13th month pay explained for employers in Asia

13th month pay is an extra payment that many employees in Asia receive once a year, on top of their normal wages. The rules depend on the country. In the Philippines the law requires it for most rank-and-file staff. In Singapore it is a matter of contract and custom. This guide shows the difference and how to plan for it.

Where 13th month pay is required by law

The Philippines is the clearest case. Presidential Decree No. 851, signed in 1975, orders covered employers to pay a 13th month pay to their employees. A 1986 order, Memorandum Order No. 28, widened the rule. It requires employers to pay all rank-and-file employees by December 24 each year.

The original decree reached employees who earned up to P1,000 a month. The 1986 order set no salary limit for rank-and-file staff. If you run a business in the Philippines, assume that your rank-and-file workers are covered unless an exemption applies.

Coverage does not depend on job title or employment status. The Decree's implementing rules say a worker counts if he or she worked at least one month during the calendar year. That includes many staff who are not permanent.

Sources: Presidential Decree No. 851 (1975) and its implementing rules, lawphil.net/statutes/presdecs/pd1975/pd_851_1975.html; Memorandum Order No. 28 (August 13, 1986), lawphil.net/executive/mo/mo1986/mo_28_1986.html.

How the Philippine amount is worked out

The formula is simple. The 13th month pay equals one twelfth of the basic salary an employee earned within the calendar year. Basic salary is the core wage. The implementing rules leave out cost-of-living allowances, profit-sharing payments and other allowances that are not part of regular basic pay.

Here is a plain example. An employee earns a basic salary of P20,000 a month for the whole year. That is P240,000 in basic salary. One twelfth of that is P20,000, so the 13th month pay is P20,000.

Someone who joined partway through the year gets a pro-rated amount. Add up the basic salary actually earned in the year, then divide by 12. For example, a worker who earned P60,000 in basic salary over three months receives P5,000.

The deadline is December 24. The implementing rules also let an employer split the payment. Half may be paid before the regular school year opens, and the other half on or before December 24.

Sources: Presidential Decree No. 851 (1975) and its implementing rules, lawphil.net/statutes/presdecs/pd1975/pd_851_1975.html.

Who is exempt in the Philippines

The Decree and its implementing rules list a few exemptions. Check them before you assume that you owe nothing, and keep records either way. The main ones are these:

Employers that already pay a 13th month pay or its equivalent.
Employers of household helpers and other personal service workers.
Employers of workers paid purely on commission, boundary or task basis, or a fixed amount for a specific job. Piece-rate workers stay covered.
The government and its political subdivisions, with limited exceptions.
Distressed employers, but only with prior authorization from the Secretary of Labor.

Be careful with the "equivalent" exemption. The rules count a Christmas bonus, mid-year bonus or profit-sharing payment as an equivalent only if it adds up to at least one twelfth of basic salary. If it is less, you pay the difference. If you are unsure, ask a Philippine labor lawyer or the Department of Labor and Employment.

Sources: Presidential Decree No. 851 (1975) and its implementing rules, lawphil.net/statutes/presdecs/pd1975/pd_851_1975.html.

Singapore treats it as customary, not compulsory

Singapore works differently. Its Ministry of Manpower says the Annual Wage Supplement is also called the 13th month payment. The ministry states that it is not compulsory.

Whether an employee gets it depends on the employment contract or a collective agreement with a union. If someone has worked for less than a full year, check what the contract or agreement says.

The ministry also notes that if business results are exceptionally poor for the year, an employer can negotiate a lower amount. Read your contracts closely, because a promised AWS can become a firm duty once it is written down.

Sources: Ministry of Manpower, Singapore, "Variable wage components," mom.gov.sg/employment-practices/salary/variable-wage-components; Ministry of Manpower FAQ on AWS and employment of less than 12 months, mom.gov.sg/faq/salary/if-i-ve-worked-for-a-company-for-less-than-12-months-am-i-entitled-to-an-aws-or-13th-month-bonus.

How to budget for it

Treat the payment as a known yearly cost, not a surprise in December. A few steps keep it under control.

Check each country and each contract. Law, contract and custom all matter.
Set aside one twelfth of basic salary every month. For a Philippine team, this spreads the cost and leaves cash ready by December 24.
Keep payroll records that show basic salary separately from allowances and overtime. That makes the formula easy to prove.
Write down any promised AWS clearly in the contract, including how it is set and whether it is pro-rated for part-year staff.
Plan for a split payment if it helps cash flow, where the law allows it.

For a business with staff in both countries, the main trap is assuming one rule fits all. In the Philippines the payment is a legal duty. In Singapore it is what your contract says. Budget the first as fixed and the second as a promise you control.

This is general information, not legal advice. Your own pay case may differ, and bonus rules can change, so ask the labor authority or a qualified employment adviser before you act.

Sources

Presidential Decree No. 851 (1975), Philippines: lawphil.net/statutes/presdecs/pd1975/pd_851_1975.html
Memorandum Order No. 28 (1986), Philippines: lawphil.net/executive/mo/mo1986/mo_28_1986.html
Ministry of Manpower, Singapore, variable wage components: mom.gov.sg/employment-practices/salary/variable-wage-components