Hiring talent overseas means navigating employment laws unique to each market, which complicates businesses’ global expansion plans. Along with country-specific employment laws and payroll regulations, companies must factor in 13th-month pay.
13th-month pay is a common type of compensation that employers offer international employees on top of base salary. Providing 13th-month pay to employees is customary in certain countries and required by law in others.
Before companies hire talent overseas, they must consider how 13th-month pay impacts their global expansion plans and prepare accordingly.
Read our guide to learn the origins of 13th-month pay, which countries require it, where it’s customary to offer it, and other FAQs.
13th-month pay—also referred to as a 13th salary or 13th-month bonus—is compensation in addition to an employee’s base annual salary. This extra payment typically equals one month’s salary and is paid out within the financial year.
The Origins of 13th-Month Pay
While 13th-month pay is a standard additional payment throughout many of the world’s top markets, it originated in the Philippines. A presidential decree made 13th-month payments a mandatory addition to payroll in the Philippines in 1975, where it remains required by law.
Originally, the presidential decree covered salaries less than PHP 1,000. However, in 1986, the Philippines government removed the salary cap and extended 13th-month pay to all employees.
Today, several countries across Latin America, Europe, and Asia require that local employees receive 13th-month payments from their employers. As a result, employers hiring talent overseas must consider 13th-month pay as part of their global payroll processes.
13th-Month Pay vs. Bonus Pay
While 13th-month pay is often referred to as a bonus, it’s not technically a bonus payment. A bonus payment is generally related to employee performance or tenure and isn’t required by law. Conversely, 13th-month pay is a statutory benefit in many countries, which means employers must offer it to certain employees regardless of their job performance or tenure.
Yes, employers must provide 13th-month pay to employees who live in countries that mandate 13th-month pay by law. However, these countries may have varying regulations on how this additional payment is calculated and distributed to local employees.
While not all countries mandate 13th-month pay, it’s customary in others. Discretionary 13th-month payments may depend on performance or tenure and aren’t guaranteed. However, employees in these countries still expect to receive 13th-month pay on top of their base salary.
Any employee in a country where 13th-month pay is required is entitled to this extra payment. If an employee works less than 12 months in one calendar year, the amount is typically prorated based on the number of months the employee worked.
However, some talent is exempt. Freelancers, contractors, and zero-hour workers typically do not receive 13th-month pay. Other types of talent that may be exempt include the following:
- Private servants
- Workers who receive a comparable bonus
- Civil servants
- Commission- or project-based employees
Below, learn which countries mandate 13th-month pay, as well as where it’s customary for employers to offer 13th-month pay.
There are only three countries in Asia that mandate 13th-month pay. However, it’s customary in 10 others:
Three countries in Europe require 13th-month payments, and five countries require it depending on the industry. It’s customary in eight countries:
Mandatory for Certain Industries
Latin and South America
13th-month pay is common in Latin and South America, with 17 countries that mandate the extra payment. It’s customary in Chile but not required:
- Costa Rica
- Dominican Republic
- El Salvador
It’s less common for employees in Africa to receive 13th-month pay. Three countries require it:
The most common way to calculate 13th-month pay for an employee is to divide that employee’s base annual salary by 12. However, 13th-month pay computation differs from country to country.
In the Philippines, the payment is one-twelfth of an employee’s base salary. For example, if an employee earns the equivalent of PHP 60,000 annually, they receive PHP 5,000—equivalent to one month’s salary—as their 13th-month pay.
Additional bonuses do not apply to the 13th-month pay calculation. For example, if an employee’s annual salary is PHP 60,000, and they earn a PHP 1,000 bonus in March, that additional PHP 1,000 does not count toward their salary when calculating 13th-month pay.
Several countries use the same type of pay calculation as the Philippines—but not all countries. Employers must familiarize themselves with payroll compliance in each target market as it relates to 13th-month pay before hiring overseas to avoid legal risks and penalties.
Other common calculation methods around the world 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 other unique ways. In Argentina, for example, employers base the bonus on the highest month’s salary from the previous six months.
Prorated 13th-Month Pay
Prorated 13th-month pay is a portion of the extra payment for employees who worked fewer than 12 months in a calendar year.
Typically, employers compute prorated 13th-month pay by multiplying an employee’s monthly base pay by the number of months the employee has worked in the calendar year, then dividing that number by 12. The calculation looks like this:
(Employee’s base monthly salary x number of months worked within the year) / 12
For example, if an employee earns a base salary of PHP 5,000 per month and worked only six months in the calendar year, their 13th-month payment would be PHP 2,500.
Every country is different when it comes to regulations around distributing 13th-month pay. Most countries require or recommend employers pay it in December and commonly refer to the payment as a “Christmas bonus.” Singapore and China, on the other hand, recommend that employers give 13th-month pay to their employees before the Chinese New Year.
If a country does not mandate a specific issuance date for 13th-month pay, then the employer chooses when to provide it and notes that issuance date in the employment contract.
No matter where your company hires talent, local employment and payroll regulations vary—and 13th-month pay requirements are no exception. Employers invite noncompliance risks if they do not strictly follow country-specific 13th-month payment rules.
Avoid the risks and shed the burden of navigating complex employment and payroll laws by partnering with a global expert like Velocity Global.
Velocity Global’s Employer of Record (EOR) solution helps businesses quickly and compliantly hire and pay talent in 185+ countries. Provide accurate, on-time payments to your international talent through one platform, receive payroll and legal support from our in-country experts, and gain peace of mind that you’re in compliance with all country-specific payroll regulations.
Contact Velocity Global to learn more about how our solutions simplify hiring and paying global teams.
Below are answers to common questions regarding 13th-month pay.
Is There 13th-Month Pay in the U.S.?
The U.S. does not require 13th-month pay. However, it is customary for U.S. employers to provide year-end bonuses to their employees.
Is There 13th-Month Pay in the U.K.?
The U.K. does not require 13th-month pay, nor do local employees expect a customary 13th-month payment. However, some employers in the U.K. may provide financial bonuses as a way to boost talent retention.
Is 13th-Month Pay Subject to Tax?
Most countries exempt 13th-month pay from tax, but if payments reach beyond a determined cap, tax may apply in some countries. For example, employment law in the Philippines states that 13th-month pay is subject to tax if the extra payment exceeds PHP 90,000.
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. © 2023 Velocity Global, LLC. All rights reserved.