13th-Month Pay: An Employer's Guide to Monetary Benefits

The everywhere workforce is here, and global companies are leading the charge. Upwards of 49% of global employees believe global companies provide access to better pay and benefits. Yet, payroll, salary norms, and benefits vary across countries. For example, paying a 13th-month salary is required by local law in some countries like Brazil, but it’s not a standard practice in the United States. 

As you expand beyond borders and boundaries, a clear understanding of local compensation practices is key to attracting top talent — and remaining compliant. Let’s explore how to navigate international labor laws with a best-in-class Employer of Record (EOR) to simplify payroll and benefits administration, including 13th-month payments. 

What is 13th-month pay?

13th-month pay (thirteenth month pay) — also known as 13th-month bonus, 13th month salaries, or 13th salary — is an additional monetary compensation on top of an employee’s base annual salary. 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.

Global employers may be responsible for making these payments to employees on specific dates throughout the year. In each country where teams are located, it’s crucial to understand the laws and customary practices surrounding 13th-month salary payments. With the help of a reliable Employer of Record (EOR) partner like G-P, you can ensure compliance in all of your payroll transactions, making global hiring seamless.

What is 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 had not 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?

Yes, 13th-month pay is mandatory in some countries. In countries like Brazil and Guatemala, regulations may even mandate an extra payment of a 14th-month salary on top of a 13-month paycheck. Any company that hires employees internationally must comply with the host country’s employment standards, compensation laws, and labor rights.

In other countries, 13th-month pay is customary, meaning that while not legally required, it’s expected by employees. In this case, it’s in your company’s best interest to provide this payment to retain talent. However, some countries do not offer or mandate 13th-month pay. In the United States, for example, 13th-month pay is not mandatory. Instead, US-based employers typically offer alternative end-of-year incentives, such as performance-based or productivity bonuses.

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.

Which countries require 13th-month pay?

Many countries implement a mandatory 13th-month salary, while it’s only customary in others. The practice is most common in Latin America, where almost every country’s labor law requires a 13th salary. However, specific countries in Europe also mandate a 13th-month pay for certain industries.

An international database like G-P’s Globalpedia 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.

 

Who is entitled to 13th-month pay?

Typically, only general employees (nonmanagerial) with fixed monthly wages are entitled to 13th-month pay. The employee must have worked for at least one month during the calendar year. Yet, eligibility for 13th-month pay can depend on employment status or specific contract terms.

Companies can leverage solutions like G-P Meridian Contractor™ to compliantly hire and pay contractors  anywhere in  more than 50 currencies.

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.

A best-in-class EOR like G-P, with international payroll services, can help employers simplify 13th-month pay by ensuring compliance with local regulations and determining which employees are entitled to this benefit.

How is 13th-month pay calculated?

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.

While the formula will vary by location and contract, one common strategy is to take the employee’s basic monthly salary, multiply it by the number of months worked, and divide by 12. Using this formula, the 13th-month pay is typically equivalent to the employee’s regular monthly salary, rather than the highest monthly earnings within the year. 

The basic salary does not include any additional benefits that aren’t part of the integrated monthly pay. This may vary by country, so it’s important to account for local regulations before calculating.

Companies can also set an annual compensation rate, divide it by 13, and provide a monthly gross salary. In this case, the bonus is not an additional cost but is included in the annual compensation outlined in the employment contract.

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 utilized 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. Not sure how to navigate taxation as your business expands? An EOR simplifies compliance by managing taxes, payroll, and benefits for your teams worldwide.

Unlock the power of global teams with an EOR today.

A best-in-class Employer of Record (EOR) like G-P allows companies to hire globally without setting up a legal entity, enabling opportunities everywhere. An EOR manages all aspects of global employment including payroll, taxes, benefits, human resources tasks, and compliance. 

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 businesses to build and manage global teams with confidence

Our global employment products and EOR solutions, G-P Meridian EOR Prime™ and G-P Meridian EOR Core™, deliver everything companies of all sizes need to quickly and compliantly hire anyone, anywhere.

Let G-P take care of the hard part, so you can focus on the best part: driving global business success.