A 13th month pay is not a new concept to many but to some it is. What exactly is it and how does that affect your company? In some countries, a 13th-month salary is mandatory, a standard part of the compensation package for a staff member. For some, it’s customary, and for the rest like in the United States, Australia, and Great Britain, most of the workforce is not familiar with it.
It’s been said that the 13th-month payment started in Italy in the 1930s called Tredicesima mensilit. It aims to compensate for certain months that include five weeks rather than four.
As a law, the tradition started in the Philippines in 1975 under Presidential Decree No. 851, issued by President Ferdinand Marcos on December 16th.
During this period, the minimum wage was not feasible over the cost of living expenses. The minimum daily salary in Metro Manila and the provinces was P8.00, with a P7.50 to $1 foreign exchange rate in 1975.
The decree mandated that all private employers give their employees a 13th-month pay if their monthly wage is under or equal to P1,000. It’s given no later than December 24th every year. It’s also a way for Filipinos to celebrate the holidays with additional funds.
Since then, other countries followed the concept of the 13th-month as a mandatory labor regulation or as common practice for companies. Other organizations even offer a 14th-month pay during their collective agreement with their new hires.
Moreover, many nations practice the 13th-month salary. Each with its unique set of norms and regulations.
Here are the countries that practice the 13th-month salary:
- Costa Rica
- Dominican Republic
- El Salvador
- South Africa
- Saudi Arabia
- The Netherlands
- United Arab Emirates
How Does This Extra Paycheck Work?
The 13th-month pay is equivalent to one-twelfth of the annual salary. In the Philippines, it’s given on or before December 24th or in two installments ( 50% in June and 50% in December).
Employees who have worked at least one month during the calendar year will also receive a prorated 13th-month salary.
Meanwhile, the day of payout for the 13th-month salary is frequently related to cultural traditions, religious festivals, or other noteworthy events in different countries. A population that has Christian ancestry, receives it by December, just in time for Christmas. On the other hand, it is paid out in time for Eid in Saudi Arabia, and in time for Chinese New Year in China and Singapore.
How Does the 13-month Pay Affect Companies and Employees?
For employers, if the 13th-month pay is mandatory they need to submit a report to respective government agencies to ensure that they’ve complied with this statutory obligation. However, if it’s customary, employers may include the 13th-month pay on their Employee happiness initiatives to create their unique corporate culture.
Meanwhile, on the side of the employees, receiving a 13th-month pay will boost their morale and give them additional purchasing power during the holiday season. The 13th-month salary somehow creates a work-life balance, where employees can spend time and fulfill the material wishes of their families. It means a lot when you know that you are valued and appreciated by your company.
Am I Entitled to 13th-month pay?
All employees are usually entitled to 13th-month pay in locations where it is necessary (mandated by law), as long as they have worked for at least one month throughout the calendar year.
However, employees of government offices and government-owned and controlled businesses (GOCCs), save those functioning as private subsidiaries of the government, were exempted from coverage under the decree. Furthermore, employment titles, such as management, and businesses, such as the public sector, are exempt from the 13th-month pay requirements. Contractors and freelancers are often not eligible for a 13th-month salary. The norms and conventions are dependent on the circumstances.
In the Philippines, the government released a new labor guideline stating that all rank-and-file employees, regardless of position or employment status, are entitled to 13-month compensation last 2020.
Is It Taxable?
Most of the time, 13th-month compensation is subject to regular income taxes. However, how this is accomplished differs by country. Some nations will charge full tax, while others may charge tax only once a particular threshold has been reached or will reduce the tax rate.
In the Philippines, salaries and other types of income that did not exceed P30,000 in a year are exempted from income tax.
Indeed, the 13th-month salary comes with different complexities when you manage a global team. We know that you’re always willing to reward your staff, especially during their holidays. It’s time to learn about 13th-month pay or consult HR experts to comply with this generous system to make your workforce happy.
Olivia Yu has decades of experience in the Human Resources industry. She’s the Regional Director for Asia Pacific of a famous international HR company. Olivia’s international experience inspires her to write articles about human resources and global staffing.