13th month pay is an important requirement companies need to understand when operating abroad. International companies must adhere to local employment laws and social norms, and 13th month pay is just one of them.
In some countries, this pay is mandated by law, while in others it is customary to pay without a legal requirement. Regardless, regional requirements vary greatly and can change quickly.
Since no global standard exists for 13th month pay it presents a considerable challenge for companies trying to manage payroll in-house. It also affects human resources as they need to include 13th month pay calculation formulas in employment contracts and salary packages. Otherwise, the company will face unplanned expenses.
13th Month Pay Defined
13th month pay (also known as 13th-month bonus, 13th-month salary, thirteenth salary, or aguinaldo or prima in Spanish) is a monetary benefit beyond normal pay and optional gifts such as a Christmas or New Year’s bonus.
Not only do requirements vary between each country, the timing and calculations for payments also do. While payments are typically made near the end of the year, some regions choose to align them with particular religious or cultural events instead. Some countries issue 13th month pay in a single payment, while others split payments into installments paid at stipulated times.
How is 13th month pay Calculated?
Depending on what country you are operating in, your 13th month pay calculation might look different. Some countries require a certain number of months of service before an employee qualifies. For instance, the Philippines awards 13th month pay to every employee providing they have worked at least one month during the calendar year. Other countries only provide 13th month pay when the employee surpasses a particular employment level based on the employee’s years of service.
To add to the complexity, each region calculates additional pay using a country-specific calculation. As an example, Italy, Spain, Bolivia, and Brazil base their calculations on 14 months instead of the 12 months.
If you have any questions about your 13th month pay calculations, feel free to contact us here.
13th month pay usually only applies to those receiving fixed monthly wages working within the private sector. This may include properly documented foreign employees and may also be tied to seniority.
Qualifying employees receive prorated pay, even when dismissed from employment. While payment is normally made at specified times, it may be paid immediately at the end of an employment contract.
Each country has specific conditions that must be met and exceptions and exclusions that may disqualify workers. For instance, most countries do not include managerial staff, those working exclusively on commission or piecework, and those performing specific work under contract, such as freelancers
Which Jurisdictions Have 13th Month Pay?
Many countries around the world have 13th month pay requirements mandated by statute. All employers must comply, including foreign businesses hiring local or expat employees overseas.
However, many more countries do not have a statutory requirement, but it is customary for employers to issue 13th month pay. The following list includes countries with both customary and mandatory requirements at this time:
|Italy||Customary (14th month)|
|Spain||Mandatory (14th month)|
|Bolivia||Mandatory (14th month)|
|Brazil||Mandatory (14th month)|
|Ecuador||Mandatory (14th month)|
|Guatemala||Mandatory (14th month)|
|Honduras||Mandatory (14th month)|
|Peru||Mandatory (14th month)|
|Japan||Customary (14th month)|
|United Arab Emirates||Customary (14th month)|
When 13th month pay is mandated by law, a company will face disciplinary action and probably pay penalties if it does not comply. It will cause serious reputational damage, draw negative attention to the business, and make it difficult, if not impossible, to find skilled labor.
In countries where this payment is customary but not legally required, employers will certainly have a difficult time finding and retaining the talent they need in the foreign region. Regional authorities won’t be eager to work with a business that doesn’t adhere to accepted business practices in their country.
Most recently, the Philippines encouraged employers in the private sector to pay the 13th-month pay in advance to their employees due to COVID-19. While the government did not pass a law forcing employers to make payment ahead of time, many did so to help employees and to solidify a positive reputation during these troubled times.
Generally, 13th month pay is tax exempt. However, each country has a maximum threshold and anything above that level is subject to regular income tax. The onus is on business to withhold and submit these taxes to the proper authorities or they could face additional compliance issues.
13th month pay requirements makes payroll and human resources a unique challenge. Handling it properly requires in-country expertise, legislative monitoring and compliance savvy to manage complexities.
Blueback Global can also provide your company with more affordable and simpler hiring options. Don’t let the complications of 13th month pay stop your business from attaining its goals. We can help you tap into lucrative foreign markets without the substantial expense and compliance burden.
Contact us for a free consultation about your international payroll needs and questions.