14th month

What is 14th-month pay?

The 14th-month pay refers to the extra payout that some employers provide their employees. It is equivalent to the employee’s one month’s payout and is usually credited by the end of the year or within a particular cutoff.

However, there can be cases where an employer might extend and/or eliminate a 13th-month payment. In some countries, particularly the Philippines, only 13th-month payouts are mandatory.

Here’s a list of countries that implement the 14-month payout:

• Europe
  • Austria
  • Greece
  • Italy
  • Spain
• Africa, Asia, and Middle East
  • Angola
  • Japan
  • United Arab Emirates
• South and Central America
  • Brazil
  • Bolivia
  • Guatemala
  • Honduras
  • Peru

The purpose of the 14th-month pay

In some countries, one of the main purposes of the extra pay is to incentivize rank-and-file employees. The 14th-month pay is also meant to help ease the financial burdens experienced by workers during certain periods of the year. 

Pros and cons of giving employees a 14th-month pay

Like other benefits and compensation plans, there are pros and cons to giving workers an extension to their 13th-month payout.

Pro #1: Happier employees

Studies have shown that employees who are well-compensated are more likely to be happier and more productive at work. Incentives, especially in the form of monetary payouts like the 14th-month bonus, are what most employees look for in a company.

Pro #2: Lower employee churn rate

Happy and content employees are more loyal to their respective companies. They wouldn’t feel the need to look for another job outside of the organization, which then lowers the employee churn rate.

If there’s a high churn, meaning more employees are leaving, it will be costlier for the company. This is one of the reasons why companies often give out non-taxable allowances, bonuses, and incentives to their workers.

Con #1: Heavy cost for the business

In light of recent events, some companies are looking for ways to cut their expenses down. This is to be expected in industries that see trends going up and down the scale every day.

If they were mandated to give out extra bonuses to their entire workforce, it could speed up their downfall. 

Con #2: Higher taxes

Companies still need to file and pay their taxes in order to avoid penalties. All bonuses, incentives, 13th/14th-month payouts are subject to tax in certain countries, shouldered by the company.