Many countries throughout the world offer a bonus annual payment known as 13th month pay. If your company is planning to expand across borders, you will need research what 13th month pay is, as well as determine if 13th month pay is legally required in the country where you plan to hire and pay workers.
Here is everything you need to know about 13th month pay and what countries around the world offer 13th month pay, as well as some background on why the United States lacks this mandatory form of compensation.
Normally, 13th month pay is a bonus employers must offer or provide that is equivalent to 1 month’s salary, or one-twelfth of the employee's annual wage. In some countries, the bonus is statutory. In others, it’s a common perk. 13th month salaries are a huge part of employment culture in Latin America and are referred to as aguinaldo in Spanish.
This extra payment is not considered a performance bonus, but instead an extra month's salary that is not tied to the employee’s metrics. Many companies factor in the 13th month pay when deciding on annual salaries. This bonus payment is normally paid at the end of the year, around Christmas/New Year’s.
In some countries, including Spain, employers can pay part of the 13th month pay each month, as long as this is stipulated in the employment contract.
13th month pay originated in the Philippines, where President Ferdinand Marcos codified the policy into law in 1975.
Ever since, other former Spanish colonies, including many countries in Latin America, have also started offering a 13th month bonus to compensate for low minimum wages. It was originally given as a Christmas bonus to ensure that workers did not have to worry about their bills and could celebrate the holidays by buying presents.
Originating in the Philippines, the practice of giving a 13th month bonus is also common across Latin America and Europe
Countries that offer mandatory 13th month bonuses include:
Although not all countries around the world require a 13th month pay, many countries offer some sort of customary bonus pay, including:
United Arab Emirates
Each country has different rules and regulations regarding how much payment is required and when the bonus must be paid. For businesses expanding and hiring internationally, it is extremely important to understand the labor and employment laws of each country to avoid any legal ramifications and to ensure your employees are being compensated fairly.
The United States does not require companies to offer a 13th month bonus for employees. As the United States considers all employment at-will, there is no law that requires employers to give employees any type of payment at the end of the year as a way to help with holidays.
The timeline for when 13th month payments are made will differ from country to country. For the Netherlands, Germany, and the UK, this payment is not a mandatory component of the worker's annual salary. However, most employers customarily offer this holiday bonus in the employment contract, to be paid around Christmas time.
In places like Spain, 13th month pay is mandatory and employees receive payment in two installments (technically as a 13th and 14th month bonus pay), with the 13th month bonus being paid in July and the 14th month bonus being paid at the end of the calendar year.
Similarly, Colombian employers split the 13th month bonus into two different payments, with half being paid in summer around June and the other half paid in December, around Christmas.
In other countries like Brazil and Mexico, 13th month payments are required by law, and the employer must pay them out sometime in December, unless stated differently in the employment contract.
Although the concept may seem foreign and confusing to US-based companies, once you understand how to calculate 13th month pay, it’s fairly easy to run your global payroll.
In most countries, 13th month pay is equal to one month of an employee’s base pay. It should not include employee allowances, night shift differentials, and other monetary benefits. If an employee has not worked a full calendar year, simply divide their annual base salary by 12 and voila: An employee that earns $48,000 annually would receive a $4,000 bonus during the financial year.
In some countries, some or all of an employee's 13th month pay is exempt from taxes. In the Philippines, for instance, the amount that is limited from taxes is limited. Before expanding in countries with 13 month pay, it is extremely important to understand the tax laws that govern the country you’re planning to pay employees in, or to work with a global employer-of-record service like Via.
Every salaried employee in countries that offer 13th month pay are entitled to this bonus, including:
Properly documented foreign employees
However, there are exceptions to this rule, and some employees may not qualify for 13th month pay. Some examples of employees that might not receive 13th month pay include:
Workers paid on commission
Freelancers and independent contractors
Although these employees are not necessarily required to be paid a 13th month bonus, most companies opt to give workers some sort of bonus at the end of the year anyway. This helps boost employee morale, making your company more appealing to prospective job seekers.
As already mentioned, the United States does not require any type of 13th month payment. However, many companies do offer an end-of-the-year/December bonus, which is usually tied to the employee’s productivity.
The problem with offering only end-of-the-year bonuses is that employees find their value in their company innately tied to their work. This can create a culture of overworking for many US employees, who already feel as though the value of their work is tied to how much they can produce and generate for their employer.
For some employers, navigating compensation and benefit packages in other countries can be confusing and difficult. That’s why a lot of businesses partner with an EOR service like Via. We expedite the process of hiring and recruiting, setting up HR, and adhering to all employment laws in other countries.
With Via, we help you hire, onboard, and pay remote employees across the world. As your employer-of-record abroad, we take care of the local human resources (HR) logistics, such as salary, global payroll, benefits, paid leave, tax deductions, and 13th month pay. Maintaining compliance is our responsibility. You simply focus on building your team and running your business. Learn more by exploring our website.