What is 13-Month Pay and Holiday Pay?

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Gino Peters

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Gino Peters

Reviewed By: Belinda E.

June 3, 2026 7:27 pm

Category Tag: News

The rise of remote work made international expansion much easier in recent years, but hiring abroad still comes with legal and administrative complexity, as every country has its own labour laws and payroll rules that must be followed. In addition, not many companies can open a new entity in every new market that they are expanding into. That is when the Employer of Record (EOR) solution comes in handy.

The EOR serves as the legal employer on paper, while the client company manages important activities related to the employees responsibilities and performance.

In this guide we will cover what an employer of record is, how it works in detail, how much it can cost and which business should consider an EOR solution.

What is an Employer of Record (EOR)?

An Employer of Record (EOR) is a third party service provider that legally employs a person on behalf of another company in the country where the employee officially resides. As an official employer the responsibilities of EOR include issuance of an employment contract, processing payroll and withholding taxes and necessary social security contributions, as well as preparation of offboarding documents or any documentation that need to be signed by the employer. In addition, EOR ensures the compliance with local labour laws and serves as a first point of contact for any legal disputes.

The client company that hired the employee through an EOR also has a list of responsibilities. As an Employer of Record does not have the visibility on operational activities behind the scenes a client company needs to provide direction and ensure proper team integration.

In simple terms, the EOR provider acts as a legal employer in the country of the employee’s residence, while the client company takes on day-to-day manager work.

Responsibility	Employer of Record (EOR)	Client Company
Employment contracts & any other official documentation
Payroll processing
Income tax & social security contributions
Compliance with local labour laws
Statutory benefits administration
Managing daily work and projects
Setting goals and performance expectations
Providing equipment and tools
Leading the employee’s team and workflow

Employer of Record solutions gain more and more popularity in the field of global expansion as they allow businesses to hire best candidates fast and easy while staying compliant with local employment regulations. More information about EOR service are available if you would like to understand more.

EOR Meaning

The term “EOR” is the abbreviation for Employer of Record.

Employer in this instance stands for the company that hires the employee and takes on duties related to it, such as onboarding and offboarding process, payment of wages and compliance with other legal requirements.

“Record” from the EOR perspective refers to official registration with government authorities. The name of the EOR provider is stated in all payslips and tax filings, and should also be listed by the employee in any documents where employer must be stated, such as mortgage or loan applications.

One might ask a question of why this legal structure exists. As it is not possible to provide an employment contract directly to a person that legally resides in another country, the business expanding abroad typically needs to establish a local entity. That involves legal registration, arrangement of local bank accounts and organisation of payroll structure, as well as compliance with local law.

EOR allows to simplify the global hiring and reduce administrative burden through their existing legal entity.

There are some other hiring models that can be confused with EOR.

EOR and PEO

Many sources online refer to EOR as “international PEO”, which may create confusion as these models have 1 important difference.

A Professional Employer Organisation (PEO) serves as a co-employer of a client company. In other words, a business must already have an established entity in the country. The hiring tasks are, therefore, shared between 2 companies, while legal liability stays only with the client company. In the EOR model all legal risks are being taken by the official employer. Read more about the difference between PEO and EOR here.

EOR and staffing agency

Staffing companies mainly provide assistance for short-term projects by providing temporary workers. If the client wishes to employ a person for a longer time, EOR approach must be chosen.

EOR and contractor model

Contractor agreements assume the involvement of independent workers rather than employees. This model is also often used for temporary, project-based assignments. It is important to remember that there is a big misclassification risk between a contractor and an employee in the company which can lead to potential legal issues. An EOR ensures that employment is legally compliant with local labour law.

How does an Employer of Record work?

While it may sound complicated at first, a process behind the employer of record model is relatively straightforward.

The operating company selects a candidate

The client company recruits the employee they want to hire in another country

The EOR becomes the legal employer & local employment contract is issued

The Employer of Record uses its local legal entity to prepare and issue an employment contract that complies with labour law of the country where the employee is based. Depending on case-by- case situation, the work visa might need to be secured beforehand. Our company provides immigration services, more details can be found here.

Payroll and taxes are managed

The EOR takes on recurring responsibilities related to a payroll and ensures correct processing of income tax, social security contributions etc

Benefits are administered

Paid leave, sick leave, pension contributions and any other statutory benefits are being managed by the EOR.

Ongoing compliance and HR support

It is the responsibility of the EOR to monitor changes in local labour law and ensure ongoing compliance.

Example:

Imagine a UK-based tech company found a perfect candidate in Germany for a position of a software developer.

Instead of going through the administrative burden of opening a legal entity in Germany, the company chooses to work with an Employer of Record. The EOR hires the developer under a German employment contract and manages payroll and taxes. At the same time the UK company welcomes the new employee in the team and manages the daily work of a developer.

What services does an Employer of Record provide?

The Employer of Record does more than just providing an employment contract to the employee. Typically a wide range of HR and compliance services is included in the EOR offer. For example, read about the services included in our EOR package here.

Employment and HR administration

Locally compliant employment contracts and support with other documents requested by authorities
Employee onboarding
Employee record management. For example, control over PTO

Payroll and tax management

Regular payroll processing
Tax withholding and reporting of social security contributions with authorities
Payslip generation and creation of annual wage tax certificates

Benefits administration

Management of statutory benefits
Pension contributions (where required)
Support with benefits such as maternity leave allowance, sick leave allowance etc

Compliance and risk management

Insuring compliance with local labour law
Management of onboarding and offboarding processes
Representation in difficult legal and court cases

Additional services:

Some EOR providers ( such as ThisWorks EOR Services) provide additional services such as:

Work permit and dependent visa support
Background checks
Relocation support
Value added services: support with housing, company car, banking, etc ( depending on the country).

This vast list of services allows businesses to manage international teams, while staying compliant and avoiding complex local employment administration.

Benefits of using an EOR service

There are multiple advantages the businesses can get from working with an Employer of Record provider.

Faster global hiring

Setting up a new entity can take up to several months. With an EOR the hiring process can take several days.

Reduced compliance risk

A trustworthy EOR provider ensures the compliance with all local regulations. As the labour law varies greatly between countries, having a knowledgeable party to rely on can make a big difference.

Lower expansion costs

Establishment of a new entity is not only a time-consuming process, but also costly. With EOR services these costs can be avoided.

Access to global talent

The location of a remote candidate is not a problem if the company uses Employer of Record services. In other words, the best candidate for specific business purposes can be chosen.

Scalable hiring model

EOR services are ideal for organisations that want to scale international hiring quickly. They are particularly useful in the following situations:

Remote-first teams and organisations
Companies testing new markets abroad
Startups expanding internationally

How to choose the right Employer of Record

Choosing between several EOR providers is important, as it influences not only compliance, but also employee experience for new hires and how your company is perceived on the job market.

Here are some important things to keep in mind when deciding on your EOR partner:

Geographic coverage

Make sure that EOR provider can cover the country where you want to expand globally. Read about our EOR coverage here.

Pricing transparency

Check that EOR provider does not have any hidden costs and the pricing is clearly outlined in your MSA.

Compliance expertise

A strong EOR provider should have a team of experienced local HR specialists who understands all in and outs of a national labour law.

In-house vs partner model

Some EOR providers rely on their third-party partners, while others manage employment directly through their own local entities.

Customer support

It is important to find a EOR partner that helps with any questions or concerns in a quick and professional manner. That can be crucial when dealing with employee offboarding or any legal disputes.

Warning signs

Understanding the importance of choosing a right party, your company should be cautious of providers that lack local expertise and cannot give clear answers to your labour law questions. In addition, companies with slow response times can prove to be unreliable in critical situations. Furthermore, providers with complex pricing models with many hidden fees can create a lack of cost transparency and result in unforeseen expenses.

By selecting a provider with strong expertise in local labour law and reliable support from dedicated teams, your company can ensure a smooth international growth. Learn why companies choose ThisWorks as their EOR partner.

How much does an employer of record cost

The vast coverage of services the employer of record provides makes many businesses ask how much an EOR costs.

Pricing models vary greatly on the provider and the country of coverage, but most EORs use one or more of the following structures.

Flat monthly fee per employee.

The EOR provider charges a fixed monthly fee for each employee they have on the payroll from the client.

Percentage of salary

While not being a popular approach, some EOR providers charge a percentage of the employee’s salary, typically ranging between 5%-15%.

Setup fees

Some providers charge onboarding or offboarding fee for each employee.

The fee that the business needs to pay to an EOR provider also depend on the location of a service. Local labour law complexity of some countries can influence the fee. In addition, some countries have specific statutory benefits and payroll administration requirements. Furthermore, employee headcount in the specific location can influence the fee.

EOR vs setting up a legal entity

To establish a new entity the organisations needs to go through legal and tax registration. In addition, accounting support and ongoing compliance costs such as the fees for local labour lawyers can make setting up a legal entity significantly more expensive.

An EOR allows companies to expand globally without these upfront investments.

EOR vs hiring contractors

Some businesses decide to hire international workers as contractors. However, this approach can often lead to a misclassification risk, which can cause legal and tax liabilities.

A professional EOR provider ensures that the new starters are compliantly onboarded under local employment regulations.

EOR FAQs

Is an EOR the same as a PEO?

No. PEO model assumes co-employment and requires the business to already have established local entity, while EOR employs new talents through its own entity only.

Can an EOR hire contractors?

While some EOR providers can support hiring contractors, it is important to remember that main function of EOR is the employment of full-time workers legally in a country. A risk of misclassification between EOR and contractor should be also considered carefully.

Is an employer of record legal?

Yes, when established and structured properly, Employer of Record entities are legal and widely used for international expansion by many companies.

When should you use an EOR?

The most common reason for using EOR include:

Hiring employees located in another countries remotely
Testing new markets before establishing an entity
Expanding internationally

Can you switch from EOR to your own entity?

Yes. Many companies initially hire through an EOR for the ease and speed of expansion and later transition employees to own legal entities upon their establishment. It is important to remember that some countries require specific procedure to be followed in such a scenario.

Get in touch with ThisWorks

Expanding your team globally does not need to be long and administratively complex.

With the use of Employer of Record the businesses can have access to the best talent from around the world while ensuring full compliance with local labour laws.

ThisWorks can support your global expansion with our compliant Employer of Record services.

Contact our team to find our how we can help your international team glow fast and compliantly!

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 13^th-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.

Explore the world of 13th-month salary payments. Learn about eligibility, taxation, and the cultural significance of this global employment trend. Enhance your international business knowledge today!

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.