13th Month of Pay Law, Explained

When it comes to operating on an international stage, there are obstacles such as compliance and local regulations that must be expertly navigated. Whilst no small feat, this task becomes magnified when you consider the different countries that your employees are operating in. You’ll need to keep abreast of the local regulations and any changes that affect employment status and eligibility in foreign countries, especially where your employees are on international assignments, or expatriation. The variance in local employment laws swings from broad obligations regarding annual leave and national holidays, down to matters of payroll, and calculating the likes of a 13-month salary. Where some countries stipulate 13-month pay as a law, others may offer it customarily. The rules and regulations surrounding 13th month – and sometimes 14th month – salaries and pay can vary between countries. This can flux depending on the region, country, or even industry, which means it’s imperative as ever for your human resources to remain abreast of new and upcoming annual changes that may influence the maximum, minimum, and further employer requirements. To help employers familiarise themselves with these regulations, our guide to 13th month salaries will help international operations navigate the laws and calculations. Not only will this cover the basics, but employers can feel empowered when they understand when 13th month pay is applicable and how it works in terms of taxation.
13th month of pay for employees

What is 13th Month of Pay?

There are different names for this monetary benefit and it’s helpful to understand them:
  • 13th Month Bonus
  • 13th Month Salary
  • Thirteenth Salary
As with many employment laws and regulations, thirteenth salaries are open to, and determined by, the host country where an employment contract takes place. Even if your company is headquartered in another country, you’ll need to comply tightly with the host country and any local regulations. This applies to international hires and assignments that are then expatriated into other foreign markets. A 13th month bonus is often based on the salary of the employee. A 13th month salary is equal to an employee’s typical monthly salary, which is the same as one-twelfth of an annual salary (based on a salary that’s paid out annually). Yet, there is no fixed approach to calculating how this bonus is payable and what the final sum should be. Instead, calculating a thirteenth salary should comply with the norms of the host country. The various approaches to 13th month salary include:
  • A pay-out that’s equal to the highest salary an employee earns across the year
  • The average pay from three-months before the thirteenth pay is calculated and issued
  • Or, based on the employee’s service history and length of time in a role within a company

What is 14th Month of Pay?

Similar to a thirteenth month salary, a 14th month of pay defines an additional pay out that occurs within the year. It’s often perceived as a form of compensation in addition to an employee’s salary.

When is a 13th Month Salary Issued?

A thirteenth salary is most often paid out at the end of the year. This will typically occur in December but is not considered a bonus. In most countries, this benefit is offered separately from any kind of bonus, such as holiday. There are some countries like Australia where thirteenth salaries can seem like another bonus, or commission. Every country will define and deliver this benefit individually and in alignment with other local laws and regulations. Employers need reliable knowledge regarding 13th month pay regulations if they intend to expand into new markets, regions or countries.
regulated 13th month of pay is paid at the end of the year

Is 13th Month Pay Regulated and Mandatory?

13th month salary regulations can be either mandatory or customary, depending on the country or region. Knowing the difference between both is a matter of compliance and employers will need to remain aware of any further developments in employment laws.
  • Mandatory 13th month pay rules – this defines any country or region where there’s a legal expectation and requirement for employers to offer and pay their staff this kind of benefit. When compliance is neglected, employers could be faced with costly legal action and financial penalties.
  • Customary 13th month pay rules – this describes where a thirteenth or fourteenth salary is negotiated at an employment contract level, rather than set by local regulations. These benefits are typically reached and agreed upon during collective or industry agreements
Where offered customarily in a country, if an employer opts to not offer thirteenth pay, this can impact employee retention, especially for any employee on an international assignment.

Which Countries Offer 13th Month Salaries?

Many countries across the world offer 13th month salaries, sometimes even issuing 14th month pay entitlements. The reason employers should be aware of 13th month salaries is because, depending on the country, this benefit can be either mandatory or customary. There are also other considerations, like any requirements that are the employer’s responsibility. When expanding overseas, it’s helpful to be aware of the countries where thirteenth salaries are expected, and other regions where employers commonly offer this benefit. The countries offering thirteenth salaries include:

Europe

CountryIs 13th Month Pay Available?Is 14th Month Pay Available?Issue Date
FranceCustomary End of the year
GermanyCustomary Christmas
GreeceMandatory ✔Christmas, Easter & Summer
ItalyMandatory ✔Christmas
PortugalMandatory ✔Summer
SpainMandatory ✔Summer

Asia

CountryIs 13th Month Pay Available?Is 14th Month Pay Available?Issue Date
ChinaCustomary Lunar New Year/ Spring holiday
IndiaMandatoryEnd of the financial year
IndonesiaMandatoryBefore Ramadan
JapanCustomaryDecember
PhilippinesMandatoryDecember/ summer/ and end of the year
SingaporeCustomaryDecember

South/ Central America 

Country Is 13th Month Pay Available?Is 14th Month Pay Available?Issue Date
BrazilMandatory Between February and December
ChileCustomary December
Costa RicaMandatory December
El SalvadorMandatory Christmas
MexicoMandatory December

Middle East & Africa

Country Is 13th Month Pay Available?Is 14th Month Pay Available?Issue Date
IsraelCustomary
NigeriaCustomaryChristmas
South AfricaCustomaryEnd of the year
United Arab EmiratesCustomaryEnd of the year

Who Qualifies for 13th Month Pay Regulations?

Depending on the country, and where a mandatory benefit for thirteenth salary is given, employees qualify under employment laws. That means an employment relationship – or a contract with an employer – is enough to qualify for this benefit. This is the case in countries like the Philippines, where this benefit is issued to all employees and the only criteria is an existing employment contract or relationship with an employer. Elsewhere in the world this benefit is not necessarily an entitlement and employees will need to qualify based on their role or industry. To understand exemptions to this rule, employers will need to work with local authorities to fully comprehend the types and categories of employees who can qualify.  Employers will need to base this benefit on an individual basis, assessing every new hire and the market regulations for the country they work in.

How to Calculate 13th Month Salary

Using context about the country or market your employees operate in, you can get closer to a more accurate computation of thirteenth pay. In certain countries or regions, this benefit is calculated more simply as additional salary, often occurring at the end of the year. Where this is the case, the basic calculation is:             Basic salary / 12 = 13th month pay out In other countries, however, it’s not uncommon for this to be calculated as part of an annual salary, as follows:             Basic annual salary / 13 = 13th month pay out Other countries may even use more complicated formulas, such as India, where 13th month pay outs are calculated as a percentage of an annual salary and offered as a bonus. Where Argentina offers aguinaldo, 13th month pay outs are split throughout the year and issued in two instalments. The formula looks like this:             Monthly salary/ 12 x months worked = 13th month salary It’s also common for countries to offer this pay out as instalments that can be issued at different points throughout the year. Where this becomes more complicated, experts in HR can be used to demystify what this calculation looks like for employees.

Is 13th Month Pay a Taxable Benefit?

In most scenarios, a 13th month salary is exempt from tax. However, if payments exceed certain thresholds for an employee, tax may apply. To remain compliant with tax expectations, get guidance from an in-country HR specialist and understand when this benefit is exempt.

How IRIS HR Consulting Can Help

If you need help calculating a 13th month pay out or salary for a new hire operating in a different country, use the expertise and local knowledge of a HR specialist like IRIS HR Consulting and make sure you remain compliant. Get in touch to find out more.

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