13th month pay is an additional payment often equivalent to one month’s salary that employees receive as part of their annual compensation. It is mandatory in many countries, especially in Latin America and Southeast Asia, where it is seen as a way to support employees financially during the year-end holiday season. Unlike a performance-based bonus, 13th month pay is usually a guaranteed payment, calculated as a fixed percentage of the employee’s annual earnings.
The primary purpose of 13th month pay is to provide employees with extra financial resources around the holidays, though the timing and calculation methods vary by region. For instance, in the Philippines, it’s calculated as one-twelfth of an employee’s total base salary for the year. This benefit, however, may be subject to different tax treatments and eligibility requirements based on each country’s regulations. Managing such local requirements can be challenging, especially for globally distributed teams, which is why many businesses utilize employer of record services to navigate these complexities.
Is it required or expected to pay a 13th month salary?
Language varies from one country to the next. When it comes to compensating employees, there are three types of pay:
- Mandatory pay, which the employer is obligated to provide, according to local governments
- Customary pay, which includes many types of bonuses employees in the local economy expect
- Discretionary pay that is up to the employer and often viewed as an extra or unanticipated perk by employees
Some countries formally mandate 13th month pay and provide non-negotiable instructions for how to calculate and pay them out. These mandates are enforceable by legal action.
But even when a country doesn’t have a law on the books mandating a 13th month salary practice, that doesn’t exempt the employer from participating. There are many countries around the world where this practice is customary (e.g., expected), and opting out can really hurt your chances of attracting the right talent.
Take, for example, employer-sponsored healthcare programs in the United States. While there is no law mandating it, it is customary for employers to provide affordable and adequate health insurance coverage to full-time employees by subsidizing payments on a group plan.
Which countries require 13th month pay?
This is a thorny question (thanks to all the different terms and details). There are a few dozen different countries on different continents that require or strongly encourage a 13th month pay schedule.
13th month pay in Europe
In Europe, there are three countries that mandate 13 month pay, including:
And there are eight more countries where 13 month pay is customary:
Five additional European countries may mandate 13 month pay by industry as part of a collective agreement. These countries include:
For example, in Greece, employees receive the most generous compensation allowances that include both a 13th month and 14th month salary, as well as a holiday bonus. Greek employees receive extra paychecks at Christmas, Easter and in the summer.
Requirements in North America
While many developing countries have provisions for this type of payment, there are currently no mandates for 13th month pay in the United States or Canada.
Private employers in the U.S. and Canada may provide a year-end or Christmas bonus at their discretion. However, there are no requirements for this compensation either. Mexico mandates a 13th month bonus to be paid by December 20th.
The details on Latin and South America
In Latin America, 16 countries mandate 13th month pay:
- Argentina
- Bolivia
- Brazil
- Colombia
- Costa Rica
- Dominican Republic
- Ecuador
- El Salvador
- Guatemala
- Honduras
- Nicaragua
- Panama
- Paraguay
- Peru
- Uruguay
- Venezuela
This practice is also common in Chile, but unlike the list above, it is not federally mandated. This means that employers can choose to opt out. However, doing so would be viewed unfavorably by local employees.
The requirements still vary widely by country, even though the practice is more widely recognized throughout Latin and South America. For example, in Panama the installments are split into three payments on April 15th, August 15th and December 15th.
13th month pay in Asia
In Asia, only three countries mandate the practice of 13th month pay, including:
There are an additional 10 countries where the practice is customary:
This practice actually started in Asia and is widely adopted in many countries. Some, like Indonesia, refer to it as a religious bonus and time the payment with the Christmas holiday.
13 month salary in Africa
The practice is a little less common in Africa with only 3 countries mandating or encouraging the practice of a 13th month salary:
In most cases, African countries use this as a bonus to be paid around the holidays. And in Angola, for example, there are actually two bonuses. The 13th month pay is timed with the employees’ personal vacation and the 14th month pay is timed with the holiday.
How is 13th month pay calculated?
Calculating 13th month pay varies by locale and agreement.
The most common method is to take the annual base salary divided by 12 months to determine the amount paid per month. That amount is then paid one extra time per calendar year to account for the 13th month pay requirement.
Salary / 12 = 13 month payment
In some countries like Italy and Brazil, the employee's annual base salary is divided by 13 (rather than 12), with the extra installment paid out on a predetermined date. In other cases, the formula for calculating 13th month pay gets a little more complicated.
Let's take Argentina, for example, where the 13th month pay is mandated to be paid biannually in June and December. Each bonus is paid at a rate of 50% of the employee's highest monthly salary in the preceding six months.
And when it comes to paying taxes, different rules may apply to bonuses like 13th month pay. In almost all cases, this pay is taxed, but often at a lower rate than regular income.
Is 13th month pay a bonus?
Among the countries who have adopted 13th month pay, it is not considered a bonus. Bonuses are typically tied to the performance of either the individual or the company.
What is 13th month pay if it is not a bonus? Thirteenth month pay is a deferred installment of a contracted salary. It is a customary element of compensating rank-and-file employees who receive a set salary.
However, there is a long list of employees who may not be included in 13th month pay requirements. This list includes anyone who isn’t paid a traditional salary, like freelancers. Since this is something that varies from one country to another, you will need to check with the local government for the country where you will pay these bonuses for complete compliance information.
Positions that may be exempt include:
- Managers or employees responsible for certain activities like hiring and firing staff
- Employees who already receive similar compensation via an alternate bonus
- Private servants
- Employees who work on commission or on a “per-project basis”
- Civil servants
For many of these positions, individuals are paid on a per task basis rather than a set salary. For example, a personal nurse or assistant might only be paid when they are needed for work with no formal employment contract. In countries where the practice is customary, this usually means these types of employees forego claims to a 13th month salary.
In the Philippines, however, too many employers were skirting the requirement on technicalities. The government issued a new labor advisory in October 2020 declaring that all rank-and-file employees, regardless of position or employment status, are eligible for 13th month pay without exception.
When is 13th month pay given?
The timing varies by country, but 13th month pay is often distributed either at the end of the year, around holiday seasons, or split between mid-year and end-of-year. In the Philippines, for instance, 13th month pay is required to be paid by December 24th. In some Latin American countries, this additional payment may be split into two installments: one mid-year and one in December. Understanding the timing is essential to manage expectations and remain compliant with local regulations. Check out our guide on how to pay bonuses to employees around the world for additional details on different countries' timing preferences.
Who is eligible to receive 13th month pay?
Eligibility varies by country, though it usually applies to all employees who have completed at least one month of service. For example, in Brazil, nearly all employees qualify for this additional compensation. In other countries, part-time employees, seasonal workers, or contractors might not be eligible. Clarifying employee eligibility is key, particularly for companies expanding internationally. With our global recruitment services, businesses can better navigate international employment policies and ensure correct payments.
What is the difference between 13th month pay and a year-end bonus?
While they might seem similar, 13th month pay and year-end bonuses serve different purposes. 13th month pay is generally a legal requirement and calculated as a fixed portion of the employee’s salary, while a year-end bonus is usually discretionary and may be performance-based. Some countries require both, so companies should be aware of each payment’s purpose and legal implications. Using an employer of record service can help navigate these differences, ensuring compliance with local regulations.
Does 13th month pay apply to contractors?
In many cases, contractors do not qualify for 13th month pay because they are not considered permanent employees. The specifics depend on the country and local labor laws. If you engage international contractors and want to understand your responsibilities regarding additional payments, consult our contractor management services. An experienced global HR partner can help differentiate between contractor and employee obligations in each country.
Is 13th month pay taxed?
Tax treatment for 13th month pay varies. In some regions, it’s exempt from income tax up to a certain limit, while in others, it’s fully taxable as part of the employee’s income. For example, in the Philippines, it’s tax-exempt up to a certain threshold, whereas in countries like Brazil, it’s fully taxed. Local tax regulations affect how much of the 13th month pay an employee ultimately receives. Partnering with a compliant payroll provider can help ensure proper tax handling and adherence to local tax laws.
Are there penalties for non-compliance with 13th month pay?
Yes, in countries where 13th month pay is required by law, failing to provide it can lead to fines, penalties, or legal action against the employer. Non-compliance can also damage a company’s reputation and employee morale. When entering new markets, companies can benefit from working with an employer of record to ensure they meet local payroll requirements, including mandatory payments like 13th month pay.
How can I ensure compliance with 13th month pay globally?
Compliance with 13th month pay and other country-specific payroll requirements can be challenging. Partnering with an experienced global HR provider, like Safeguard Global, can simplify payroll management and help businesses remain compliant across regions. Our EOR platform can handle local payroll intricacies, allowing you to focus on other aspects of global expansion. By ensuring accurate and timely payments, you create a more positive, compliant work environment for your international employees.
How does 13th month pay impact visa-sponsored employees?
Visa-sponsored employees, such as those on O1 visas, H1B visas, or E2 visas, may or may not be eligible for 13th month pay depending on the country’s labor laws and the nature of their employment. For companies hiring employees on visas, ensuring compliance with all local payroll and compensation requirements is essential to maintain a favorable work environment and comply with both local and visa-specific regulations.
The bottom line on defining 13th month pay
If you operate in multiple countries around the world, it’s time to get familiar with the practice of 13th month pay.
Whether it’s mandated or more of a tradition, you don't want to miss the boat when it comes to properly compensating your employees (imagine missing your own Christmas bonus!). Not only do you need to know which countries employ the practice of 13th month pay. You also need to familiarize yourself with all the details on implementing it across countries.
Oh, and the 13th month pay is just one of the many nuances that come along with paying employees in different countries around the globe.
Learn more about Global Managed Payroll and how a centralized vendor can benefit your multinational business, or contact us with any questions you may have.