LOCAL economists said deciding whether to defer the 13th-month pay of employees working for “distressed” small and medium enterprises (SMEs) could either weaken the economy, lead to a legal question, or protect the jobs of millions.
These are just some of the possible implications should the Department of Labor and Employment (DOLE) decide to push through with exempting “distressed” firms from following the law of providing a 13th-month pay to their workers.
At the weekend, Senate Minority Leader Franklin M. Drilon asserted that government officials must follow the law, and any agreement between certain workers and their management to defer payment of 13th month must strictly be between them. Drilon was former Labor secretary, as well as Justice secretary in the Cory Aquino administration.
Last week, Labor Secretary Silvestre H. Bello III said DOLE is now considering this to help SMEs cope in the time of the Covid-19 pandemic.
“[A] case to case deferment [can be considered but not] diminished 13th-month,” former Labor Undersecretary Rene E. Ofreneo told BusinessMirror over the weekend. “[But an] honest serious dialogue [is needed].”
Ateneo Center for Economic Research and Development (Acerd) Alvin P. Ang told this newspaper that it is also important to consider the legal implications and the number of firms and employees to be affected.
Employers are required to provide their rank and file employees a 13th-month pay under Presidential Decree No. 851. Ang said the decision to defer the 13th-month pay would have to follow the letter of the law.
There also has to be considerations made in terms of which firms will be considered distressed by DOLE.
Former University of the Philippines School of Economics Dean Ramon L. Clarete said apart from this, workers who are entitled to a 13th month pay should “voluntarily give this up in exchange for a favor.”
Clarete said, if there is no favor involved such as keeping jobs or other kind of agreement, the DOLE may be violating the law. He added that it was important to define what “distressed” firm meant.
“[This] takes us to define what distressed SME could be. It [distressed firm should have] filed for bankruptcy effective this year and served notice to separate its workers. This can then be the basis for a deal. SME [should also] continue to operate and not layoff the workers,” Clarete explained.
Another consideration for defining a distressed firm, according to Unionbank Chief Economist Ruben Carlo O. Asuncion said, could mean that the SMEs could be on the brink of closure.
Asuncion said maybe the DOLE could consider an SME distressed if the firm is at risk of closing within a period of six months to one year without any relief.
Further, Ang said, the number of affected firms and employees will also determine the impact of such a policy on the economy, especially in the last quarter of the year.
Historically, the fourth-quarter records the fastest increase in consumption spending in the Philippines. With this, it is common for a consumption-driven economy to post its fastest growth at this time.
“If the SMEs have already asked for help from the government especially with wage subsidies and at the verge of closing, maybe they can be considered. We cannot go for a blanket [coverage] because the workers [will suffer],” Ang said. If there is blanket coverage, he added, partly in Filipino, “consumption spending will further slow at a time when you want it to increase, especially since it’s Christmas.”
Asuncion added that firms which are not in clear distress should still be mandated to provide a 13th-month pay. This will greatly increase consumption in the fourth quarter.
The economists as well as the National Economic and Development Authority (Neda) have said that the fourth quarter will bring better economic numbers for this year.
The Covid-19 pandemic has caused the Philippine economy to contract 0.7 percent in the first quarter and 16.5 percent in the second quarter. This led to a decline of 9 percent in the first semester of 2020.
However, if the deferment of the 13th month would mean that workers would be able to keep their jobs, University of Asia and the Pacific (UA&P) School of Economics Dean Cid L. Terosa would side with the DOLE on the matter.
Terosa said the deferment is reasonable considering the impact of the pandemic on thousands of SMEs this year.
Based on the July 2020 Labor Force Survey, 4.571 million Filipinos were considered unemployed, an 87.5-percent increase from the 2.437 million it posted in July 2019.
In April, the number of unemployed Filipinos reached 7.254 million, a 220-percent increase from the 2.267 million recorded in April 2019.
“I believe it is better to secure jobs at this time than to guarantee momentary monetary benefits. Of course, this will cut purchasing power and its multiplier effects,” Terosa said.
“Also, it will deprive poorer households of an expected source of financial relief. I want, however, to take a long-term perspective and support short-term sacrifices for long-term gains,” he added.
IRR provision questioned
Based on the Implementing Rules and Regulations (IRR) of PD 851, employees covered the law may be exempt if they are employees of distressed firms.
Distressed firms, the IRR stated, are those “currently incurring substantial losses or in the case of nonprofit institutions and organizations, where their income, whether from donations, contributions, grants and other earnings from any source, has consistently declined by more than forty [40 percent] percent of their normal income for the last two  years.”
Minority Leader Franklin M. Drilon affirmed on Sunday the existing law granting workers a 13th-month pay benefit does not allow exemptions, and said the IRR is questionable.
A former Labor secretary, Drilon added that paying the 13th-month benefit could not even be deferred.
In a text message to BusinessMirror, Drilon clarified that Presidential Decree 851 or the enabling law for 13th-month pay “does not allow any exemptions”
Drilon pointed out that “it is only in its IRR where you find exemptions for compliance for distressed employers.”
In a radio interview on Sunday, he said, “While if it’s true that the IRR states that distressed employers are exempted from/paying 13th-month pay to its employees, this IRR is questionable as going beyond the law.
He also noted that “the exemption must be per enterprise, and not a general exemption.”
According to Drilon, “the proposal of deferment of payment of 13th-month pay by agreement of the parties is invalid as well, because legal compliance cannot be the subject of an agreement between employee and employer.”
He cautioned that even if employers and affected workers agree to defer the 13th-month pay, this cannot be sanctioned by government as it would set “a dangerous precedent.”
If such is sanctioned by government, then management can ask labor to discuss deferring payment of minimum wage; or benefits can be waived and there will be no sick leaves because of the pandemic. “Such agreement is invalid and contrary to public policy and can be a dangerous precedent.”
The country’s largest labor group said the proposed deferment or exemption of the payment of the 13th-month pay has no legal basis.
In a statement, the Trade Union Congress of the Philippines (TUCP) said, “There is no provision in the Thirtheenth Month Pay Law or PD 851 that allows exemptions or defers payment of.”
Even Secretary Bello admitted this earlier, but he noted that the provision for “distressed” companies is stated in PD 851’s Implementing Rules and Regulation.
He said the IRR will serve as their basis, when they present the two options before employers and labor groups this week for consideration.
“That’s what we would like to discuss with both labor and management on Tuesday on October 13 at 2 p.m.,” Bello said.
TUCP said it will be opposing the proposal, which it considers “moot” since the 13th-month pay “has been accrued and earned by employees since January 1, 2020, up to present.”
“It cannot be waived, forgone, cancelled, deferred or unpaid,” TUCP said.
Furthermore, the labor group said micro and small businesses, which are struggling from the economic disruptions caused by the pandemic, will be getting relief cash assistance under the Bayanihan to Recover as One Law (Bayanihan 2) and the pending Accelerated Recovery and Investments Stimulus for the Economy bill.