Running an international company is a complicated business. The more countries you expand into, the more complex your HR, recruitment and payroll processes will become.
And, as the end of the year rolls around, there’s one particular payroll concept that you might need to be aware of: the 13th salary, or 13th-month pay.
This is an additional payment paid to employees, usually (but not always) at the end of the year. It’s not a Christmas bonus — which is typically tied to the success of the employee or the business as a whole. But it’s also (kind of) outside of the employee’s normal salary.
In this article, we’ll explain exactly what 13th-month pay is, explore some of the countries where it applies, and answer some FAQs about how the 13th salary works in practice.
What is 13th-month pay?
13th-month pay or the 13th salary is a benefit offered to employees in many countries around the world.
It typically amounts to an extra month’s wages and is often paid at the end of the year in addition to the employee’s normal monthly salary for December.
In some countries, the 13th-month pay is paid out in several instalments over the course of the calendar year.
If you employ international employees, you need to be aware of the law and customs regarding 13th-month pay where they live, even if it’s not a requirement in your country.
If your employees are working in a country where 13th-month pay is required by law, you could face fines and penalties for not paying it.
Is 13th-month pay mandatory?
In some countries, 13th-month pay is a mandatory benefit that all employees have to grant to their employees. In others, it’s not required by law but is a customary payment that local employees expect.
And in some places, 13th-month pay is mandatory for certain employees, depending on collective agreements that govern their industry.
Where does 13th-month pay apply?
The 13th salary is a common practice in more than 50 countries throughout the world, although it’s not necessarily mandatory in all of them.
13TH-MONTH PAY IN EUROPE
In Europe, 13th-month pay is a legal requirement in five countries: Armenia, Greece, Italy, Portugal and Spain. It’s also a common practice in many other countries, even if it’s not mandated by law.
The following countries all have some form of 13th salary practice:
Exactly how this works varies from country to country. For example, in France, the 13th salary is not a legal requirement but is a common practice. It’s normally divided into two additional payments, in June and December — but employees can also receive it in either quarterly or monthly payments.
In Switzerland, an employee’s salary is often divided into 13 instalments instead of 12. Employees generally receive two payments in December, though this is also sometimes split into two smaller payments, one in July and the other at the end of the year.
13TH-MONTH PAY IN LATIN AMERICA
13th-month pay is a fairly common practice across Latin America. In the following 16 countries, it’s a legal requirement that employers have to pay their employees:
The Dominican Republic
The 13th salary is also common in Chile, although it’s not mandated by law. Chilean employees usually receive either one extra instalment in December or two smaller ones in September and December.
13TH-MONTH PAY IN ASIA
13th-month pay is mandatory in three countries in Asia: India, Indonesia and the Philippines. It’s also customary in several other countries, including:
United Arab Emirates
How does 13th-month pay work?
The exact customs and regulations governing the 13th salary vary from country to country, but there are some general guidelines that most countries typically follow.
WHEN IS THE 13TH SALARY PAID?
The 13th salary is typically paid at the end of the year, but this varies by country. In some countries, it’s divided into two payments: one in summer and one in winter. Sometimes, employees receive a portion of their 13th-month pay each month in addition to their normal monthly salary.
Traditions and customs around the 13th-month pay are often tied to religious or cultural holidays.
For example, in many Western countries, the payment is made before Christmas, while in China and Singapore it’s paid in time for Chinese New Year. In Saudi Arabia, it’s customary to provide employees with a 13th salary instalment on Eid al-Fitr.
WHO IS ENTITLED TO 13TH-MONTH PAY?
In countries where the 13th salary is mandated by law, it usually applies to all employees as long as they meet certain requirements in terms of their length of service at a company.
There are sometimes exceptions for employees in managerial or leadership positions, or those who receive other types of bonus payments instead.
If an employee only works part of a year for a company, they may receive a pro-rated 13th-month pay based on how long they have been there. Freelancers or contract workers are not usually granted 13th-month pay, although again there are some exceptions.
In some countries, 13th-month pay is not required by law for all employees but is set out in collective agreements for people working in certain professions.
Whether an employee is entitled to 13th-month pay and exactly how this will be paid should also be clearly stated in their employment contract.
HOW TO CALCULATE 13TH-MONTH PAY
13th-month pay is usually calculated by dividing an employee’s annual salary by 12, and then paying them that amount as an additional payment.
In some countries, the employee’s annual salary is divided by 13 instead of 12, which means that the 13th-month pay forms part of their basic salary. Since they receive two instalments in one month (usually in December), it still functionally acts as a kind of bonus payment.
IS THE 13TH SALARY TAXABLE?
In almost all countries that offer a 13th salary, this sum is taxed alongside the employee’s regular income. However, some countries may apply a different tax rate to 13th-month pay, or even exempt it from taxes altogether. For example, in Austria, it’s common for employees to receive two extra payments, in the summer and the winter. These are taxed at only 6%, which is significantly lower than the normal rate.
13th-month pay vs. Christmas bonus: what’s the difference?
Christmas bonuses and 13th-month pay are both additional payments that employers make to their employees, usually at the end of the year.
The main difference between them is that a Christmas bonus is typically optional, and might be based on the employee’s work or the company’s overall performance over the year. The 13th salary, on the other hand, may be mandated by law or by collective agreements, depending on the country.
Another difference is that there is no one way to determine how much an employee should receive as a Christmas bonus: it’s entirely at the employer’s discretion.
The 13th salary, on the other hand, is usually calculated by dividing an employee’s annual wages by 12, so that they effectively receive an additional month’s salary as an end-of-year or mid-year bonus.
Depending on the country where your company is located (or where your remote employees work), there may also be differences between how Christmas bonuses and 13th salary payments are treated by local tax law.
In some countries, a bonus may not be taxable as long as it’s below a certain threshold.
14th and 15th month pay
In addition to 13th-month pay, in some countries it’s customary to pay employees a 14th or even a 15th salary. In Peru, for example, employees receive a 13th salary in July and a 14th payment in December.
Do I have to pay the 13th salary if it’s not mandatory?
Even in countries where paying the 13th salary isn’t required by law, it’s still important to understand local employment customs if you’re planning to employ people there.
For one thing, 13th- (or even 14th-) month payments may be mandated by a collective agreement that governs your industry — in which case you have to pay it.
Even if this is not the case, if local employees expect to receive a 13th salary, you may want to consider paying it. Otherwise, you could hurt your reputation as an employer, and even struggle to attract and retain talent.
Hiring and paying international employees
Hiring international employees is no easy task — especially if you’re in the early stages of your global expansion. If you need some extra support with managing compliance risk, tax reporting and payroll for your overseas employees, CXC can help.
We can compliantly hire and pay employees on your behalf in more than 65 countries worldwide, thanks to our vast network of legal entities. Our experts understand the particularities of each country’s employment laws and payment customs — so you don’t have to.
Get in touch today to find out more.