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Senate must reject Sotto’s 14th month pay bill

SENATE President Vicente Sotto 3rd’s heart may be in the right place, but his bill mandating “14th month pay” for all non-government workers is a potential disaster for Philippine labor and the economy, and must be rejected.

Sotto’s Senate Bill 2, which he hopes will become the “14th Month Pay Law,” was filed in June 2016. It has received little attention and no public hearings to consider its merits have been conducted since then. In spite of this, Sotto remains “hopeful” it can be passed by the Senate next month.

The measure would require employers to pay all non-government and non-managerial employees the equivalent of one month’s compensation each year, on top of the traditional year-end 13th month pay.

The proposed law would move the 13th month pay to the middle of June, with the 14th month bonus to be paid in December.

Sotto’s reasoning for the bill is that “workers need more money” in the face of constantly rising prices, and that the “13th month pay is gobbled up by Christmas expenses.”

Sotto’s sympathy for the well-being of the common worker is admirable. His chosen way to exercise his authority as a senator to help safeguard workers’ welfare is not. It is a poorly contrived sop to the voting masses that will undoubtedly harm the people much more than it helps them in the end.

The reasons why Senate Bill 2 should be discarded are based on elementary economics. The 13th month pay has been a matter of law since 1975; and even if it were not, the paying of a year-end bonus of some kind to workers has become such a convention that many employers account for it in their labor budgeting even if they are legally exempt from paying it. There is no precedent for an additional month’s worth of pay beyond that.

The mandate for an additional month’s pay would pose a clear hardship on employers, which would be passed on to the working class it purports to benefit.

In effect, the proposed law would mean that employers would be paying the equivalent of one extra worker’s wages for every 13 workers they already employ, but without the benefit of additional productivity.

Sotto seems to believe that companies will simply accept that their profits should be reduced to accommodate the extra cost. However, there is no reason for any company that has a choice to do that. That means the rational response to the mandate would be one of two choices: a company could reduce its workforce by one in every 14 employees, or it could raise the prices of its goods or services by a corresponding amount to cover the extra costs.

Imposing a 14th month pay as a legal obligation could lead to business closures and job losses, and at best would only add to price inflation pressures, and discourage employers from creating new jobs or increasing wages.

Rather than follow this wrong path, the Senate should, instead, consider ways in which companies with the financial capacity to do so can be encouraged to voluntarily share more of their extra resources with their employees in the form of “14th month pay” or something similar.

Making 14th month pay mandatory penalizes companies in favor of workers, who will not actually benefit from the measure in the long run. But by offering some incentive to companies to implement an additional bonus for workers, the Senate would be supporting workers and businesses alike. This is a far more productive approach than that taken by Senate Bill 2.

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