The thirteenth month and other statutory pay

Thirteenth month pay is mandatory, it is not a bonus, and clients budgeting from a monthly rate without it are short by a month's salary every year.

What it is

A statutory benefit requiring covered employers to pay rank-and-file employees an amount equal to at least one twelfth of the basic salary earned within the calendar year, payable not later than the twenty-fourth of December.

It is a legal entitlement rather than a discretionary payment. It cannot be withheld for performance, it is pro-rated for employees who worked part of the year, and it is payable to somebody who has already resigned in respect of the portion they earned.

What it is not

It is not a Christmas bonus, although many employers pay one as well and the two are frequently confused. A discretionary bonus is discretionary; this is not.

It is also not calculated on total earnings. The basis is basic salary, and what counts as basic excludes certain allowances and premiums, which is a detail worth confirming rather than assuming.

Why it matters to a client

Because it is roughly an additional eight per cent on the annual salary bill, and because a provider quoting a monthly figure has either included it, spread across twelve months, or has not.

Ask which. A quote that looks eight per cent cheaper than another is frequently a quote that has left it out, and the difference appears in December.

The other statutory contributions

Three systems, each with an employer and an employee share: social security, health insurance, and the housing development fund. The schedules are set nationally and are revised periodically, sometimes upward by legislation on a published timetable.

They are not optional, they are not negotiable, and their movement is one of the components in the entry on pricing that changes without anybody deciding to.

Retirement

Statutory retirement pay applies at a qualifying age with a minimum period of service, calculated on a formula. For a young workforce it rarely arises, and for a provider that has operated for over a decade it increasingly does.

Separation pay

Where employment ends for an authorised cause, separation pay is required, and the multiplier differs by cause. It does not apply to dismissal for a just cause.

For a client this matters at the end of an engagement rather than at the start: if your departure causes redundancies, somebody pays for them, and the agreement should say who. The entry on contract terms lists it among the clauses worth reading first.

How to hold all this

Not in your head. Ask the provider for a written breakdown of the statutory costs applying to your roles, expressed as a percentage of salary, and ask when each last changed.

A provider who produces it in a day has the figures in a spreadsheet they maintain. One who takes a fortnight has assembled it for you, which tells you something about how the price was constructed.

The comparison that misleads

Salary alone. Comparing a Philippine salary with a salary elsewhere ignores the thirteenth month, the statutory contributions and the leave entitlements, and it also ignores the on-costs on the other side, which are frequently left out too.

Compare total annual employment cost with total annual employment cost, as the entry on pricing sets out, or compare nothing.

Timing within the year

The thirteenth month falls in December and so does the heaviest leave period. A client planning a December cutover is planning it into the month with the least available capacity and the highest payroll.

Neither is a reason not to, and both are reasons to know.

Government-mandated increases

Regional wage boards set minimum wages by region and revise them periodically. Most roles of the kind described on this site are paid well above the minimum, so the direct effect is limited, and the indirect effect through the whole salary structure is real.