The Most Comprehensive 13th-Month Pay Guide

A global team with top talent is the goal, and with the right Employer of Record, it’s possible for every business. But, with a global team come cultural and legal differences you should consider, as they often differ on a country level.

One of the most interesting differences is the 13th month's salary. Some of your employees will expect it, others will hope for it. You might also have employees unfamiliar with the term altogether.

But, as an employer of a global team, you must be familiar with 13th-month pay in great detail. So, let’s cover all the bases in this comprehensive guide.

What is a 13th month's pay?

A 13th month’s pay is an extra wage paid on top of the regular yearly wages. It often equals the employee's monthly salary, but the calculations may vary.

As the name suggests, it is paid to the employees at the end of the year, which is why it is also known as a “Christmas bonus.” You’ll also see the terms “thirteenth salary,” “13th-month bonus,” and “13th-month salary” used interchangeably to define it.

In some countries, and with some employers, there’s also a 14th-month pay. It's paid on top of the 13th, usually disbursed in the summer months. It is less common than the 13th-month pay and is mandatory in only eight countries worldwide.

Is 13th-Month Pay Mandatory?‍

13th-month pay is mandatory in some countries and customary in others. To maintain compliance with local regulations of employees in your global team, you must be informed on whether you should pay it out.

The first country to include a 13th-month pay provision was the Philippines in 1975. It aimed to compensate for the minimum wage requirement not being raised in five years. Since then, many countries have adopted this practice and made it mandatory for employers. In others, it remains a customary practice to show gratitude to employees.

Which countries have 13th month pay?

It’s important to know whether you must pay the 13th-month salary to each of your global employees. As mentioned before, it's mandatory in some countries, and you may face significant repercussions if you fail to follow the law.

You want to avoid paying hefty fines to the relevant government, and potential lawsuits from disgruntled employees. Ultimately, you want to keep your company’s reputation intact.

Or, you want to build its reputation as a great company to work for, so you should consider even the customary 13th-month pay. It’s an effective bonus to attract and retain top talent.

Also, these requirements may vary depending on the GDP growth, whether the company is public or private, and many other factors. Your Employer of Record knows these in each country they operate in, so you can rely on them to manage the 13th-pay requirements for your global team.

13th month pay in Europe

Countries in Europe are very much divided between mandatory and customary. In many European countries, 13th-month pay is an uncommon practice.

For example, thirteenth-month pay is mandatory in:

1. Greece - Greece has two mandatory half-salary bonuses for the private sector on top of the mandatory 13th-month salary. Employers must pay the 13th-month salary in mid-December, and half-salaries in mid-April and mid-July.

2. Spain - Spain also has a mandatory 14th month salary. Employees will expect the 13th around Christmas, and the 14th in the summer. The 13th and 14th salaries each equal an employee’s 1/14 of annual wages.

3. Italy - Italy has a mandatory 13th salary, with 14th being common practice in some industries.

4. Portugal - Portugal has mandatory 13th and 14th salaries. 13th is paid in December and the 14th at the time of the employee’s summer holiday.

It’s customary to pay a 13th (or even 14th) month pay in these European countries:

1. Austria - In Austria, 13th and 14th-month pay is a market-norm benefit for many industries.

2. Germany - It is prevalent for German employees to receive a 13th salary. But, it depends on the type of contract they have.

3. Belgium - Most employees expect a 13th-month salary in Belgium.

4. France - In France, the law sees the 13th salary as a bonus, and it’s not mandatory.

13th-month pay is neither customary nor a legal requirement for Finland, Czechia, the UK, and Poland, to name a few.

13th-month pay in Asia

Even though the 13th-month pay originated in the Philippines, it is not mandatory in most Asian countries. On the other hand, it is customary or encouraged by the local government.

13th-month pay is mandatory in:

1. The Philippines - The practice remains strong in the country of its origins. In the Philippines, all private sector workers should receive a 13th-month bonus.

2. India - 13th-month pay is mandatory for all employers.

3. Indonesia - Indonesia mandates the extra month’s pay. The employees will expect the payment on one of the religious holidays. Which holidays the employer should meet depends on the employee’s beliefs.

In Asia, the common practice involves performance-based bonuses for the Lunar New Year. It typically falls between the 21st of January and the 20th of February. This practice is common in China, Vietnam, Hong Kong, and Taiwan.

Japan prefers performance-based bonuses. However, bonuses are not expected on a particular date and are left to the employer's discretion.

Singapore is one of the countries whose government encourages employers to pay an additional month of salary. It's known as the Annual Wage Supplement (AWS).

13th-month pay in Latin America

13th-month pay is prevalent in Latin America, where it’s also known as “el aguinaldo”. Chile is the only country in Latin America where this type of bonus is not mandatory by law. It is still customary in Chile, though.

Even though almost all Latin American countries require employers to pay this bonus, there are significant differences in “how much” and “when”.

For instance, in Argentina and Uruguay, half the 13th salary is paid in June, the other half in December. In Guatemala and Honduras, the first half is paid in July.

Brazil requires two installments - one by the end of November, and one by the end of December. Panama’s employees receive a third of the 13th salary each April, August, and December.

Others, like Costa Rica, El Salvador, and the Dominican Republic require the 13th salary to be paid by the 20th of December.

There are also differences in how much the employees will get. In Mexico, the bonus equals 15 days of salary.

Employers might have to pay the 14th salary in Guatemala, Peru, and Honduras.

Is there a 13th-month bonus in the USA?

In the US, it's neither mandatory nor customary for employers to pay the 13th or 14th month salary. US companies prefer to offer sign-up, performance-based, or incentive bonuses instead.

All bonuses in the US are up to the employer's discretion. They may be a part of the employment agreement.

Is there a 13th-month pay in Australia?

It’s not a common bonus in Australia. The employee has to ask and stipulate it in the contract, otherwise, they won't be even offered the thirteenth pay. Some Australian companies offer performance-based bonuses at the end of the year, but it’s not mandatory.

Australia is famous for “Leave loading” instead. Leave loading is an extra pay some Australian employees receive, usually while the employee is on annual leave.

How to calculate the 13th month's pay?

Calculating 13th-month pay can be tricky, especially since the math varies depending on the country.

In most countries, it is equivalent to a month’s pay. You’d calculate the thirteenth pay by dividing the total annual salary by 12. Typically, this total salary doesn't include bonuses, raises, or any other monetary reward offered that year.

In other countries, the 13th salary is calculated as an equal part of the annual salary. You should divide it by 13 to find out how much you should pay your employees for Christmas. Some countries require it to meet specific percentages.

Sometimes, it is paid in two installments, in summer and winter, so you should divide the 13th salary into two parts.

Consider hiring a global payroll provider if you struggle with navigating the thirteenth-month salary on top of your global team's payroll and local legal requirements. These organizations can manage all these differences for you, and ensure you are compliant when it comes to the 13th month’s pay.

Who is eligible for 13th-month pay?

Similarly to calculating the 13th-month pay, who is eligible for it differs from country to country. Generally, every salaried employee is eligible for this bonus. However, it might depend on how long the person works for a company and other factors.

Some countries impose 13th-month pay on private-sector companies, while public-sector workers are exempt from this. Freelancers, independent contractors, and personal service employees usually don't receive this bonus.

Is the 13th-month pay just a bonus?

While companies use both the 13th-month pay and other bonuses to show gratitude to their employees, they do differ. Bonuses often come with strings attached and the employee has to meet certain performance criteria to earn it.

However, the 13th pay sometimes means you’ll be paying your employees less throughout the year, as you divide the annual pay by 13. It’s recommended to discuss this issue with your EOR so that you maintain compliance.

If it's customary, you should discuss the topic with your employees. Some may prefer to skip the 13th salary and get higher pay each month in its equivalent.

Also, how these incentives are taxed may vary by country. It’s recommended you consult with your EOR on the best way to approach the “Christmas bonus.” Depending on the country, they will guide you on what's best for both your company and your employees based on local laws and regulations.

FAQ:

What is the difference between the 13th month's pay and the bonus?

There may or may not be a significant difference between the two, depending on the local law. In some countries, a 13th month is one extra month’s wages dictated by the country. A bonus is often left to the employer’s discretion and based on the employee's performance.

It’s best to inform yourself of regulations in a specific country or consult your EOR to determine whether you'd benefit from a 13th-month pay or a bonus.

When are most 13th-month payments made?

Most 13th-month payments are made in November or December, but typically before Christmas. In some countries, companies pay this bonus in two installments, with one paid in summer or when an employee takes their annual vacation.

How do you calculate an annual bonus?

Calculating an annual bonus depends on the country your employee resides in, as the legal requirements may vary. You might need to divide the annual salary by 12, or 13, or calculate a percentage of it to find the right amount you need to pay to stay compliant.