Hiring talent overseas is a lot more than just filling out a few forms and sending a paycheck. You've got to navigate this complex web of employment laws, each one unique to the country you're dealing with. It's like a puzzle, but the pieces are constantly shifting. And then, just when you think you've got it all figured out, there's something called 13th-month pay.
Now this isn't some obscure bonus or fringe benefit; for many employees around the world, 13th-month pay is part of the deal. It's a custom in some countries. In others, it's actually required by law. The thing is, for companies looking to expand globally, it's not something you can ignore. It changes the math.
Before you go hiring talent overseas, you have to understand how this additional pay will fit into your global strategy. How it'll impact your bottom line. And more importantly, what you need to do to stay on the right side of the law.
So, we've put together a guide, one that'll take you through the origins of 13th-month pay, which countries require it, and a bunch of other frequently asked questions. It's a little complicated, but trust us, you'll want to know this stuff.
What is 13th-month pay?
13th-month pay, also referred to as a 13th salary or 13th-month bonus, is pay beyond 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.
Today, several countries across Latin America, Europe, and Asia require that local employees receive 13th-month pay from their employers. As a result, employers hiring talent overseas must consider this 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.
Is 13th-month pay mandatory?
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.
Who is entitled to 13th-month pay?
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
Which countries offer 13th month-pay?
Below is a summary of where 13th-month pay is mandatory and where it's customary.
Asia
Only three countries in Asia mandate 13th-month pay. However, it's customary in seven others:
Mandated
Customary
Europe
Three countries in Europe require 13th-month payments, and five require it depending on the industry. It's customary in eight countries:
Mandated
Mandatory for certain industries
Customary
Latin and South America
13th-month pay is common in Latin and South America, with 17 countries mandating it. It's customary in Chile but not required:
Mandated
- Argentina
- Bolivia
- Brazil
- Colombia
- Costa Rica
- Dominican Republic
- Ecuador
- El Salvador
- Guatemala
- Honduras
- Mexico
- Nicaragua
- Panama
- Paraguay
- Peru
- Uruguay
- Venezuela
Customary
Africa
It's less common for employees in Africa to receive 13th-month pay. Three countries require it:
Mandated
Calculating 13th-month pay
The most common way to calculate 13th-month pay is to divide an employee's base annual salary by 12 (excluding any additional bonuses). This is the case in the Philippines and several other countries. However, it's not always so simple.
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 have their own unique method. In Argentina, for example, employers base the bonus on the highest month's salary from the previous six.
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.
When to issue 13th-month payments
Every country is different when it comes to 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.
Ensure compliance by having us do it for you
When you find yourself hiring around the world in different countries with different rules and expectations, there's no universal playbook for variables like 13th-month pay. What's required in one country might be totally optional, or nonexistent, in another. And if you get it wrong, the consequences aren't just minor inconveniences. They can be expensive and even lead to legal headaches.
Which is why companies are turning to experts. Not just for advice, but for actual support; boots-on-the-ground, "we've got this" kind of help.
That's where Pebl comes in. Our Employer of Record (EOR) service is like having a local HR team in over 185 countries. One platform. One partner. And your global team? Paid accurately, on time, and in full compliance with local laws, including those tricky 13th-month pay rules.
Instead of stressing about payroll regulations in, say, the Philippines or Argentina or wherever you're hiring, Pebl offers you the chance to focus on the work while we handle the rest.
Want to know how it all works? Contact us today.
13th-month pay FAQs
Is there 13th-month pay in the U.S.?
No. 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.?
No. 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 exceed a determined cap, tax may apply. 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: This information does not, and is not intended to, constitute legal or tax advice and is for general informational purposes only. 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. The content in this guide is provided "as is," and no representations are made that the content is error-free.
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Topic:
Payroll
