What Can HR Learn from the Philippines’ 13th Month Pay Regulation?

Everyone has heard of a weird or unusual labor law or two from across the globe that makes sense locally but seems unusual to an outsider. One such regulation is the Philippines’ 13th month pay, which is also commonly seen in other areas of Latin America, Europe, and Asia but is not talked about nearly enough. What is the 13th month pay, you ask? It refers to a regulation where all private sector employers are legally obligated to pay employees approximately one additional month of their salary each year.

From an employee’s perspective, this sounds like the most wonderful idea, but the Philippines payroll rules can become very burdensome on an employer if they become mandatory. Even if a permanent system of additional pay is hard for employers to consider, there are some insights HR teams can gain from studying the Philippines’ 13th month pay.

What Is the 13th Month Pay?

The 13th month pay is written into the Philippines payroll rules, where every employer has to pay their employees one-twelfth of their total earnings for the year. At the end of a 12-month period, this is essentially calculated as one month’s pay. Employees essentially receive the money in preparation for the holiday season at the end of the year, no strings attached. 

The 13th month’s pay leaves them with some additional disposable income that they are guaranteed regardless of performance, which is what differentiates it from the bonus pay the rest of us might be familiar with. This mandatory pay is offered to employees by December 24 each year, and failure to meet the criteria can lead to penalties. 

There are some exceptions to the rule. Government sector employees and domestic workers do not receive 13th month pay, but they are compensated by other similar rules that provide them with a bonus instead. Employers who already provide a bonus equal to or more than an employee’s 13th month pay also do not have to pay the additional salary.

Is the Philippines the Only One to Offer 13th Month Pay?

The 13th month’s salary was made mandatory in the Philippines in 1975 by Presidential Decree No. 851. Initially, it was restricted to private sector employees earning below a wage threshold, but the law was eventually expanded to include all private sector workers. 

The Philippines is believed to be among the first to make the 13th month pay mandatory, however, it isn’t the only country to offer the benefit to workers. Similar employee bonus laws are common across Latin America in regions like Argentina, Brazil, Guatemala, and Mexico. Countries like Italy, Indonesia, and Greece also have some version of a 13th month pay. Some regions like Portugal, Ecuador, and Angola also offer 14th month pay. We love to see it.

The amount of pay offered and the timing of the payments may vary across these regions, but these bonuses are legally guaranteed to workers. 

Should 13th Month Pay Be Made Mandatory in the US?

The 13th month pay is a great initiative in the Philippines and other regions that follow a similar policy, but there is a good chance that other countries might also benefit from such legislation. Despite the positive impact it could make on employee lives, especially at a time of such economic uncertainty, it is admittedly hard to mandate such a regulation right now. 

Employers might choose to lay off employees to break even on their expenses or could be forced to find alternate ways to cut existing benefits in order to offer the 13th month pay. With the federal powers already facing considerable dysregulation and the tariffs causing chaos among employers, it is the wrong time to focus on creating and passing laws that increase the financial burden on the job creators.

Also, many employers already provide Christmas or holiday bonuses at the end of the year, which are similar to the 13th-month pay offerings in other regions. The only difference is that it isn’t mandatory in the US, so employers can make a decision on what to offer. Still, rewarding employees uniformly can be a very admirable move for any organization to make. 

What Can Employers Learn from the Philippines’ Additional Pay Rules?

Employers don’t have to rush to adopt 13th-month pay principles right now if it is beyond their means. Even without making the same rules, there are many lessons employers and their HR teams can take away from the 13th month pay system:

• Having a centrally determined system of benefits and rewards provides clarity to workers on what they can expect
• A clear, uniform policy can reduce disputes and administrative complexity, so it’s a good idea to spell out the terms of the reward clearly
• A yearly annual reward for employee loyalty goes a long way
• Uniform bonuses act as equalizers. Basing bonuses on performance may encourage some to work harder, but it can also create an unbalanced environment between employees
• Settling an expectation for a reward at the end of the year might help with retention to ensure employees stay on for that duration in anticipation of the bonus
• Bonuses and additional pay, especially when not mandated by the government, can be a good faith gesture towards employees and evoke a feeling of commitment to the company goals
• Bonuses timed with peak spending periods like the holidays may be more appreciated than ones rewarded at random times throughout the year, making them more impactful and memorable
• Philippines’ 13th month pay regulation shows it is possible to manage benefits with careful financial planning, so employers and HR teams need to know that it isn’t impossible to reward workers regularly
• HR teams in organizations that are planning to expand into new markets such as the Philippines or regions in Latin America should be aware of these local regulations or cultural practices, even if it is not mandatory, as it will affect their hiring
• In countries where 13th month pay is not the norm, companies that adopt such policies will gain an immediate competitive advantage

Final Thoughts: Employers Need to Study Laws and International Regulation

There are many reasons why it isn’t the right time to enforce 13th month pay in the US, particularly when layoffs are already high in number. Businesses will be highly resistant to the change as they are with most employee-centered policies. However, those who want to build a bond with their employees should look into the employee bonus laws from across the world and see what they can learn from the guidelines, enforcement, and results. 

With more information at their disposal, HR teams may be able to plan out benefits in a way that guarantees their effectiveness, which will be beneficial to the organization in the long run.

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