Key takeaways:
- What is 13th-month pay: 13th-month pay is an extra month's salary paid in addition to the employee’s 12 regular monthly salaries. It's a statutory benefit in some countries, and a discretionary benefit in others.
- 13th-month payment varies by country: The calculation, timing, and tax implications of 13th-month pay differ worldwide.
- Taxation rules: 13th-month pay is exempt from taxes in some jurisdictions. It depends on whether the payment exceeds standard thresholds or how it’s integrated into the annual salary.
- Global benefits administration is easy with G-P EOR: Offer compliant benefits plans for your global workforce, including 13th-month pay and other entitlements.
13th-month pay is a legal requirement in many countries around the world, mainly in Latin America and Asia. In other countries, it's customary — or not offered at all. For example, paying a 13th-month salary is required in Brazil, but it’s not a standard practice in the United States.
For companies building global teams, understanding how and where 13th-month pay applies is essential to avoiding compliance headaches and fines.
What is 13th-month pay?
13th-month pay (thirteenth month pay) — also known as 13th-month bonus or 13th-month payment — is an additional monetary compensation on top of an employee’s 12 regular monthly salaries.
The 13th-month pay is meant to give employees extra financial resources around the holidays, although the exact timing and calculation methods vary by country.
In most cases, 13th-month pay is the equivalent of a full month’s salary or 1/12 of the employee’s total base salary.
What’s the history of 13th-month pay?
The 13th-month pay law was originally established in 1975 by Philippine President Ferdinand Marcos. Known as Presidential Decree No. 851, the law was implemented to address the low minimum wage rates, as Congress hadn’t updated local employment laws since 1970.
The decree entitled low-wage employees to additional compensation, helping them celebrate the holidays and manage their expenses. Other countries have adopted similar regulations, often referring to it as the thirteenth salary.
In some cases, companies also pay out 14th-month salaries. Workers may be entitled to these bonuses by law, collective agreements, employment contracts, or specific rules governing vacation and holiday periods.
Is 13th-month pay mandatory?
13th-month pay is mandatory in some countries, mainly in Latin America and Asia. Countries like Portugal and Guatemala may even mandate an extra payment of a 14th-month salary on top of a 13-month paycheck.
In other countries like China and France, 13th-month pay is customary, meaning that while not legally required, it’s expected by employees. Employees measure offers against local expectations, so falling short on a norm like 13th-month pay can quickly damage your employer reputation.
However, there are countries where 13th-month pay is neither mandatory nor customary. In the United States, for example, employers typically offer alternative end-of-year incentives, such as performance-based or productivity bonuses.
Any company that hires employees internationally has to comply with the host country’s employment standards, compensation laws, and labor rights.
G-P Gia™, our AI-powered global HR agent, can help you better understand which countries have a 13th-month pay system, whether customary or mandatory, along with the specific requirements, conditions, and pay dates for each.
13th-month pay vs. performance bonuses
13th-month pay is an extra annual payment, often equal to one month’s base salary and calculated according to salary and length of service. A performance bonus is variable compensation tied to individual or team results.
13th-month pay is legally required in some countries and is commonly paid at the end of the year or before a major holiday, while performance bonuses are typically governed by an incentive plan and may be reduced to zero if targets aren’t met. However, either payment may become legally enforceable if promised in legislation, an employment contract, a collective agreement, company policy, or established practice.
13th-month pay vs. profit-sharing
Profit-sharing is variable compensation linked to the company’s profits over a defined period. It depends on the company’s financial performance and the rules of the applicable plan, meaning the payment may be reduced or unavailable when profits are insufficient.
| 13th-month pay | Profit-sharing | Performance bonus | |
|---|---|---|---|
| Purpose | Usually an additional annual salary payment, holiday payment, or deferred portion of compensation. | Shares employer profits with employees. Purpose may be statutory social participation, negotiated gain-sharing, retention, or incentive alignment. | Rewards individual, team, business-unit, or company performance against targets. May be incentive compensation or a discretionary recognition payment. |
| Legal basis | Statutory in some jurisdictions; elsewhere contractual, CBA-based, or established by regular practice. | May be statutory where law requires employee participation in profits. Otherwise contractual, CBA-based, policy-based, or equity/incentive-plan based. | Usually contractual, policy-based, plan-based, or discretionary. Can become implied through consistent practice or objective criteria. |
| Eligibility | Statutory rules may limit coverage by employee category, tenure, wage type, sector, or employment status. Contractual plans follow their terms, subject to wage law. | Statutory eligibility may depend on employee category, service period, employer size, taxable profits, sector, or exclusions. Contractual plans define participants. | Eligibility typically depends on role, grade, hire date, performance status, disciplinary standing, and plan participation rules. |
| Accrual/when earned | Commonly accrues over the year or relevant service period and is prorated for partial service unless lawful rules provide otherwise. | Statutory profit-sharing is earned only if legal preconditions are met, including profit existence and allocation timing. Contractual rights accrue under plan terms. | May be unearned before award if genuinely discretionary. However, it can become earned when objective conditions, performance periods, approvals, or consistent practice establish entitlement. |
| Calculation basis | Often based on basic salary, eligible remuneration, or a statutory formula. Exclusions vary and may include allowances, overtime, commissions, or bonuses unless incorporated by law or practice. | Statutory schemes may use profit pools, wage factors, service factors, employee categories, caps, and statutory allocation formulas. Contractual plans follow agreed formulas. | May be target percentage, fixed amount, scorecard, KPI formula, manager assessment, company multiplier, or mixed formula. |
| Employer discretion | Limited or none for statutory or earned contractual 13th-month pay. Discretion applies only where no binding promise or practice exists. | Limited for statutory schemes once profits and eligibility conditions exist. Contractual discretion depends on plan language and good-faith limits. | Broad only before entitlement arises. A “discretionary” label alone may not prevent accrual if the bonus is formula-based, regularly paid, or objectively earned. |
| Treatment upon resignation | Often payable on a prorated basis through the resignation date if statutory or earned. Contractual exclusions require local-law review. | Statutory or earned amounts may be payable if the allocation period or service conditions are satisfied. Contractual plans may prorate or forfeit only if lawful. | Earned bonuses should be assessed for payment or proration. Truly discretionary, unawarded bonuses may lapse if no entitlement arose. |
| Treatment upon dismissal | Statutory or earned 13th-month pay commonly remains due, even if dismissal is for cause, unless local law provides forfeiture. | Earned statutory or contractual profit-sharing generally should not be withheld solely because of dismissal unless lawful forfeiture rules apply. | Earned performance pay may remain due. Misconduct-related forfeiture clauses require careful review and consistent application. |
Which countries require 13th-month pay?
Many countries implement a mandatory 13th-month salary, while it’s only customary in others. There are several 13th-month pay countries in Latin America. However, specific countries in Europe also mandate a 13th-month pay for certain industries.
Countries with 13th-month pay
| Mandatory | Customary | Mandatory for certain industries |
|---|---|---|
|
Latin America
Asia
Europe
Africa
|
Latin America
Asia
Europe
Africa
|
Europe
|
Who is entitled to 13th-month pay?
Eligibility for 13th-month pay varies by country and may depend on legislation, collective agreements, employment contracts, company policy, or established practice.
Depending on the country, several types of employees may not be entitled to a 13th-month salary, including:
- Managers or those with authority to make or recommend personnel decisions.
- Personal service providers like private nurses or drivers.
- Commissioned employees, freelancers, and contractors.
- Civil service employees.
Attract and retain talent with benefits that match local standards and regulations with G-P EOR. We can help you simplify 13th-month pay by ensuring compliance with local regulations and determining which employees are entitled to this benefit.
How to calculate 13th-month pay: formulas, prorations, and edge cases
When it comes to how to calculate 13th month pay, countries have different methods. Typically, 13th-month salaries should equal a full month’s pay or 1/12 of the employee’s total base salary.
- Standard annual calculation: 13th-month pay is generally calculated using the employee’s qualifying earnings for the relevant year or service period, applying the formula and divisor required by local law or the applicable employment terms: Total qualifying basic salary earned during the relevant year ÷ 12.
- Proration mechanics for mid-year hires: For employees who join or leave during the year, the payment is typically prorated based on qualifying earnings or eligible service during that period; dividing by months worked is appropriate only where the governing rules require that method.
- Handling wage adjustments and leave types: Wage adjustments should be reflected according to the qualifying salary earned at each applicable rate during the calculation period. The treatment of paid leave, unpaid leave, allowances, overtime, commissions, and premiums depends on local law and the applicable employment terms.
When should 13th-month pay be issued?
The due dates for 13th-month payments vary by country. In most places, companies are required to pay employees 13th-month salary in December, but some countries will pay it on an employee’s one-year anniversary and at the same time each year thereafter. Other exceptions include China, where a customary 13th-month pay is expected before the Chinese New Year, and in Saudi Arabia, this benefit is typically given during the Muslim holiday of Eid al-Fitr in July.
Most countries in EMEA, on the other hand, will give their employees 13-month pay in May or June as an extra source of compensation during summer breaks and time off.
Some countries split the bonus into two halves or include a 14th-month salary, leading to two payment deadlines. Others have different standards for when the 13th month pay is released.
It’s important to check the latest updates for each country where your company operates.
Although often distributed at the end of the year, the 13th-month pay is not considered a Christmas bonus. In many countries, both bonuses are provided separately, with the holiday bonus being an additional benefit.
Is 13th-month pay taxed?
13th-month pay is usually exempt from taxes. However, it can be taxable like other standard salaries – particularly in countries where the annual salary is divided to include the 13-month payment.
It’s also important to consider that any payments over the 1/12 denomination of the employee’s basic salary are taxable. For example, the exclusion rate in the Philippines is PHP 90,000 — the maximum amount allowed without taxation. This maximum limit also includes a bonus component along with the 13th-month salary. This means that if any employee receives a bonus of PHP 90,000 before 13th-month salary, the maximum limit of PHP 90,000 will be used against that bonus and there will be no further deductions provided against 13th-month salary.
In some countries, 13th-month pay is taxed, but typically at a lower rate than regular income. Ultimately, each country has its own set of regulations regarding taxation.
Hire anywhere and scale everywhere with G-P
G-P is the world’s first Global Employment Platform that turns global HR and compliance into a growth engine. Our platform makes it easy to operate globally and offer benefits like — 13th-month pay — that meet the rules and norms of the countries you’re hiring in.
““G-P has been a strong partner in supporting our global payroll operations, including variable payments such as commissions and bonuses. Their platform helps ensure accurate and timely payouts across countries, and their support has improved visibility into our payout process.” - Cammi Liu, Global Payroll Operations, Coursera
With our dedicated team of HR and legal experts, G-P takes on complex global hiring challenges — including staying up to date with constantly changing labor laws worldwide — empowering you to build and manage global teams in 180+ countries with confidence.
FAQs
What is 13th-month pay?
13th-month pay is an additional monetary benefit for employees in certain countries. The calculation method and eligibility criteria vary depending on local laws. In some jurisdictions, such as the Philippines and Brazil, 13-month pay is a statutory requirement and is typically calculated as 1/12 of the employee’s annual basic salary.
Is 13th-month pay mandatory in all countries?
No. 13th-month pay isn’t mandatory in all countries. While it’s required by law in several countries across Latin America and Europe, it’s only customary in others. The specific rules — including eligibility, calculation, and payment timing — differ by region as well. Research local employment laws before you begin operations in a new country.
How do I know which employees are eligible for a 13th-month salary?
Eligibility depends on local laws, employment status, and contract terms. In some countries, only rank-and-file or nonmanagerial employees are entitled to 13th-month pay. In other jurisdictions, all employees get this benefit. We recommend checking the specific regulations for each location.
How is 13th-month pay calculated?
The calculation method varies by country, but it’s typically based on the employee's salary. Local laws specify the formula, which often excludes nonbasic pay components such as overtime, bonuses, or certain allowances unless otherwise stated in the employment contract or collective bargaining agreement. Make sure you’re using the right formula and excluding any nonbasic pay components as required by local law.
What is the deadline for paying the 13th-month salary?
The deadline for paying the 13th-month salary depends on the country. Many jurisdictions require payment in December, while others may tie the deadline to particular holidays or set a different schedule altogether. It’s important to track and comply with the statutory deadlines in each country where you operate to avoid penalties and ensure timely payment to employees.
What is the difference between 13th-month pay and bonus pay?
Where required by law, 13th-month pay is mandatory for every employee, regardless of performance. Bonus pay, on the other hand, is typically tied to performance and other factors. Additionally, 13th-month pay is a fixed payment based on the employee’s annual salary, while bonus amounts are variable.
