One of the most exciting moments for employees in several parts of the world is the countdown to receiving the 13th-month pay. In most countries, this payment typically comes during cultural or festive seasons, so there is a palpable buzz in the air.
If you live in the United States, Canada, or the United Kingdom, you probably don’t know what 13th-month pay is or why it is even a thing. However, when doing business in regions where this is common practice, you must familiarize yourself with it to avoid violating employment laws or scaring off top talent.
Read on to learn all about what 13th-month pay is and how it works in different regions of the world.
A 13th-month pay is an additional salary that employees receive on top of their regular monthly earnings (It is like a payment for an extra month). Because of the timing of the payment, it is also sometimes called a holiday bonus. But it is not a bonus – especially in countries where it is required by law.
For example, in the Philippines 13th-month pay is part of presidential decree no. 851. The order, signed by President Ferdinand Marcos on December 16, 1975, stated that all employers under the rule would pay their employees a thirteenth-month pay no later than December 24 of every year.
In countries where it is not mandated by law, employers have the discretion to offer their workers the benefit.
We’d still suggest you provide this extra amount to your employees if it is customary since it is conventional. For example, this additional month’s salary is not mandatory but is the norm in Germany. Not providing this benefit could be the difference between hiring and keeping top-performing employees.
Who is Entitled to 13th Month Salary?
The 13th-month salary is payable to all rank-and-file employees receiving fixed monthly wages. A recruit, an intern, a tenured employee, or a foreign employee with proper documentation make up this category. Even those employed for less than a year should qualify for this payment.
Similarly, workers who resign or have been terminated before receiving their 13th salary are also eligible. These situations will result in lower compensation based on the completed months.
However, some employees do not qualify for a 13th month’s pay. The conditions leading to this disqualification may vary from country to country. Examples of workers who don’t receive this benefit include:
- Civil servants
- Personal service workers
- Workers paid by commission
- Workers paid per project
In most cases, the amount paid per month is determined by dividing the annual base salary by 12 months. So, if the annual base salary is $60,000, you divide it by twelve to get $5,000 as the monthly rate. That’s the 13-month pay.
Employees in certain countries, like Italy and Brazil, receive an extra installment based on their annual base salary divided by 13 (rather than 12). Occasionally, 13-month pay formulas require a bit more complexity.
While 13th-month pay is generally computed the same way worldwide, the rules governing it are country specific.
For instance, some countries, like the Philippines, pay it once a year, while others split it into two payments: one on the fifth month and the other on the eleventh month. Others have 14th and15th paychecks as well. We break them down below:
|Germany||Customary||Paid at Christmas|
|Spain||Mandatory||Paid in the summer + 14th month at Christmas|
|Portugal||Mandatory||Paid in the summer + 14th month paid at Christmas|
|Greece||Mandatory||Paid Easter, Summer, Christmas + 14th month|
|France||Customary||Paid at end of the year|
|Armenia||Customary||Paid before the New year|
|Philippines||Mandatory||Paid at Christmas or twice a year in May and November (14th-month pay) + 15th-month pay (optional) in some cases|
|Indonesia||Mandatory||Paid before the holiday that applies to employee|
|India||Mandatory||Paid with eight months of the financial year|
|Japan||Customary||Paid in June and December as 14th-month pay|
|Singapore||Customary||Paid in December or for Lunar|
|Saudi Arabia||Customary||Paid on Eid al-Fitr|
|China||Customary||Paid at Lunar New Year or Spring holiday|
|Mexico||Mandatory||Paid in December|
|Brazil||Mandatory||Paid between February – November + mandatory 14th-month pay in December|
|Costa Rica||Mandatory||Paid in December|
|El Salvador||Mandatory||Paid in December|
|Argentina||Mandatory||Paid in two installments: June 30 and December 18|
|Chile||Customary||Paid in December or divided between September and December|
|Nigeria||Customary||Paid before Christmas|
|South Africa||Customary||Paid before New Year|
|Angola||Mandatory||Paid before a holiday (50%) + mandatory 14th-month pay before Christmas|
Some countries, such as Japan or Greece, have 14th-month pay, so what is it?
14th-month pay is the payment employees receive in the second or last month before the year’s end. It is essentially the 13th-month pay plus the equivalent of a 14th month’s salary.
Taxes are usually not applied to 13th-month pay. However, payments exceeding one-twelfth of the employee’s basic salary are taxable. The Philippines, for instance, allows an exclusion rate of P90,000.
The idea of 13th-month pay falls into a moral and fiscal gray area; however, it’s a valuable perk for regular and loyal company contributors.
If you want to operate in regions where this is the norm, make sure to adhere to all the regulations so that you don’t face any legal consequences in the future. Plus, if you want the best to attract and retain the best talents, consider offering them the same perks as your competitors.
We didn’t cover all the countries that adopt this benefit in this article but consider this when choosing where to expand your business next.