The 13th month pay in the Philippines, particularly in the Business Process Outsourcing (BPO) sector, is a mandatory benefit that all employers must provide to their non-managerial employees, to be paid on or before December 24th each year. It can be calculated as one-twelfth (1/12) of the basic salary of the employee within a calendar year or (Basic Monthly Salary x Number of Months Worked) / 12 for those paid monthly. This pay is tax-exempt up to PHP 90,000 (approximately US$1,778). 13th Month pay is paid out in December.
For outsourcers, especially as they approach the 4th quarter, there are several pros and cons to be mindful of when dealing with the BPO sector in the Philippines:
Pros:
- Cost-Effectiveness: The cost of living in the Philippines is lower than in many Western countries, making labor more cost-effective. Outsourcing to the Philippines can therefore result in significant cost savings on wage costs for businesses who outsource.
- Talent Pool: The Philippines has a large and diverse talent pool, with a strong English proficiency and an understanding of Western culture, which can benefit Western businesses in terms of easy communication and cultural alignment. Staff may be reluctant to change jobs in the 4th quarter as it may delay their 13th month pay being received.
- Government Support: The BPO industry is supported by the Philippine government, with initiatives to train workers and maintain global competitiveness. Employment laws stongle lean towards favouring workers.
- Reduced Management Overhead: Outsourcing can reduce the number of management tasks, allowing businesses to focus on core operations, with local outsourcing agencies handling HR and other management functions. The extent to which each BPO takes responsibility for delivery of the work varies significantly.
Cons:
- Weather Disruptions: The Philippines is prone to natural disasters like typhoons and earthquakes, which can disrupt operations. However, Filipinos are capable of handling remote work, which can help maintain business continuity. Where your BPO is located can have a significant effect on disruptions from weather and other natural disasters.
- More Holidays: The Philippines has more official non-working holidays compared to some Western countries, but less annual leave entitlements, both of which can affect work schedules.
- Employee-Friendly Labor Code: The labor laws in the Philippines are pro-employee, requiring just cause for termination and providing severance pay, which can be a consideration for businesses used to more flexible labor codes.
- 13th and 14th Month Pay: Employers must provide an additional 13th and sometimes 14th month pay, which is an extra cost that businesses need to budget for.
Understanding these factors is critical for outsourcers to manage expectations and plan accordingly for their outsourcing needs in the Philippines, especially in the BPO sector during the 4th quarter when the 13th month pay is due.