14th-month pay is an additional month's salary that employers provide beyond standard annual wages and 13th-month bonuses, typically distributed at year-end or during holidays.
14th-month pay is a mandatory benefit in some countries and remains a customary practice in others, reflecting the diverse standards of global compensation. While nations like Portugal, Spain, and Greece mandate this payment by law, in countries like Japan, the Netherlands, and the Philippines, it functions as a customary benefit guided by industry practices and company policies.
Companies that provide 14th-month pay often see stronger employee retention rates and increased workforce satisfaction. The pay amount typically equals one month's base salary, though calculation methods can differ based on regional regulations and company policies. Its disbursement typically aligns with major holidays or vacation periods, providing employees with extra financial support during high-spending seasons.
For multinational organizations, this strategic approach to compensation creates an attractive total rewards package in competitive job markets. The practice enables companies to recruit international talent, enhance their employer brand, and demonstrate commitment to employee welfare.
13th-month pay vs. 14th-month pay
13th-month and 14th-month pay serve distinct purposes in global compensation structures. 13th-month pay functions as a fundamental additional salary payment that is mandatory in many countries, typically disbursed during December as a Christmas bonus or divided across monthly installments throughout the year. This payment has become a standard employment right in numerous regions, particularly Southern Europe and Latin America.
14th-month pay builds upon this foundation as an extra layer of compensation, often distributed during summer months to support vacation expenses or at different times throughout the year. For example, when hiring in Portugal, employers must provide both payments—the 13th-month pay in June and the 14th-month pay in December—but can choose to prorate these amounts across regular monthly payments to create more consistent cash flow for both the business and employees.
Is 14th-month pay mandatory?
14th-month pay is generally not a mandatory requirement in most countries worldwide. While some regions have established laws requiring employers to provide 13th-month pay, the 14th-month payment typically remains a supplemental benefit that employers can choose to offer. However, in many countries, this payment has become a widespread practice that employees consider it a standard part of their compensation package, even where not legally mandated.
The adoption of 14th-month pay often emerges from collective bargaining agreements, industry standards, or company policies designed to attract and retain talent in competitive markets. Organizations implement this benefit as part of a strategic compensation strategy to maintain their position as an employer of choice and support employee financial health throughout the year.
Countries that offer 14th-month pay
14th-month pay remains mandatory in only a select few countries worldwide. In Portugal and Spain, employers must provide both 13th and 14th-month salaries as part of their standard compensation structure. Bolivia has a unique approach, requiring 14th-month pay only when the country's GDP growth exceeds 4.5%.
Most regions treat 14th-month pay as a discretionary or customary benefit rather than a legal requirement. While countries like Belgium, Slovakia, and Luxembourg commonly offer partial or full 14th-month payments, these remain voluntary practices that often stem from collective bargaining agreements or industry standards.
Even in nations where 13th-month pay is mandatory, such as Indonesia, Brazil, and the Philippines, the 14th-month payment typically remains optional and serves as an additional incentive tool for employers.
How to compute 14th-month pay
The calculation of 14th-month pay typically follows a straightforward formula based on an employee's annual basic salary. The standard computation takes the employee's basic monthly wage (annual basic salary divided by 12 months in a year) and excludes variable components like overtime pay, commissions, or performance bonuses to provide an amount equal to one month's base pay:
14th Month Pay = (Annual Base Salary ÷ 12) × Months Worked
Organizations calculate a prorated amount for employees who joined mid-year or work part-time. This adjustment considers the actual time worked during the year, with the formula dividing the annual basic salary by 12 months and multiplying by the number of months worked. For example, an employee who worked six months would receive half an entire month's pay.
Some organizations may include additional components in their calculations beyond the employee’s salary. These elements might encompass fixed allowances or other regular payments that form part of the standard monthly compensation. However, the specific inclusions depend on company policy and any applicable collective agreements or local labor regulations.
The timing of the payment can affect the calculation method. Companies might distribute the amount as a lump sum or prorate it across regular monthly payments throughout the year. This decision often depends on cash flow management strategies and local market practices.
When to issue 14th-month pay to employees
The timing of 14th-month pay distributions typically aligns with significant periods throughout the year. Most organizations issue this payment during summer months or at year-end, often coordinating with major holidays or periods of increased employee expenses.
Employers choose to offer 14th-month pay for several strategic reasons:
- Enhances employee retention and reduces turnover costs
- Boosts workplace morale and job satisfaction
- Demonstrates tangible appreciation for employee contributions
- Strengthens competitive position in the global talent marketplace
- Attracts top talent in competitive industries
- Provides financial support during high-expense periods
- Creates long-term employee commitment and loyalty
Utilizing 14th-month pay as part of a comprehensive compensation package helps organizations foster a positive work environment while maintaining their competitive edge in the global marketplace. This additional benefit often results in improved productivity and stronger employer-employee relationships throughout the year.
Disclaimer: The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. © 2024 Velocity Global, LLC. All rights reserved.
