What is the 13th month bonus and do you have to pay it if you hire accounting staff in the Philippines?
It’s a good question, and it can get a little complicated.
In this blog post, I’m going to unravel the complexities surrounding 13th month pay and whether it applies when hiring accounting staff in the Philippines.
Don't worry; we'll simplify it all for you.
The 13th month pay is an end-of-the-year additional payroll mandated by Philippine law for all employees and contractors.
It's not a discretionary payment.
Why the name?
Well, it's straightforward — it equals one month's pay.
Essentially, it's a way to ensure everyone receives some extra money around Christmas time.
There are two paths you can take when hiring someone, as an employee through an Employer of Record service, or as a contractor.
If you hire someone as an employee, you will be required to provide the 13th month pay.
If you hire someone as a contractor, you are not required to provide it, but I recommend doing so. See below for more detail.
If you opt for the employee route, the 13th month bonus is automatically handled by the Employer of Record.
You’re probably wondering … but what if you hire someone as a contractor?
Even if it's not legally required for you to give your contractors the 13th month pay, you should consider it.
It's a part of Filipino culture. They usually use it to do their Christmas shopping, and it feels good to get some extra money at the end of the year.
Providing this helps them feel like a normal person in their society. And since they're working from home, for you, someone across the ocean, over the internet, they are doing something pretty unusual in the first place.
If you choose not to provide the 13th month pay, that may be fine, but it could be a disconnect they'll feel between you and them.
In my view, whether they're employees or contractors is irrelevant; go ahead and pay it anyway.
Of course, this is my opinion and not every firm chooses to do this. Some choose to their teammates' monthly pay instead. That works too, but it's not my top recommendation.
Now, here's an important point -
Because the 13th month pay is required by law and not a discretionary gift from the company (for employees), it doesn't say to your teammate "thank you for all your hard work this year. I appreciate what you've done for the firm."
A cynical way of looking at it from an employee's perspective would be, "yeah, great, you did what the law required of you. Thanks." Note: this doesn't mean that the the employee isn't excited or grateful, but just that it's not a show of gratitude on your part.
If you want to show gratitude or provide an extra bonus, that would be separate. For my team, if I want to provide a bonus for their hard work, I do that in addition to the 13th month.
Now, let's address some common questions:
Yes, it's prorated based on the number of months an employee has been with your company.
You should send the payment in early-to-mid December. (The law stipulates that it must be paid on or before December 24th.)
Of course, you can give bonuses at other times during the year unrelated to the 13th month.
At TeamUp we help accountants and bookkeepers hire directly.
We recruit the best talent in the Philippines for a flat fee.
There are no ongoing fees because it's your team and if you need help with payroll or compliance, we can connect you with an Employer of Record who can handle all of that for you.
If you want to learn more, hit the button below to sign up to our bi-weekly newsletter where I share my top hiring and management tips for working with staff in the Philippines.
Or check out some some more resources on hiring in the Philippines here:
If you have any questions please feel free to reach out we're always happy to help.
Hire top accountants in The Philippines with TeamUp DirectHire.
