13th Month Pay: A 2021 go-to guide

13^thmonth pay? It certainly sounds good.

If you’re in a country where it’s neither mandated or expected, it sounds too good to be true. Though employers, of course, may take a different view.

So, let’s take a closer look.

What is a 13^th month pay?

The concept of a 13^th month is thought to have begun in the Philippines in the 1970s and has since spread to many other countries – in Asia and throughout the world. In some places, for example Indonesia, it’s viewed as a religious bonus and the payment is timed with the Christmas holiday. In others it may be referred to as Christmas pay or holiday pay.

As its name suggests, a 13 month pay is an additional payment equal to one month’s salary, paid in addition to an employee’s annual salary.

How is 13^th month pay calculated?

The payment is calculated based on either a single month salary or four weeks salary, depending on how compensation and payroll are structured. This is important for employers that are hiring overseas because if the amount is not included in the original salary package it could be an additional, unexpected expense.

One other approach to statutory bonuses is to set compensation at an annual rate, and then divide that by 13 to arrive at a monthly gross salary.  That way, the 13th month bonus will not be an additional employment cost and could be included in the employment contract as a part of an annual stated compensation.

For example, if an employee has an expected annual salary of $80,000, the monthly salary would be $6153, and the 13th month pay would be the same amount.  Depending on the country, it will probably all be paid at year’s end or in two instalments.

When is the 13^th month payment paid?

A 13^th month pay is not always paid at Christmas time however. Customs and employment regulations vary from country to country and global employers may be required to make these payments to employees at designated times throughout the calendar year, though most commonly in July or December.

And if you’re a global employer then making these payments in a timely and straightforward manner can be a significant compliance issue. So, it pays to know all the nuances and no-no’s associated with them.

Is it required or expected to pay a 13th month salary?

That depends on the country. Though the language varies from one country to the next, when it comes to compensating employees, there are basically three types of pay:

• Mandatory pay, which the employer is obligated to provide
• Customary pay, which includes many types of bonuses employees in the local economy expect
• Discretionary pay that is up to the employer and often viewed as an extra or unanticipated perk by employees

Some countries formally mandate 13 month pay and provide non-negotiable instructions for how to calculate and pay them out.

But even when a country doesn’t have a law on the books mandating a 13th month salary practice, that may not exempt the employer from participating. There are many countries around the world where this practice is customary and opting out can really hurt your chances of attracting the right talent.  As well as suffering from all the woes of an unhappy workforce.

Where is it paid?

In Asia, only three countries – India, Indonesia and the Philippines – mandate the practice of 13 month pay; whilst there are 10 additional countries in the ASEAN region where the practice is customary. Among these are Malaysia, Singapore, Japan, China, Hong Kong, Taiwan and Vietnam.

Most countries in Latin America mandate the 13th month pay, while in Europe and Africa it is customary but not always required by statute.

Who is Entitled to 13th Month Pay?

Any employee in a country where 13th month pay is required by statute will be entitled to the extra salary payment.  In countries where it’s not mandatory but customary, an employee will generally expect it.  If an employee works less than 12 months, the amount will usually be pro-rated to a lower payment based on the number of months worked.

What can happen if it’s not paid?

If the 13th month pay is mandated by statute, then every employer is obligated to comply just as with any employment-related law. This applies equally to foreign companies that are hiring overseas, whether the employees are expats or locals.

Failure to make these payments can result in penalties for employers, as well as create ill will among local employees who have come to expect a 13th month bonus. That could also happen if the bonus is only customary, but commonly made in the host country.

Where can I get some good advice about 13^th month pay?

Whether it’s mandated or more of a tradition, you need to familiarize yourself with all the details on 13^th month pay. For example, how will you account for this expense when offering a new employee a compensation package? Will your employee expect 13th month pay even if it is not statutory? Should you include it in the employment contract?

For these reasons many businesses operating across multiple jurisdictions or countries seek advice from HR and workforce management companies such as CXC Global who are specialists in payroll management. Not only will you benefit from up to date advice on issues like 13^th month pay but you will also benefit from streamlined payroll operations, reduced costs and less risk.

If you’d like more information about issues like 13^th Month pay, please contact us at CXC today!