What is 13th-Month Pay and Which Countries Require It?

Many countries throughout the world offer a bonus annual payment known as 13th-month pay. If your company is planning to expand internationally, you will need to understand what 13th-month pay is, as well as determine if 13th-month pay is legally required in the country where you plan to hire and pay workers.

What is 13th-Month Pay? 

13th-month pay is a bonus employers offer or provide that is equivalent to one month’s salary, or one-twelfth of the employee's annual wage. In some countries, the bonus is statutory, while other countries offer it as a common perk. 13th-month salaries are a huge part of employment culture in Latin America and are referred to as aguinaldo in Spanish.

This extra payment is not considered a performance bonus, but instead an extra month's salary that is not tied to the employee’s metrics. Many businesses factor in the 13th-month pay when deciding on annual salaries. This bonus payment is normally paid at the end of the year, around Christmas and the New Year.

In some countries, including Spain, employers can pay part of the 13th-month pay each month, as long as this is stipulated in the employment contract.

Where Did 13th-Month Pay Originate?

13th-month pay originated in the Philippines, where President Ferdinand Marcos codified the policy into law in 1975. 

Ever since, other former Spanish colonies, including many countries in Latin America, have also started offering a 13th-month bonus to compensate for low minimum wages. It was originally given as a Christmas bonus to ensure that workers did not have to worry about their bills and could celebrate the holidays.

What Countries Have 13th-Month Pay? 

While 13th-month pay in the Philippines is normally the main country associated with this bonus, the practice of giving a 13th-month bonus is also common across Latin America and Europe.

Countries that offer mandatory 13th-month bonuses include: 

• Argentina

• Brazil

• Costa Rica

• El Salvador

• Guatemala

• Mexico

• Greece

• Portugal

• Italy

• Indonesia

• Saudi Arabia

Although not all countries around the world require a 13th-month pay, many countries offer some sort of customary bonus pay, including: 

• Austria

• Croatia

• Czech Republic

• Netherlands

• France

• Germany

• Hong Kong

• South Africa

• United Arab Emirates

• United Kingdom

Each country has different rules and regulations regarding how much payment is required and when the bonus must be paid. For businesses expanding and hiring internationally, it is extremely important to understand the labor and employment laws of each country to avoid any legal ramifications and to ensure your employees are being compensated fairly. 

What About the US?

The United States does not require employers to offer a 13th-month bonus for employees. As the United States considers all employment at-will, there is no law that requires employers to give employees any type of payment at the end of the year. 

When are Most 13th-Month Payments Made? 

The timeline for when 13th-month payments are made will differ from country to country. For the Netherlands, Germany, and the UK, this payment is not a mandatory component of the worker's annual salary. However, most employers customarily offer this holiday bonus in the employment contract, to be paid around Christmas time. 

In places like Spain, 13th-month pay is mandatory and employees receive payment in two installments (technically as a 13th and 14th month bonus pay), with the 13th-month bonus being paid in July and the 14th month bonus being paid at the end of the calendar year. 

Similarly, Colombian employers split the 13th-month bonus into two different payments, with half being paid in summer around June and the other half paid in December, around Christmas.

In other countries like Brazil and Mexico, 13th-month payments are required by law, and the employer must pay them out sometime in December, unless stated differently in the employment contract. 

How Do You Calculate 13th-Month Pay? 

Although the concept may seem foreign and confusing to US-based businesses, once you understand how to compute 13th-month pay, it’s fairly easy to run your international payroll.

In most countries, 13th-month pay is equal to one month of an employee’s base pay. It should not include employee allowances, night shift differentials, and other monetary benefits. If an employee has not worked a full calendar year, simply divide their annual base salary by 12 and voila: An employee that earns $48,000 annually would receive a $4,000 bonus during the financial year. 

In some countries, some or all of an employee's 13th-month pay is exempt from taxes. Calculating 13th-month pay in the Philippines for  instance, the amount that is withheld from taxes is limited. Before expanding in countries with 13th-month pay, it is extremely important to understand the tax laws that govern the country you’re planning to pay employees in. Simplify the process and reduce stress of international hiring and expansion by partnering with Justworks and using our global employer of record services to avoid any confusion. 

Who is Entitled to 13th-Month Pay?

Every salaried employee in countries that offer 13th-month pay are entitled to this bonus, including: 

• New recruits

• Paid interns

• Tenured employees

• Properly documented foreign employees 

However, there are exceptions to this rule, and some employees may not qualify for 13th-month pay. Some examples of employees that might not receive 13th-month pay include:

• Managerial staff

• Civil servants

• Workers paid on commission

• Freelancers and independent contractors

Although these employees are not necessarily required to be paid a 13th-month bonus, most companies opt to give workers some sort of bonus at the end of the year anyway. This helps boost employee morale, making your company more appealing to prospective job seekers. 

How Can Businesses in the US Implement 13th-Month Pay? 

As already mentioned, the United States does not require any type of 13th-month payment. 

However, many companies do offer an end-of-the-year/December bonus which is usually tied to the employee’s productivity.

The problem with offering only end-of-the-year bonuses is that employees find their value in their company innately tied to their work. This can create a culture of overworking for many US employees. 

How Justworks Can Help 

Through a global EOR like Justworks, employers can focus on building their team, and leave worrying about the nitty-gritty of HR and international compliance to us. 

Our team of local labor lawyers and experts ensure that your small business always remains compliant while expanding internationally. We handle the responsibility side of things so you can focus on what matters: managing your team. 

Learn more about our EOR services, and get started today!

FAQ

Who is entitled to 13th-month pay? 

In the countries that require or offer customary 13th-month pay, all employees that are considered rank-and-file are entitled to this pay. This includes all salaried employees. 

How do you calculate the 13th-month bonus? 

To calculate an employee’s 13th-month bonus, you would calculate 1/12 of the employee’s annual pay. In other words, you divide their annual base salary by 12. 

How is 13th-month pay calculated example? 

An example of how to calculate 13th-month pay would be:

(monthly salary/12) x (months worked in the calendar year) =13th-month pay.

How is 13th-month pay calculated in the Philippines? 

13th-month pay in the Philippines is calculated by figuring out one month’s salary and paying that salary as a bonus at the end of the year.