Holiday and Christmas allowance, benefits and risks »
Holiday and Christmas allowance

Holiday and Christmas allowance, benefits and risks

The holiday and Christmas bonus are two monthly payments that complement workers' overall remuneration and constitute a worker's right, in accordance with the Constitution of the Portuguese Republic and the Labor Code. These subsidies, as they are called, function in practice as a “salary” that is received by workers in the months of June and December, respectively.

But what is the origin of these two subsidies in Portugal and what were the reasons that led to their creation? And why should they be maintained or replaced by other forms of remuneration?

In this article we will try to answer these questions, making a brief historical review and analyzing the pros and cons of these benefits.

Estimated reading time: 9 minutes

The origin of holiday and Christmas bonuses in Portugal

Holiday pay was established in Portugal in 1962, during the Estado Novo, by Decree No. 44 287 of May 31. This diploma established that salaried workers They were entitled to one month of paid vacation for each completed year of service, with the value of the benefit being equal to the base salary corresponding to that month. This diploma also provided for the subsidy to be paid by June 15th of each year.

As for the Christmas subsidy, it was established in Portugal in 1972, also during the Estado Novo, by Decree No. 457/72 of 23 November. This Decree established that employees were entitled to an annual bonus, corresponding to the base salary for the month of December, with the value of the subsidy being equal to the base salary corresponding to that month. The same diploma provided for the subsidy to be paid by December 15th of each year.

The reasons that led to the creation of these subsidies were essentially political and social. On the one hand, the regime intended to calm the spirits of workers and unions, who were demanding better working and salary conditions, in a context of economic and social crisis. On the other hand, the aim was to stimulate domestic consumption and national tourism, thus favoring the country's economic development.

After April 25, 1974, the granting of holiday and Christmas bonuses was generalized to the majority of workers, including public servants and pensioners.

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These subsidies became part of the Portuguese labor legal system, being enshrined in Constitution of the Portuguese Republic (article 59) and in the Labor Code (articles 263 and 264).

During all these years the issue of holiday and Christmas allowances has never been discussed and, in times of so much change, it may happen that the idea of ​​putting an end to them may arise. The elimination of these remunerations for public servants and pensioners took place on October 13, 2011 and as an emergency measure, by the Government then led by Pedro Passos Coelho.

But now, as mentioned by the newspaper ECO on September 19, 2023, Armindo Monteiro, President of the Portuguese Business Confederation (CIP), proposed “creating the 15th month with fiscal neutrality”, that is, “voluntary payment by 15 companies. th month, up to the limit of the base salary earned by the worker, without incidence of Personal Income Tax (IRS) and exclusion from the contributory basis in terms of social security”, as can be read in this article.

From the CIP's perspective, for there to be wage increases it is necessary to “create wealth because companies do not have infinite capacity”, so “Portugal will have to choose whether it wants to put more money in the State's pockets or in the pockets of the Portuguese”. “Our measures aim to put more money in the pockets of the Portuguese”, stated Armindo Monteiro, quoted in the aforementioned newspaper.

There are some countries, very few, that have similar systems, such as Spain and the Netherlands, where holiday pay is mandatory.

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But the systems are not exactly the same and can mislead the unwary.

In Spain, as in Portugal, workers receive the equivalent of one month's salary, in this case the so-called holiday allowance.

In the Netherlands, the amount allocated concerns 8% of the gross annual salary, different from the Portuguese system in which the holiday allowance is 1/14 of the gross annual salary, that is, equivalent to an increase of 7,14%

In Germany, the Christmas bonus is a voluntary payment and depends on the situation.

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In some Portuguese companies, particularly multinationals, this type of remuneration, depending on the situation, may be a company “productivity bonus” or a “performance bonus”. With the designation chosen, it is additional remuneration, which depends on the results of the company and/or the employee.

Another month of “subsidy” or salary increase?

Let's look at a simple example, of a worker who earns €1.000 per month, gross. It will be equivalent at the end of the year to a remuneration of

1.000 x 14 months, i.e. €14.000 per year.

To make comparisons more correct in relation to other countries, it is equivalent to €14.000 / 12 months, i.e.

Remuneration of €1.167 per month (12 months).

With another month (15th) the remuneration will be

(14.000 + 1.000) / 12 months = €1.250 per month (12 months)

which corresponds to a increase of 7,14%, without considering the financial part inherent to the IRS and the contribution to Social Security (TSU), both from the employer and the employee.

In fact, in companies with some organization and good management capacity, job proposals refer to the value of the annual remuneration and paid in 14 monthly installments.

Stating that workers receive two holiday and Christmas bonuses annually is an “offense” to those who work! They are not subsidies, they are part of the remuneration.

Regarding the 15th month, economist João Duque considers it to have inconveniences because “by not being included in the base salary, firstly it does not guarantee continuity, secondly it does not entitle you to a clear contribution towards the calculation of the pension at the end of life”, as referred to in the Polygraph.

Regarding the 15th month or special allowance, whatever you prefer to call it, it seems that the best thing would be for companies, at least those with good management, to award bonuses to their employees, which could be a month or two or three or even 25% or 50%, depending on your financial possibilities.

This would be a real motivation for workers – there would be a bonus depending on their performance or the group to which they belong, or a bonus for the company's good performance that could be the same or different for everyone or, even, a percentage of profits.

Asking the State for these bonuses to be tax-free would be equivalent to having a subsidy to pay salaries.

Some curious situations from life experience:

1. American Multinational

During the presentation of a project and in the discussion related to its costs and benefits, the Vice-President of an American multinational states that the workforce in Portugal earns well because they not only receive 14 months, but also have a month of vacation, In other words, they only work 11 months and receive 14.

In response it was said that in Portugal the remuneration is annual, like in the USA. The question was returned to the Vice-President, asking if the average annual remuneration of workers shown in the presentation was higher than in the USA, in that type of business?

It was clear that there was no comparison and it was clarified that the peaks of the cash flow were due to the fact that the remuneration is paid in 14 monthly installments, but in some cases it could be in installments with another type of frequency.

The question asked probably had other contours and I certainly wanted to see the opportunity to lower salaries, but the difference between the Portuguese and American salaries It was, and still is, very big.

2. South American Emigrant

During a conversation with a South American emigrant, an artisan living with her partner for many years in Portugal, it was said that the Portuguese were very lucky because in addition to their monthly salary, they received 2 months of allowance for holidays and Christmas.

The clarification was similar to the previous one. The salary is annual, but in fact instead of receiving it in 12 monthly installments, we received it in 14 and, therefore, it was not really any benefit.

Surprised, she responds that this was undignified and insulting to people who, after all, received what they were entitled to as a salary and which were not benefits, such as sickness benefit or unemployment benefit.

And the companies, instead of paying a higher installment over 12 months, retained this amount and even claimed to provide subsidies.

The pros and cons of holiday and Christmas bonuses

Proponents of holiday and Christmas bonuses argue that these benefits are a fair and equitable way of remunerating workers for their annual effort, recognizing their right to rest and Christmas celebration. Furthermore, they argue that these subsidies contribute to increasing workers' purchasing power, boosting the economy and generating more tax revenue for the State.

Critics of holiday and Christmas bonuses argue that these benefits are an inappropriate and outdated way of paying workers, creating distortions in the labor market and in the financial management of companies and families. Furthermore, they claim that these subsidies do not encourage savings or worker productivity, and can generate debt and waste.

One of the alternatives proposed by critics is to replace holiday and Christmas bonuses with an increase in the monthly salary, thus distributing the value of the subsidies over the twelve months of the year. This measure would have the advantages of simplifying salary processing, facilitating financial planning and reducing the seasonality of consumption. However, this measure would also have the disadvantages of reducing workers' net income, due to the increase in discounts for social security and the IRS, in addition to making it difficult for workers to adapt to a new salary reality.

The issue of taxes and Social Security contributions

Balanced management, taking into account the evolution of the economy and quality of life, is the responsibility of governments.

From the point of view of each Portuguese worker and businessman, it is good to have tax reductions, but this must be achieved without degrading the quality of the provision of public services, for example in the areas of justice, health and education or sustainability of social security.

One way of motivating, encouraging productivity and improving quality is to provide workers with other forms of remuneration, such as performance bonuses, profit sharing, retirement savings plans, health insurance or education vouchers. A kind of emotional salary.

This measure would have the advantages of increasing flexibility and personalization of remuneration, stimulating worker motivation and loyalty and promoting worker responsibility and financial autonomy.

Conclusion

Holiday and Christmas bonuses are two benefits that have been part of Portuguese culture and work tradition for more than 50 years. This way of paying for work has a political and social origin, but it also has economic and financial implications. Its defenders and critics present valid arguments about its pros and cons, and there are still alternatives that can be considered. The important thing is that there is an informed and participated debate on this matter, taking into account the interests and needs of workers, companies and the country.

Given these arguments for and against, it is up to each of us to reflect on this issue and form our own opinion. Should holiday and Christmas allowances no longer be designated as allowances? Should the annual salary be paid in 12 installments? Why? Leave your comment below and join the debate!

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