If your company operates in multiple countries, you know handling your human resources responsibilities can be an overwhelming and complex task. Even seemingly straightforward issues can have underlying complications. For each country your employees are in, you need to know the laws, regulations, and customary inclusions.
This especially applies to payroll. In some countries, paying 13th-month salaries is either customary or required by law. There are rules and regulations surrounding the details of 13th-month pay, so you need to be careful and learn the conditions for each country or industry. You also need to stay up-to-date, as the minimums, maximums, and requirements may change each year.
With so many specifics to remember, any HR team at a company with international operations has their work cut out for them. This guide will help you to better understand the 13th-month pay system, who needs it, and how to calculate it with relative ease.
What Is 13th-Month Pay?
13th-month pay—also sometimes referred to as the 13th-month bonus, 13th-month salary, or thirteenth salary—is a monetary benefit that is either mandatory by law or customary for the countries that participate. Any company that hires employees internationally is required to comply with the host country’s employment and compensation laws and labor rights.
Typically, each bonus is based on the salary pay of the worker it applies to. It should equal a full month’s pay, or one-twelfth of their total base salary. However, countries have various methods of computing the exact amount. These methods include basing the bonus on the highest month’s salary, average pay in the three months prior, an employee’s years of service, or one of several other approaches.
While it is often distributed at the end of the year, most frequently in December, the 13th-month pay does not count as a Christmas bonus. Many countries provide both bonuses separately, with the holiday bonus being an additional benefit.
The History of 13th-Month Pay
The idea behind 13th-month pay comes from a longstanding Filipino tradition. Christianity is the predominant religion in the Philippines, and the Christmas holiday is known as one of the most significant celebrations. Because of the 13th-month salary, families can afford to gather with their relatives and hold the “Noche Buena”—their midnight meal custom—on December 24th to welcome Christmas Day. For breadwinners, the expenses can be a significant burden.
The 13th-month pay law was originally created in December of 1975 by Philippine President Ferdinand Marcos. The law is also referred to as Presidential Decree No. 851. President Marcos put it in place to compensate for the low minimum wage rates, considering Congress had failed to update them since 1970. The law entitled low-salary employees to money that would allow them to celebrate the holiday and pay bills.
Other countries have adopted similar regulations, sometimes referring to it as the thirteenth salary. In some cases, companies will pay out a 14th and 15th month as well. The workers may be entitled to these bonuses by law, collective agreement, employment contracts, or rules for vacation and holiday periods. Each country’s government and companies themselves determine whether or not extra bonuses are to be paid and—if they are—when.
Why Provide Extra Pay?
Filipino employees spend the Christmas holidays in the company of their families. They shop for presents, take food and gifts to neighbors, attend mass, share their prosperity with those who are less fortunate, and prepare the Noche Buena feast. The season is full of joy, but also expensive, and Filipinos who can’t afford the costs have been known to beg, borrow, or steal to give their families a good holiday experience. The 13th-month pay has allowed them to provide the proper arrangements during the Christmas season.
Some companies may release the salary in two halves. In this case, the first is paid in May and the second in December. While the December distribution is for the traditional Christmas and New Year’s holiday celebrations, the May distribution is meant to help families with school-aged children. It ensures children are able to attend school, as their parents will be able to pay their tuition down payment.
While these are the original reasons that apply to the Philippines, the extra salary in other countries goes toward different expenses. However, it still stands that mid-year and end-of-year bonuses are helpful for holiday and educational purposes, as well as paying bills and other necessary expenses. Some laws or agreements allow employees to request a portion of the extra payment before the required date, so they may use the money for personal needs.
13th-Month Salary Countries
You may be surprised to see how many countries implement a 13th-month—sometimes even a 14th-month—salary. But it is important for your company to know where the bonuses are customary or mandatory, as well as the requirements, conditions, and pay dates for each.
Here are some of the top countries for expansion that include 13th-month pay, divided into four regions:
1. Latin American Countries
- Argentina: Mandatory. It is paid in two equal installments — the first by June 30th and the second by December 18th.
- Bolivia: Mandatory and tax-free up to one month’s wages. 14th-month is also mandatory as a holiday bonus if GDP is over 4.5%.
- Brazil: Mandatory. It is paid in two equal installments, the first by November 30th and the second by December 20th. 14th month is also mandatory as a holiday bonus.
- Chile: Customary. It is paid either in one December installment or as two halves in September and December
- Colombia: Mandatory. The first half must be paid within the first 15 days of June and the other half within the first 20 days of December.
- Costa Rica: Mandatory. It must be paid within the first 20 days of December.
- Dominican Republic: Mandatory. It must be paid by December 20th.
- Ecuador: Mandatory. 14th month is also mandatory and may be paid in installments or one lump sum by employee request. The total bonus should equal 15% of employer profits, subject to a cap of 24 times the minimum wage.
- El Salvador: Mandatory. It is a Christmas bonus based on years of service.
- Guatemala: Mandatory. It is paid at mid-year. 14th month is also mandatory and is paid at the end of the year. Each payment is equal to one month’s salary.
- Honduras: Mandatory. It is paid in December. 14th month is also mandatory in July, and each is equal to one month’s salary.
- Mexico: Mandatory. It is a bonus that must be paid by December 20th.
- Nicaragua: Mandatory. Must be paid by December 10th. It is equal to one month’s salary.
- Panama: Mandatory. It is paid in three equal parts — April 15th, August 15th, and December 15th.
- Paraguay: Mandatory. It must be paid at the end of the year.
- Peru: Mandatory. It must be paid in July. 14th month is also mandatory and must be paid in December.
- Uruguay: Mandatory. It is paid in two halves — the first by June 30th and the second by the end of the year.
- Venezuela: Mandatory. It is paid at the end of the year.
2. Asian Countries
- China: Customary. It is paid during the month of the Lunar New Year or Spring Holiday.
- Hong Kong: Customary. It is usually paid at Lunar New Year or the end of the year.
- India: Usually mandatory. The bonus is a percent of the annual salary and must be paid within eight months of the end of the financial year.
- Indonesia: Mandatory religious holiday bonus. It must be paid at least one week before the holiday.
- Israel: Customary. Some Israel-based employers pay a 13th-month salary.
- Japan: Customary as a summer bonus paid in June. 14th month is also customary as a winter bonus paid in December.
- Malaysia: Customary. It must be paid at the end of the year.
- Philippines: Mandatory. It must be paid by December 24th.
- Saudi Arabia: Customary. The payment must be made on the Eid al-Fitr holiday.
- Singapore: Customary. It is usually paid at the end of the year.
- Taiwan: Customary. It is generally paid at Lunar New Year.
- United Arab Emirates: Customary. 14th month is also customary and is paid at the end of the year.
- Vietnam: Customary. It is usually paid at Lunar New Year.
3. European Countries
- Austria: Customary. 13th payment is due at the end of June. 14th month is also customary and is due at the end of November.
- Belgium: Customary 13th-month bonus, and mandatory holiday bonus. It is usually paid at the end of the year, and the mandatory holiday bonus is paid at the time of the holiday.
- Croatia: Customary. It is paid around Christmas or Easter, but the amount is unspecified.
- Finland: Customary. It is usually paid before the holiday begins.
- France: Customary. It is generally paid at the end of the year.
- Germany: Customary. It is referred to as a “gratuity,” and it is usually paid around Christmas.
- Greece: Mandatory, as well as mandatory vacation and 14th-month bonuses. They are to be paid on Christmas, Easter, and summer vacation.
- Italy: Customary. It is paid in December, and sometimes a 14th-month bonus is paid in December as well.
- Luxembourg: Customary. It is generally paid at the end of the year.
- Netherlands: Customary. It should be paid around November or December.
- Portugal: Mandatory. It is paid annually by December 15th.
- Slovakia: Customary. It should be paid at the end of the year.
- Spain: Mandatory. 14th-month is also mandatory and should be paid in summer and at Christmas.
- Switzerland: Customary. It should be paid at the end of the year.
4. African Countries
- Angola: Mandatory as a vacation bonus. It must be paid before an employee takes vacation. 14th-month is also mandatory as a Christmas bonus and must be paid in December.
- Nigeria: Customary. It must be paid before Christmas.
- South Africa: Customary. It is paid as a special bonus at the end of the year.
Common Questions About 13th-Month Pay
While 13th-month salaries are included in the employee contracts throughout many countries, there are still those who haven’t even heard of the extra pay requirements. Naturally, there are many questions out there. Some of the most frequently asked include:
1. Who Is Entitled to 13th-Month Pay?
Only rank-and-file employees with fixed monthly wages are entitled to 13th-month pay. The bonus is awarded regardless of status, but the employee must have worked for at least one month during the calendar year.
2. Who Isn’t Entitled to 13th-Month Pay?
There are several types of employees who aren’t entitled to a 13th-month salary, including:
- Employees in managerial positions, or those with the power to institute and enforce policies, hire, lay-off, discharge, suspend, transfer, recall, assign or discipline other employees, or recommend any of these actions.
- Employees already receiving the equivalent of one month’s salary in a Christmas, mid-year, or another form of bonus.
- Personal servants, such as private nurses or drivers.
- Commissioned employees, those paid on a boundary system or task basis, and those paid a fixed rate for specific work, with the exception of workers who are paid on a piece-rate basis.
- Any employee covered under the civil service law.
3. When Should You Pay?
The due dates for 13th-month payments depend on the individual country. Some split the bonus into two halves or include a 14th month as well, in which case there are two payment deadlines. Others just have different standards for when the 13th month of pay is released. You’ll need to check the latest updates for each host country where your company has workers.
4. Is It Taxed?
13th-month pay is usually exempt from any taxes. However, any payments over the one-twelfth denomination of the employee’s basic salary are taxable. For example, the exclusion rate in the Philippines is P90,000—the maximum amount allowed without taxation.
How to Compute 13th-Month Pay
While it may sound complicated, once you understand the basics of 13th-month pay and the labor laws in your employee’s host country, it isn’t too challenging.
First, you need to know how payroll is structured in the country. Depending on the system, you’ll calculate it based on four weeks salary or a single month. Or, if an employee has been working for less than a full year, their bonus will be proportional to the number of days they have been with the company.
Usually, though, the formula for determining the amount is relatively simple. Take the employee’s basic monthly salary, multiply it by the number of months they have worked, and divide the product by 12 — the number of months in a year.
The basic salary does not include any extra monetary benefits that aren’t considered a part of integrated basic monthly pay. Again, this may change for each country, so be sure you take that into account before calculating.
You can also set an annual rate for compensation, divide it by 13, and provide a monthly gross salary. In this case, the bonus is not an additional cost, but an included part of annual compensation in the employment contract.
How Globalization Partners Can Help
If your company is working globally and hiring internationally, you need a reliable partner to back your HR team.
Globalization Partners has been partnering with companies like yours to ensure they’re remaining compliant with international labor laws since 2012. We are a Global PEO, or Professional Employer Organization, also known as a co-employer. If you’re looking to outsource HR, legal, and tax responsibilities, and risk, a PEO is the way to go.
Our company works with you to help navigate the ins and outs of taking on international employees. Understanding and maintaining compliance with foreign laws, sometimes even down to the local level, can be challenging for any business. And, if you make a mistake, it can be incredibly costly.
Globalization Partners will take the responsibility off your shoulders. Our team will handle all of your international HR, finance, legal, and administrative needs. With an experienced team of specialists at your side, you can allow your company to focus on other issues without being overwhelmed by the rules and regulations of your employees’ host countries.
Start thinking about your future today — contact us for more information.
To further understand setting up payroll in another country, download our full guide to payroll registration, 10 Things You Need to Know About Payroll-Only Registration: