Economy Why Do Salaries Have A 13th Month Payment?
Why Do Salaries Have A 13th Month Payment?

Why Do Salaries Have A 13th Month Payment?

Have you wondered why pay packages often include a 13th month payment even though there are only 12 months in a year?

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A common feature of salary schemes locally, the 13th month payment is made to more than half of employees* in Singapore at the end of every year. Handy for year-end festive spending, books for the new school year and income tax payments, the 13th month payment is not required by law but is part of a contractual arrangement between employer and employee, much the same as transport allowances or welfare benefits in the remuneration package. It has been a longstanding feature in both the public and private sectors.

How did it come about? And what is it for?

The idea of a 13th month payment was first conceived of as an economic growth allowance for public servants in 1972 to help bridge the widening gap with private sector wages . In the early 1970s, Singapore's economy was growing rapidly on the back of industrialisation, but the public service had not had a full-scale salary revision for 20 years. The government was aware that with the rapid rise in private sector wages, it too had to raise salaries to attract and retain employees. From a budgetary perspective, the timing was also right given that the economy had weathered the last phase of withdrawal of the British troops better than expected, and had in fact done very well . Government finances could therefore comfortably absorb the increase in expenditure. In March 1972, this proposed allowance was introduced as a 13th month payment for public servants to provide immediate relief before details of the salary revision were worked out over the next year .

In the competition for workers in the booming economy, companies also had to meet the expectation of workers for higher reward. In traditional establishments, bonuses on top of regular wages in the form of New Year ang pows were very much a custom . In larger companies where employees were represented by trade unions, additional bonuses reflecting the good business performance were also commonly negotiated .

The concept of a 13th month payment was introduced into the larger private sector by the newly formed National Wages Council (NWC) that same year to replace unstructured payment of bonuses which had frequently led to disputes and strikes . Annual wage increase recommendations were also introduced by the NWC to guide negotiation between companies and the workers' unions . This ushered in a new era of reasonable and orderly wage increases to reward workers without risking uncontrolled wage costs that could have seriously affected Singapore's ability to attract investments and create jobs as an export manufacturer .

Today, the 13th month payment is also known as the Annual Wage Supplement (AWS). It is usually the equivalent of one month's salary, and is separate from performance bonuses which depend on the company's financial position and individual employee performance. The AWS is normally paid to employees except in difficult times when businesses need to reduce costs .

* Working in establishments with at least 10 employees. Source: Survey on Annual Wage Changes, Manpower Research and Statistics Department, Ministry of Manpower

By Ministry of Manpower. Published July 2019.

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