loss carryover from three to five years under the Bayanihan to Recover as One Act.
This means there is already a direct tax benefit for employers paying the 13th month pay, he added.
Salceda said suspending work benefits to rank-and-file workers sets an undesirable precedent that could erode workers’ rights and hinder broad-based growth and inclusive prosperity.
"Not distributing the 13th month pay will also remove what could be the only source of annual savings for most working families. Sixty percent of Filipino households have savings under just 30 thousand annually, according to the latest Family Income and Expenditure Survey or FIES," he noted.
The lawmaker pointed out that as co-chair of the Defeat COVID-19 Committee, he has made informal manifestations to the Secretaries of Finance and Trade and Industry to craft loan products under their supervised government financial institutions (GFIs) to allow enterprises to meet the 13th month pay obligation.
“At the same time, this representation has appealed to the Secretary of Labor to consider limiting the exemption of distressed enterprises from giving 13th month pay to only their management executives,” he said.
“Rank-and-file employees spend the bulk of their income on consumption, and any reduction from their income could mean a depression in consumption, which would have negative impacts on aggregate demand," Salceda said.
"This is a temporary crisis in the present. Measures that amount to private sector austerity will not help solve this crisis of lack of market confidence and depressed demand,” he explained.
Regardless of the economic impact, Salceda stressed, the 13th month pay is a statutory obligation that enterprises must meet, and workers are, by law, entitled to this benefit, and they need it the most in these difficult times.
The long lockdowns have put enterprises under challenging circumstances to meet the mandated 13th month salary payment.
A study commissioned by the World Bank, in partnership with the Department of Finance and the National Economic Development Authority, said sales revenue has gone down by 64% on average between April and July 2020, with 89% of firms reporting a continued reduction in sales.
This was in addition to the significant 65% losses experienced in March 2020 compared to February 2020, with 75% of firms reporting reduction in sales.
“Let DOLE study it. But I think, unless there is a new law, it cannot be deferred,” Roque said.
The Palace official said the DOLE would have to take into consideration the current law governing the 13th-month pay.
Labor Secretary Silvestre Bello III said he will review the possibility of deferring the 13th-month payouts rather than exempting businesses from complying with the law.
However, the labor chief said he was “misunderstood” when he mentioned that there is a provision that says companies in distress are exempted from paying 13th month pay.
“It is very clear under the law that the 13th month pay has to be paid on or before Dec. 25. That is the law. There is no way you can delay or defer the payment of 13th month pay,” he said.
“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," the Labor chief said.
"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.