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Is 13th month pay mandatory?

Who is eligible for 13th month pay?

Which countries have 13th month pay?

How to calculate 13th Month Pay

Is 13th month pay taxable?

What is 13th Month Pay

Thirteenth month pay is an additional salary payment given by employers, providing employees with additional income beyond their standard annual earnings. 

This payment is usually made at the end of the year in addition to the employee's base salary. In some instances, it’s split into two payments: One mid-year and one close to the end of the year. The payment is typically equal to the amount of the employee’s monthly salary.

Is 13th month pay mandatory?

In some countries, 13th month pay is a federally-mandated practice and must be provided to all employees regardless of where the company is incorporated.

If you have any employees that are residents of a country where this additional compensation is federally enforced, you are obligated to provide it to your employees, and in some cases, pay taxes on it.

When 13th month pay is a mandatory addition to the total basic salary, it means that it is enshrined in the employment law of the local country. If employers do not pay it, it could lead to financial penalties for non-compliance and possible legal action.

In some countries around the world, 13th or 14th month pay is customary, not mandatory, and left to the discretion of the employers to decide if they would like to offer it to their staff. In this case, the terms and conditions of the practice will be laid out in the employment contract and/or through collective agreements within the industry. 

Who is eligible for 13th month pay?

In some countries, all employees are entitled to the 13th month pay. In the Philippines, an employee needs to have completed a full month of work within one calendar year to be eligible.

Other countries may exempt managers, civil servants, public sector employees, or personal service employees from receiving this payment. To obtain specifics on the individual regulations by nations, consult with a payroll professional who is well-versed in local employment laws.

As of October 2020, rank-and-file employees in the United States are eligible for this type of bonus regardless of their position or the number of months they've spent at their current employer.

Which countries have 13th month pay?

The majority of Latin American countries mandate the 13th month pay while it’s customary in Europe and Africa. In Asia, a 13th month bonus is mandatory in some countries but customary in others. In the United States, Canada, Australia, and the United Kingdom, the term 13th month pay isn't as common.

13th month pay in Europe

Thirteenth month pay is mandatory in Armenia, Greece, Portugal, and Spain. In Belgium and Croatia, it is only customary.

Fourteenth month pay is customary in Austria, Greece, and Spain and may be referred to as a bonus which is received in December. In Greece, employees also receive a half-month salary before Easter and summer vacation.

In Germany, there is a legal distinction between the terms "13th month pay" and "Christmas bonus", with the former referring to an additional payment of one’s salary and the latter being a special bonus paid to employees to cover additional holiday expenses.

Italy has both 13th and 14th month pays. The 13th is paid in December as a Christmas bonus, and the 14th is paid in July.

In Switzerland, the 13th month pay is handled a bit differently. Employers pay employees their annual salary in 13 monthly installments, with the 13th being paid in December.

13th month pay in Latin America

Throughout Latin America, 13th month pay, also referred to as a “prima” or Aguinaldo, is required by law. When and how it is paid depends on the country.

In Brazil, the 13th month pay is split into two equal installments. The first installment is paid by November 30th and the second by December 20th. An additional 14th month pay, referred to as a holiday bonus, is also received in December.

Chile, by contrast, is the only Latin American nation with a customary 13th month pay that could be paid as a one-time lump sum payment in December or split into two payments, one in September and the second in December.

In Colombia, the 13th month pay is a mandatory employee benefit. This additional salary is paid in two installments made in June and December.

The same goes for Panama, but this country's workforce gets the 13th month pay in three installments: April, August, and December.

The 13th month pay is tax-free in Bolivia, and it's also mandatory. In some cases, employers must also pay the 14th month salary to their workers.

In Mexico, you need to pay your employees the 13th month bonus by December 20th each year.

In El Salvador, it's paid around the same date, but it depends on the years of service.

13th month pay in Asia

Similar to Latin America, the majority of Asian nations offer 13th month pay. However, in most cases it is customary rather than legally mandated.

In India, Indonesia, the Philippines, and Saudi Arabia, employers are required to pay this additional month of compensation. In Saudi Arabia and the UAE, the payment is made on the Muslim holiday of Eid al-Fitr which lands in July.

In Taiwan, China, and Hong Kong, customary 13th month payments are made during the month of the Lunar New Year, which typically happens in February. In Japan, bonuses occur in June and in December. The 13th month pay is also customary in Malaysia, Singapore, Vietnam, and Israel.

13th month pay in Africa

In Africa, the nation of Angola has a 13th month pay that’s paid out right before an employee goes on vacation and a 14th pay that is paid prior to the Christmas holidays. Other than Angola, only Nigeria and South Africa provide the thirteenth month pay in December.

How to calculate 13th Month Pay

How the 13th month and 14th month pay is calculated varies by country. In some cases, it's straightforward—if your salary is $5,000 a month for 12 months, your 13th month's pay will also be $5,000. 

In other countries, your annual salary is divided by 13 rather than by 12 ($65,000 divided by 13). Some countries calculate the 13th month's pay based on a percentage of one’s salary.

Below are a few examples of how the 13th and 14th payments are calculated:

  • Argentina pays employees their "Aguinaldo" in two equal installments. The amount is equal to 50% of the highest monthly salary the employee received in the previous months

  • In Singapore, the Annual Wage Supplement (AWS) is customary and is based on the company’s overall performance. It is generally equal to one month’s wage but may be lower if the company’s revenues fall short that year

  • In Spain, mandatory 13th and 14th month payments are usually pro-rated as 14 additional payments based on annual compensation

  • The Netherlands treats the 13th month pay as a “holiday/vacation allowance”. Typically it is equivalent to one month’s salary and is paid prior to summer vacations in May

  • In the Philippines, the 13th month bonus is mandatory and has to be paid out by December 24th or prior to the contract end date, whichever is sooner. It is equivalent to one month’s salary and is required by Presidential Decree

  • 13th month pay is not mandatory in Hong Kong, but it is customary to be paid as an extra month’s salary either in December or before the Chinese New Year. It is included in the payroll for the month that it is paid out

Consult with a local payroll advisor or a multi-national payroll service to help determine proper calculations so as to avoid any fines or penalties for non-compliance.

Is 13th month pay taxable?

For the majority of the countries offering this form of compensation, the 13th month pay will be taxed, but how they calculate the taxes varies. For example, in the Philippines, payments over P90,000 will be subject to taxes. In the European nation of Austria, the 13th and 14th month pay are taxed at a rate of 6% which is lower than the normal taxation rate.

What does it cost to hire an employee in a country with 13th month pay? Use Deel’s Employment Calculator to find out in seconds.

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