What is a 13th-month salary?
In many countries, employers calculate the salaries of their employees using the regular 12-month salary based on the calendar year. However, there are some countries where employees are eligible to receive a so-called “13th-month salary.” Companies operating in countries that don’t require a 13th-month salary bonus, but hire workers in countries that do mandate or expect the payment, need to be aware of the requirement and their obligation to provide this benefit to foreign team members.
The basics of a 13th-month salary
A 13th-month salary is an additional compensation on top of an employee’s regular 12-month base salary . It’s usually equal to the amount of the employee’s monthly salary. While some countries mandate when employers have to make the payment, it’s most often paid in December before the end of the year, also known as a so-called “Christmas bonus.”
In some countries, employers pay the bonus in multiple payments throughout the year. For example, in Brazil the 13th-month salary can be paid in a single payment by December 20, or in two installments, one any time between February and November, and the other by December 20. This will also depend whether a collective labor agreement may be applicable and if so, what specific rules about a 13th-month payment apply.
In some countries the practice of providing for a 13th month salary is customary, other countries make it mandatory or leave it at the discretion of the employer and the employee.
Every country has its own regulations regarding who qualifies for a 13th-month salary bonus, and whether certain individuals are exempt. For instance, freelancers, contractors and public servants are in general not entitled to these kind of benefits. Also employees, often managers with a certain level within a company, are often exempted.
How to calculate the 13th-month salary
Understanding the payroll requirements of your employee’s home country is important for the 13th-month salary computation. The most common computation method is to simply divide a worker’s annual salary by 12 to determine their monthly pay and pay out that amount.
Some countries have different practices. For example, in Argentina, companies pay a bonus equal to the highest monthly earnings in the previous six months. In other countries, companies divide the annual salary by 13, or base the bonus on a percentage of one’s salary.
For employees who don’t work a full 12 months, employers in principle can prorate the 13th-month salary payment. The most common method for this is to multiply the employee’s base monthly salary by the number of months they worked and divide by 12 to determine the prorated payment.
Taxes and payouts
It’s critical to understand the individual country’s rules on taxation (and social security contributions) on the 13th-month payments, in order to avoid fines or penalties for non-compliance. The taxes vary per country and even some countries provide for a lower tax rate on the 13th-month than the normal taxation rate on salary. An example is Austria with a tax rate of only 6% on the 13th month pay. Which countries offer a 13th-month salary?
Although the practice of a 13th-month salary originated in the Philippines in the 1970s, it has since spread throughout the world. As mentioned above, some countries' local laws either mandate that employers pay a 13th-month bonus, or such requirements are reflected in local collective bargaining agreements for certain industries, or it is just a customary benefit that employees expect but which are not mandatory.
Countries where a 13th-month salary is mandatory or often provided for in collective bargaining agreements, include
Countries where a 13th-month salary is not required by law, but often customary and expected by workers:
- Hong Kong
- South Africa
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