APACGlobal ExpansionGlobal PayrollLATAMWestern Europe

A Guide to 13th-Month Pay

By December 26, 2019February 10th, 2020No Comments

Hiring talent overseas means navigating employment laws unique to each market, adding layers of complexity to the global expansion process. In addition to general employment laws and country-specific payroll regulations, companies need to also factor in 13th-month pay.

13th-month pay is typical for international employees in many markets across the globe. Before companies expand into overseas markets, they must consider how the following 13th-month pay structures impact their global expansion plans and prepare accordingly.

What is 13th-Month Pay?

13th-month pay is compensation in addition to an employee’s annual salary, commonly determined by a percentage of an employee’s monthly salary, and usually paid at the end of the calendar year. However, some countries split the payment biannually between summer and winter.

Annual 13th-month pay is also known as “thirteenth salary” or “13th-month bonus.”

While 13th-month pay is a standard bonus throughout many of the world’s top markets for global expansion, it originated in the Philippines. Presidential decree made 13th-month pay mandatory in the Philippines in 1975, where it remains a required—and popular—rule. Today, countries across Latin America, Europe, and Asia offer the bonus.

Although companies typically disburse 13th-month pay in December, it is neither a Christmas nor holiday bonus. All employees who receive the bonus are entitled to payment no later than December 24 each year. Initially, the presidential decree covered salaries less than PHP1,000. In 1986, the government removed the salary cap and extended 13th-month pay to all employees.

How is 13th-Month Pay Calculated? 

In the Philippines, the payment is one-twelfth of an employee’s base salary. For example, if an employee earns the equivalent of PHP60,000 annually, they receive PHP5,000—equivalent to one month’s salary—as their 13th-month pay.

If employees receive any additional bonuses or allowances during the calendar year, that income does not apply to the 13th-month pay calculation. For example, if an employee’s annual salary is PHP60,000, and they earn PHP1,000 bonuses in March and September, then the additional PHP2,000 does not count towards their annual salary for purposes of the 13th-month pay calculation.

This type of pay calculation is used in countries outside of the Philippines as well. However, calculation methods vary between countries and companies. Employers must familiarize themselves with all local payroll regulations before hiring overseas to ensure compliance.

Other common calculation methods include:

  • The employee’s total salary divided by 13 months
  • Award bonus based on the highest-paying month
  • Average bonus amount based on the employee’s most recent three-month salary

Still, some countries calculate 13th-month pay in unique ways. In Argentina, for example, employers base the bonus on the highest month’s salary from the previous six months.

Top Global Markets Offering 13th-Month Pay

Countries around the globe offer 13th-month pay to their employees, albeit sometimes differently than their neighbors:

13th-Month Pay in Asia

  • Hong Kong: Customary, and calculated as an additional month’s salary and disbursed by the Chinese New Year
  • China: Customary, and due within the same timeframe as Hong Kong
  • Singapore: Customary, and paid by the end of the calendar year

13th-Month Pay in Europe

  • The Netherlands: Customary, and disbursed during December
  • Finland: Customary, and due before the winter holidays
  • France: Customary, and paid before the winter holidays
  • Germany: Customary. However, it more closely resembles an annual bonus or “gratuity.”
  • Portugal: Mandatory, and due by December 15
  • Spain: Mandatory, and disbursed in two equal allotments during summer and Christmas

13th-Month Pay in Latin America 

  • Brazil: Mandatory, and distributed twice: once before November 30, and the second before December 20. 14th-month pay is also mandatory.
  • Chile: Customary, and disbursed in either one or two payments: with either one payment in December, or two equal payment in September and December
  • Colombia: Mandatory, and paid in two equal amounts. The first payment comes in the first half of June, and the other in the first 20 days of December.
  • Mexico: Mandatory, and issued before December 20
  • Peru: Mandatory, and paid in July. Like Brazil, 14th-month pay is also mandatory and paid in December.

Ensure Compliance in Your New Market with an Experienced Partner

No matter where your firm expands, local employment and payroll regulations vary—and 13th-month pay requirements are no exception. Firms invite noncompliance risks if they do not strictly follow country-specific 13th-month pay rules. Partner with an experienced expansion organization to mitigate these risks and guide you through markets’ regulatory complexities.

Through our International PEO solution, Velocity Global helps businesses reach their global expansion goals in more than 185 countries. With expert guidance and unrivaled experience, we ensure compliant hiring, payroll, and continued support throughout your global expansion journey.

Want to learn more about how Velocity Global simplified the global expansion space?

Let’s talk.