The 13th month’s pay is an additional compensation offered to a company’s employee above their twelve months remuneration. The extra remuneration is paid entirely at the year-end in some countries, while others follow a double payment or quarterly payment scheme. The 13th month’s pay is neither a bonus nor a commission. Instead, it is an extra month’s salary.
The 13th month pay, also popular as the 13th month bonus or simply 13th salary was first legalized by the Philippines in 1975. Today it has gained widespread popularity, and knowing what it is will help you remain compliant with the domestic laws. It will also ease out your foreign employee hiring process.
In this piece, you will find more on the thirteenth month pay to better understand where and when it is applicable.
What Does 13th Month Salary Mean?
The 13th month pay is an additional remuneration, or an extra month’s salary, which is paid to the employees in a financial year. This amount is often equal to the employee’s monthly salary and is synonymous with the end-of-year bonus or 13th salary.
The History of 13th-Month Pay
13th month pay was first legalized in the Philippines due to the uproar regarding the minimum wage update. In the Philippines, the minimum wage was not revised for several years and failed to match the cost of living, leading to dissatisfaction among the public. The thirteenth month pay was created in December 1975 by then President Ferdinand Marcos, and was known as Presidential Decree No. 851.
Initially, the law stated that employees receiving less than 1000 pesos a month are eligible for this payment. However, Corazon Aquino, Marcos’s successor, removed this limit and made the privilege available for all employee categories in the private sector in 1986. By 1988, Aquino modified the law further and extended the benefits of thirteenth month pay to include the government employees.
The idea of a 13th month pay has its roots in Filipino tradition. The Philippines is a Christianity-dominated nation, and their most important festival is Christmas. But, for breadwinners, the festival’s expenses could be burdensome. Thus the 13th month pay was a sigh of relief and allowed the families to gather together and enjoy the festivities.
After the Philippines, many other countries took the cue and added similar regulations. Some even went beyond the 13th pay to incorporate 14th and 15th month pays. Today this regulation is mandatory for some countries while customary for others. A country’s government and companies decide if and when this extra remuneration should be paid.
Is it Required or Expected to Pay a 13th Month Salary?
13th month pay is not mandatory and depends upon a country’s laws and regulations. 13th month pay in the Philippines is compulsory by law, while 13th month pay in other nations are customary.
Apart from the Philippines, certain other countries like Greece and Argentina have made thirteenth month pay mandatory by law. So if your company or subsidiary is in any of these nations, then you must ensure this additional remuneration, failing which you’d have to bear hefty fines.
On the flip side, countries like China or Japan have 13th month pay as a customary payment apart from Singapore. It is not mandatory by law, but companies pay it anyway to retain their skilled employees. In countries where thirteenth month pay is customary, the companies specify this pay in their employment contracts. The decision to bear the 13th salary is taken collectively, and a date for rolling out the payment is fixed.
Other than 13th salary, compensation of employees can be of the following three types:
This payment is made mandatory by the local laws. The employers are obligated to pay this remuneration to the employees.
This pay category includes various bonuses, like a holiday bonus, allowances, etc.
This pay category is available at the employer’s sole discretion. This pay is an unexpected bonus rolled out to the employees.
Who is Eligible for 13th Month Pay?
Understanding the eligibility of payment before forwarding the 13th salary is important. If you are wondering about who is eligible for 13th month pay, this section will clarify your doubts.
- All rank-and-file employees are eligible to receive a 13th month salary. They are eligible for their entire service tenure with their employer.
- If the employee is new, hired during the year-end, even that employee is eligible to the benefits of thirteenth month pay. Ideally, they should receive 1/12th of the sanctioned basic salary as their 13th salary.
- Employees who have resigned.
- Employees who have had their contract terminated.
This is a general eligibility criterion, which varies slightly across countries. For instance, 13th month pay Philippines is available to those employees who have been working for a minimum tenure of 1 month.
Exemption from 13th month pay
For other countries, particular staff categories are exempted from 13th month pay benefits. These categories include public sector staff, managers, etc., and are specified by domestic laws.
Similarly, if an employee is working for multiple employers simultaneously, they too are not eligible. Certain countries don’t extend these benefits to government employees, civil servants, or part-time working employees as well.
Anyone who does not come under the traditional salary scale, for instance, freelancers, they are also exempted from 13th month pay. This is because they work either on commission or on a pay-per-project basis.
Which Countries Require 13 Month Pay?
A large number of Latin-American nations have made the 13th month pay mandatory. On the flip side, other countries in Asia or Europe take on the 13th month salary as a customary effort. Here is a list of all 13th month pay countries to give you a clearer picture about where it is a mandate and where it is optional.
Thirteenth month pay in Asian countries
- India: Mostly mandatory, and the amount paid is part of the annual salary percentage. It is compulsory to pay the employee within eight months of the financial year’s end.
- Indonesia: Mandatory to be paid at least before one week of the holiday season.
- Philippines: Mandatory to be given by December 24.
- Hong Kong: Customary and is given to the employees before Lunar New Year.
- Saudi Arabia: Customary and generally given before year-end.
- Taiwan: Customary, and usually given during Lunar New Year.
- China: Customary in nature and paid either during the Spring holiday or the beginning of the Lunar New Year.
- Japan: Customary and is extended in June as a summer bonus.
- Israel: Customary.
- Malaysia: Customary and paid to the employees before year-end.
- Singapore: Customary.
- UAE: Customary.
- Vietnam: Customary, and usually given during Lunar New Year.
Thirteenth month pay in Latin American nations
In most countries of Latin America, the 13th salary is also referred to by the terms Aguinaldo or Prima.
- Brazil: Mandatory payment to be extended in two installments. The deadline for the first installment is November 30, and the second is December 20.
- Colombia: Mandatory payment to be extended in two installments. The first payment is made within June 15, and the second by December 20.
- Argentina: Mandatory payment to be extended in two installments, the first by June 30 and the second by December 18.
- Dominican Republic: Mandatory to be paid by December 20.
- Nicaragua: Mandatory to be paid by December 10.
- Honduras: Mandatory to be paid by December.
- Bolivia: Mandatory payment, plus it is tax-free, with the threshold being the amount is equal to the employee’s one-month wage.
- Ecuador: Mandatory.
- Paraguay: Mandatory to be paid by the year-end.
- Guatemala: Mandatory to be paid by the middle of the year.
- El Salvador: Mandatory and paid as a Christmas holiday bonus.
- Costa Rica: Mandatory to be paid by December 20.
- Peru: Mandatory to be paid by July.
- Mexico: Mandatory to be paid by December 20.
- Panama: Mandatory and paid in three equal installments (15th day of April, August, and December).
- Uruguay: Mandatory to be paid in two installments, one by June 30 and the other by year-end.
- Venezuela: Mandatory to be paid by the year-end.
- Chile: The only Latin-American country with customary thirteenth month pay. The payment is given either in a single installment in December or two installments in September followed by December.
Thirteenth month pay in European countries
- Portugal: Mandatory to be paid by December 15.
- Greece: Mandatory payment, just like a mandatory vacation.
- Spain: Mandatory payment.
- France: Customary remuneration given at year-end.
- Italy: Customary payment in December.
- Germany: Customary pay, which is also termed as gratuity. The employees receive it during Christmas.
- Austria: Customary pay, given at June end.
- Croatia: Customary unspecified amount, which is given during Easter or Christmas.
- Slovakia: Customary payment, forwarded at year-end.
- Netherlands: Customary payment, given to the employees in November-December.
- Switzerland: Customary payment, ideally given at year-end.
- Luxembourg: Customary remuneration, given at year-end.
- Finland: Customary pay, given before holiday festivities begin.
- Belgium: Customary bonus pay, given at year-end.
Thirteenth month pay in African nations
- Angola: Mandatory pay in the form of a vacation bonus.
- Nigeria: Customary pay, given before Christmas.
- South Africa: Customary.
How to Compute 13th Month Pay?
The computation technique for the 13th salary varies by country. For some countries, they compute the 13th salary by dividing the annual base salary by 12. This amount is the employee’s monthly pay, which is then extended for an extra month.
For some other nations like Brazil or Italy, the computation is slightly different. Instead of dividing the employees’ annual base salary by 12, in these nations, it is divided by 13. This extra amount is then paid at a fixed date.
Some countries follow a bit more complicated technique. For instance, in Argentina, the 13th month pay is paid biannually, at a six-month interval. The employees receive 50% of their highest monthly remuneration for the preceding six months as their biannual 13th salary. These payments are forwarded in June and December.
Is 13th Month Pay Taxable?
Yes, the thirteenth month pay is taxable for most countries that offer this extra remuneration. The calculation of tax, however, varies across countries. There is a threshold for taxation in some countries, while for some other nations, the entire amount is taxable. For instance, the Philippines has a limit of 90,000 pesos, beyond which the thirteenth month pay is taxable.
Some other countries, like Austria, have an entirely different tax rate for the 13th month pay. In Austria, the 13th month pay is taxed at 6%, while the standard tax rate is higher. When paying your employees, you must be aware of this local tax regulation to avoid penalties.
Is 13 Month Pay a Bonus?
Thirteenth month pay has been adopted in many countries, but usually, it’s not considered as merely a bonus.
The difference lies in the fact that employee bonuses are related to their performances, while thirteenth month pay is nothing like that. It is either customary for the company to pay irrespective of the performance or is made mandatory by law.
When Is 13 Month Pay Given?
Now that you are aware of the thirteenth month pay, the countries it is applicable in, and its eligibility, you should also know when to give it to your employees. This date is determined by the country of operation and is tied to the country’s customs, traditions, and regulations.
For instance, in the Philippines, the thirteenth month pay is rolled out before 24th December, just before the Christmas festivities begin. In Greece, where 13th month pay is mandatory by law, it is paid in two installments. The first installment is given just before Christmas, and the second installment is again given in two halves. The first half is given before Easter and the second half during summer. Saudi Arabia, too, has made the 13th month pay mandatory, which is extended to the employees during Eid-al-Fitr.
If the time is not mentioned by law, then it should be mentioned in the employment contract. For instance, 13th month pay in Singapore is customary and is usually paid before Lunar New Year. Similarly, in China, the 13th salary is given before the beginning of the Lunar New Year.
The time of payment varies according to countries because this pay is mainly dedicated to affording the festivities, enjoying the traditions, holidays with the loved ones. Before you begin hiring in a foreign country, knowing about these traditions and regional nuances is crucial for your business adaptability in a foreign area.
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It is best to be familiar with the concept of 13th month pay if you have an overseas business. Employee satisfaction in a company is the key to running a business smoothly, and what better way to ensure that other than properly compensating them? The thirteenth month pay is one such way to reward your employees, especially during their festivities. You must familiarize yourself with the local traditions and customs, countries where this pay is applicable, along with the implementation process of the thirteenth month pay.
Frequently Asked Questions
Q. What is the process to claim 13th month pay if my employer hasn’t provided the same?
If your employer has not provided you with the 13th month pay, you can contact the DOLE helpline. You can reach them at1349 to lodge an official complaint against your employer, and this number is reachable 24/7. The DOLE query form is also available online as a second option.
Q. Am I eligible for thirteenth month pay even after resigning?
Yes, any employee who has either been terminated before their thirteenth month pay, or has resigned before receiving the same is eligible for the 13th salary benefits.
Q. When to pay the 13th salary?
The date to pay 13th salary varies worldwide. In countries where the pay is mandatory, the most common times to roll out this remuneration coincide with the local holidays, traditions, and customs. For example, in most countries, employers give out the 13th salary before Christmas, Lunar New Year, Easter, and likewise. In the countries where the 13th salary is customary, payment details are mentioned in the employment contract.