John Jonas explains why foreign employers should pay Filipino workers the 13th month bonus even when not legally required. Calculate it by dividing total annual wages by 12, pay it in December, and exclude government-paid benefits and maternity leave from the calculation.
Questions this video answers
Episode 378.
Add up all wage payments made during the year and divide the total by 12.
December (earlier in December is preferred).
No — maternity leave is paid by the Philippine government and should be excluded.
No — employer‑paid benefits are not counted as wages for the 13th month.
Chapters
Welcome to the Secret Sauce of Outsourcing podcast that's dedicated to making you better at working with online Filipino specialists. This is episode 378, the 13th month. So I was supposed to record this episode in December when the 13th month is supposed to be paid, but it was snowing and so I decided to ski instead of work, which is pretty common in my life. So now it's January, I'm recording this and I still feel like it's relevant so that you can be prepared for next year and next year's 13th month. Now, if you didn't pay the 13th month in December because you didn't know about it, it's not too. You can still do it in January or February. Someone who works for you and did not get a 13 month payment and they worked for you for a good amount of time, they'll be thrilled to get whatever they can. So let me explain the 13th month, because in the US this is not a cultural thing. In the Philippines, if you are a Filipino employer and you have people working for you, it is legally required that at the end of the year you give them a bonus of one month's pay called the 13th month. Because you're not in the Philippines and you are not a Philippine employer, you are not legally required to pay this. Should you pay it? Yes, you should. And there's a bunch of reasons why, not the least of which is that it is a very big incentive for people to stick with you. Other reasons are people expect it and they budget around it. They plan their lives around this extra salary payment where this is where they're going to make big purchases in their life. This is how they're going to provide for Christmas. This is how they're going to celebrate. It's a really big deal. So how does the 13th month work? So you, the simple way to calculate it is you add up all the money you paid them throughout the year, all the wage money that you paid them throughout the year, and then you divide by 12. So if you paid them $400 one month and $600 in another month, and $100 in another month, you're going to add up all those amounts, take the total amount, divide it by 12, that's the 13th month. Now, my team took a while to get on board with this way of calculating it. They wanted to say, no, you have to say you made $500 in this month and you made $600 in this month, but you made 450 in this month. And so let's try and figure out like where's the right average amount? Well, no, you just add it up and divide. Every time they try and explain it, they talk about like differing monthly amounts and whatever. And it's just way simple. Add and divide. It always comes out the same and it always comes out correct. So when do you pay the 13th month? Well, customarily it's paid in December and the earlier in December you pay it, the happier your people will be. It's not required to pay it earlier, but if you can pay it in like December 2nd or December 5th, they're going to be a lot more happy and more relaxed than if you pay it on December 22. It gives them more time to shop. It obviously gives them more time to spend, which is not always great. But they'll be a lot happier if they get this money earlier in December. Next, the 13th month is not a Christmas bonus. So in the Philippines it's actually a legally required payment. We send an additional Christmas bonus to people, usually $25 to $50. It's also not an end of year bonus. So that end of year bonus, if you want to send them a bonus, the 13th month is not that bonus. So in addition to the 13th month bonus and the Christmas bonus we send, well, this year we sent a really big bonus to people. Onlinejobs has done really well and we wanted to make our people know that we care about them. So we sent a big bonus in addition. So they are separate things. It's not a Christmas, it's not the Christmas bonus. So that explains most of the 13th month. Now let me go through a couple other questions that I got recently. So here's one. Hi John, my VA started work on April 1st and worked full time until June 18th when she went 14 weeks on maternity leave. She came back to work on September 25th and has worked an average of 60 hours a month since. She is still struggling with making time due to the baby. How do I calculate the 13 month salary? Do I pay her for the time of maternity leave or reduce that time? Do I add up her hours after maternity leave to work out how many months that makes? And do you pay SSS on the 13th month salary? So there's a lot of really good questions here. So first, do you pay on the maternity leave time? No. So maternity leave in the Philippines is paid by the government. The government pays their maternity leave pay. You don't have to pay that and so you don't include that Pay in the 13th month calculation. Next, do you pay the 13 month on their reduced time? Well, yeah, this just goes back to the 13th month algorithm that I just talked about. Add up the total amount you paid them in wages over the year and divide by 12. Next do you pay 13th month on the money you paid in their SSS or their PhilHealth or their Pocky bag or whatever? No, you don't. Those are additional things. Those are not wages or salary. So you don't pay. You don't calculate that amount into your 13th month payment. Another question that I got was, I just hired someone in November. Do I pay the 13th month? So we don't. And most Philippines companies don't tend to. Typically, you need to have a certain amount of time working for the company before they pay the 13th month. In the Philippines, I think that's often six months. We'll usually do it if someone has worked for us for four months. So if they started in October, we're probably not going to pay the 13th month for October, November, December. But if they started in September, then we probably are now in that and in all of there's a judgment call. None of this is set in stone. You don't have to do any of this. You can make a judgment call. So, for example, we pay the 13th month on their SSS and Puggybig and Philhealth payments. We just calculate the total amount we gave them through the year, which that total amount. We pay for their benefits by just giving them more money and we ask for the receipts. But when we calculate the 13th month, we don't subtract it. We just. We're okay giving them extra money. But that's not the correct way to calculate it either. So I'm telling you the correct way to do it. You don't have to pay on those things. Again, to reiterate for all of this, it's all optional. But if there's one extra benefit you're going to pay, the 13th month is the one that you should do.
