Unlocking 13-Month Salary: Your guide to global bonus trends
Who doesn’t like a good paycheck? Most workers are always looking forward to that happy moment when they get their hard work for the whole month paid off. But suppose we tell you that you can get paid an extra month’s wage: That’s called 13th-month pay.
In many countries, businesses are expected to give their employees an extra month of pay every year. Especially if organizations wish to recruit people from all over the world and to do global work, they have to be clear about legal requirements such as 13th/14th-month pay that are put forward in the statutes. There may be particular types of additional payments required by law in some countries. It is quite the norm in many countries. So, if you are not familiar with the concept of the 13th-month pay, we are here to tell you all about it.
What is a 13th month pay/holiday pay?
Let’s first address the burning question: What is 13th month pay and why do employees get it?
There is extra compensation paid to an employee at the end of the year in addition to the monthly salary – This is called a thirteenth-month pay. Giving thirteenth-month pay to employees is merely recognition of their hard work for the entire year. Typically, it equals out to a month’s wage. Contrary to popular belief, a 13th-month pay is not a bonus at all.
In some countries such as Austria or Germany, they call it Holiday Pay. In addition to that, some countries even have a 14-month pay, which is also called Christmas money and is getting paid out before Christmas time in November. Also, it cannot be classified as the same thing as holiday pay, which is paid to workers when they take a holiday. However, a 13th month’s pay is actually far more complicated than this: under the laws of each country, the rules are different.
Is 13th month pay mandatory?
A straightforward answer is No. It’s not compulsory, at least not everywhere. Whilst some countries have made 13th month pay a legal requirement, in other countries it is more a matter of tradition than a requirement. Around 1975, The Philippines actually became one of the first countries in the world to introduce a 13th-month pay system for its employees. It has since been incorporated into the local law on employment. Consequently, if a company wishes to attract talent from overseas, knowledge of 13th-month pay regulations becomes crucial.
It is essential to remain in compliance with the employment laws at all times. To understand how 13th-month pay changes around the globe, you’ll need to improve your vocabulary and learn what mandatory and customary mean in the business world
When it comes to compensating employees, there are three types of pay:
Mandatory 13th Month Pay:
Mandatory 13th-month pay is enshrined in local employment law, so it goes without saying that not paying a mandatory 13th-month pay can lead to legal action and penalties for non-compliance. Because of that, it’s important to find out about these laws before hiring your international talent.
Customary 13th Month Pay:
On the other hand, customary pay is the one which includes many types of bonuses that the employees in the local economy expect. In countries where 13th-month pay is customary, the exact terms and conditions will be mentioned and agreed upon in the contract. And while it’s not a legal requirement, not paying customary 13th-month pay can be detrimental to the company, affecting employee retention and satisfaction.
Discretionary Pay:
It is a compensatory pay that is left up to the employer’s decision and is often seen as an unanticipated perk by the employees.
Which countries offer 13 month salaries?
Now, you might be wondering what major economies offer 13th-month payments. Below is a list of some key countries with either mandatory or customary 13th-month pay and how it is taxed in different countries.
- A 13th month’s pay is mandatory in Brazil, which is paid at the end of the year provided that the employees have worked at least 6 months in the company.
- In France, a 13th-month pay is customary, set out in industry agreements and paid at the end of each annual year.
- Germany also has a customary 13th month pay which is paid at Christmas.
- Austria has a 13th month pay which is paid during holiday season, in June/ July and a 14th month pay before Christmas.
- Greece has mandatory 13th and 14th-month pay which is paid at holidays like Christmas, Easter, and summer.
- China, Japan, and Singapore all have customary 13th-month pay.
If you are thinking, how are 13th monthly payments taxed in different countries? Here are a few things you need to know about taxation on 13th month pays in different countries. 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 is the 13th month pay calculated?
Typically, there are two ways by which you can calculate the 13th-month pay of employees.
13th month pay in addition to gross salary
In some countries, the 13th month’s pay is calculated more simply as an extra month’s salary, often paid at the end of the year. In such cases, the 13th-month pay can be calculated by:
Basic salary/12= 13th month payout
In Brazil, for example, the thirteenth-month salary can be regarded as an additional bonus during the Christmas period and is paid in cash once as a Christmas bonus which is in addition to the gross salary. So a thirteenth-month salary is identical to that of the commissions of the employee every month. Assuming an employee’s annual salary is $30,000, it means that the amount of the thirteenth-month pay of the employee will be $2,500.
13th month pay paid as a part of gross salary
In certain other countries, however, it is even more normal to treat the 13th month pay as part of the total annual gross payment. It can be computed this way:
The basic payroll is divided/13= the 13th-month payout.
But this is not always the case and it must be noted in many countries, an advanced formula is utilized in determining an individual’s 13th month pay. For example, India, where the thirteenth-month pay is awarded in salaries percentages of a certain annual income. On the other hand, countries like Argentina offer 13th-month payouts that are split throughout the year and issued in two installments.
It is also common in some countries to offer this pay in dividends that can be given to employees at different points throughout the year.
Who qualifies for a 13th month pay?
There are countries that require employers to pay 13th-month pays or salaries and thus all employees in such a country would be classified under this category. This means that an employee could get a 13th-month pay depending on their type of employment, length of service, and company-specific policies among other factors. The 13th-month pay should be generally applicable to all full-time employees. There are even some countries in which you receive a 13th month only after having worked at the company for six months or more.
Another common question that people often ask is: Are Freelancers eligible for 13th-month payments?
A 13th-month pay is not earned in this case since you are a freelancer. You should know the difference between an employee and a freelance worker in order to grasp this. The Business Dictionary defines Employee as “A person working in any organization whether full-time or part-time under a contract of employment”. In contrast, a contract worker or freelance means a person working for several companies and billing them under contracts. Freelancers are usually considered as independent contractors who select the kind of works and clients to undertake. You have no limitation to working in one company, hence working in a non-influenced manner, does not allow you to earn quite frankly a staff benefit bonus, the 13th month pay.
What is the cultural significance of 13th month pay?
A 13th month salary is more than just a benefit for employees, it also has a great cultural impact. Studies have proved that countries, where a 13th month pay is mandatory, have more satisfied employees. In addition, this also regulates the employment laws, making employees feel like they are taken care of. Companies worldwide have also observed that paying their employees an extra month’s income can increase employee retention.
All of this can improve workplace productivity and give workers an incentive to be more focused on their work.
Frequently Asked Questions (FAQs)
What is a 13th-month salary payment?
In essence, a 13th month salary is an additional paycheck employees are due to receive usually at the end of every year or during some special holidays such as Christmas and Easter. This pay can be included in the gross salary of the employee or it may also remain outside of our annual pay.
Who is entitled to receive a 13th-month salary payment?
The rules around a 13th-month pay may differ from one country to another where your business operates. In a typical scenario, this would be pre-discussed in an employment contract. As a rule, freelancers and self-employed workers do not enjoy this luxury — unless they are commissioned by an autonomous employer (the country imposes mandatory 13th-month pay).
Which countries mandate 13th-month salary payments?
There are many countries worldwide that have 13th-month pay as a requirement. Here are the countries that have to pay for their employee’s 13th month canceled variant of payment
- Belgium
- Greece
- Germany
- Austria
- Italy
- Portugal
- Spain
- India
- Indonesia
- Philippines
- Brazil
- Mexico
- Costa Rica
- El Salvatore
How is 13th-month pay calculated and taxed?
A 13th-month pay can be calculated in two different ways. If a 13th-month salary is paid on top of your gross annual payment, it can be calculated using this formula:
Annual pay/12= 13th month pay
But if it is paid as a part of your basic pay, then it is calculated differently:
Annual pay/13= 13th month pay
What is a 14th-month pay?
In addition to a 13th-month pay, some countries have also made it mandatory for businesses to pay their employees a 14th-month pay. Countries like Japan or Austria pay their employees a 14th month customary pay in December.
What are the benefits of offering a 13th-month salary payment?
Some of the benefits of offering employees a 13th-month pay or holiday pay include increased employee retention, overall employee well-being, and increased productivity. In simple words, increased employee benefits mean, improved productivity, focus, and employee satisfaction.
Article Author – Gino Peters
Gino Peters is the Commercial Director at ThisWorks, with a rich history of nearly a decade in international payroll. Throughout his tenure, he has consistently kept abreast of evolving labor legislation, ensuring that ThisWorks remains at the forefront of industry knowledge. Beyond his vast expertise, Gino is deeply committed to advising and guiding clients and partners with precise insights. His leadership guarantees that all content and operations at ThisWorks meet the highest standards of clarity, accuracy, and compliance.
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