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All you need to know about 13th & 14th Month Pay

We all know there are 12 months in a year irrespective of where you are on the planet but if you have ever dealt with global payroll, you must have come across 13th or 14th month pay. Ever wondered what are these 13th and 14th month?

We believe it is important for you to know the 13th and 14th month pay if you hire foreign employees, even though the practice may not be common in the jurisdiction that you operate in. If you don't pay employees 13th and 14th month pay in countries where it is a regulatory requirement, then you may be guilty of non-compliance resulting in financial penalties.

We are covering the different aspects of the 13th and 14th month pay to enable you to understand the intricacies and ensure compliance with the regulations as applicable to your business. 

 

What is the 13th month and 14th month pay?

Historically, during twentieth century, voluntary donation by employer to their employees without any obligation during Christmas was introduced in Europe. For instance, in Italy it was originally named 'Gratifica Natalizia' (Christmas bonus). It got further spread worldwide in US, Asia and some of the Middle East and Africa countries pertaining to increased industrial activities and pressure from worker union. Henceforth, some countries introduced an additional pay around end of the year as an economic growth allowance to compensate for the high cost of living and other countries adopted the 13th month pay as an incentive which eventually got legalized through collective labour agreement for factory labour and was extended to different kind of works in due time.

The 13th month's pay is an additional month's salary paid to employees at a designated time during the financial year. Some countries further pay one more additional month's salary referred to as 14th month pay. 13th or 14th month pay are in the nature of bonus that is given to the employees irrespective of their performance.

For example, In Indonesia there is only 13th month pay known as “Tunjangan Hari Raya (THR)” but in Spain, there are both 13th and 14th month pay known as “Pagas Extraordinaries”

 

Who is entitled to 13th month and 14th month pay?

Typically, all salaried employees on employment contracts are entitled to 13th month and 14th month pay, though some countries make exceptions for executive-level leaders. There can also be certain condition like minimum working requirement or working in a particular sector to be eligible for this payment. Whether the company pays employees through the employer of record (EoR) or direct payroll, it doesn't impact the 13th and 14th month pay.

Is 13th and 14th month pay mandatory?

As we do not have uniform socio-economic condition throughout the world, similarly 13th and 14th month pay are also not recognised uniformly. Many countries still do not mandate 13th or 14th month pay like USA, UK or Middle East countries like Qatar, UAE, Lebanon etc., while some countries despite not being mandated by law pay this benefit customarily like Netherland, Japan, China etc., and some countries mandate it via law like in Spain, Mauritius, Greece, India, Philippines, Thailand etc.

The 13th month and 14th month pay usually take one of the three forms.

  • Mandatory pay: When a country mandates 13th and 14th month payment, then the companies not complying with rules are liable to pay a penalty. Besides the financial impact, the loss of reputation and trust in the workforce is more damaging.

  • Customary pay: The companies are not legally obligated to pay but it is considered good practice to add a month's salary as a bonus with timing aligned to prominent religious holiday seasons such as Christmas in western countries.

  • Discretionary pay: The extra month's pay is at the discretion of the employer.

How is 13th and 14th month pay calculated?

The calculation of 13th and 14th month’s pay also depends on country’s law, like in Spain the annual salary is generally divided by 14 to get the 13th and 14th months’ pay. In some countries, 13th month pay is calculated as an additional month's salary, so you typically divide the total basic salary by 12 to work out the amount owed for the 13th month as done in Philippines. In some countries like India, it is paid as a percentage of the salary known as statutory bonus and is applicable for employees only if their salary is below the defined threshold.

 

When does 13th and 14th month pay needs to be paid?

Usually, it is paid as onetime payment at the end of the year- sometimes referred as Christmas Bonus or yearend bonus or winter bonus or it can be paid in two or more instalments - usually one in summer and one in December or it can be prorated to 12 months as per the respective countries’ s labour law guidelines, Collective Bargaining Agreements (CBAs) or as per the arrangement between the employer and employee. The complication arises in the arrangement of the payment as we can see that it depends on various laws and agreements.

Is 13th and 14th month pay taxable?

Laws with respect to taxation of 13th and 14th month’s pay also vary from country to country and it is usually taxed along with the regular pay but not always.

Which all countries provide the 13th and 14th month pay?

The requirements vary across countries, with the practice less common in Africa and North America. Some countries make a legal distinction between 13th month pay and bonus, while in most countries the terms are used interchangeably.

Here are glimpse of countries-region wise where 13th and 14th month pay are required either mandatorily or customarily

Asia

Philippines

13th month pay must be paid on or before 24th December and is equivalent to one month’s pay.

Japan

13th month pay is customary as a summer bonus paid in June. 14th month pay is also customary as a winter bonus paid in December.

China

It is customary to pay a 13th month pay at the end of the Chinese year.

Hong Kong

Employers commonly provide a 13th month pay during December.

India

13th month pay is mandatory for certain types of employees in India, paid within eight months to the end of the financial year.

Indonesia

13th month pay is mandatory, paid before Ramadan.

Malaysia

It is customary to pay a 13th month pay at the end of the year.

Singapore

It is customary to pay a 13th month pay at the end of the year.

Taiwan

Customarily paid on Lunar New Year.

Vietnam

Customarily paid on Lunar New Year.

 

Europe

Austria

13th and 14th months pay are often part of collective bargaining agreement, usually paid in December and May.

Belarus

13th month pay is not mandated by law but commonly paid to workers in December. It is often included in collective agreements.

Belgium

13th and 14th months’ pay are mandatory - a Christmas bonus (100% salary) paid in December and a Holiday allowance (92% salary) paid in June.

Cyprus

13th month pay is a common benefit and depends on the employment contract.

Czech Republic

Many employers provide a 13th month pay based on performance.

Finland

Employers commonly provide 13th month pay before Christmas.

Greece

13th and 14th months’ pay are mandatory in the private sector, paid at Christmas, Easter & in the Summer.

Lithuania

Many employers provide a 13th month pay based on performance.

Luxembourg

It is customary to give an annual allowance called K15 during the second half year, paid equally to all employees.

Macedonia

It is customary to give an annual allowance called K15 during the second half year, paid equally to all employees.

Portugal

13th and 14th months pay are mandatory, paid in June during Holidays and in December during Christmas.

Spain

Mandatory 14th month pay (pagas extraordinarias) paid in summer and in Christmas. They can be prorated into the twelve-monthly salaries

Slovenia

Common benefit paid at the end of the year.

Switzerland

Many employers provide a 13th month pay during December.

 

Middle East & Africa

Angola

13th and 14th months’ pay are mandatory. One is a Bonus paid before vacation and the other is a Christmas bonus paid in December.

Morocco

Some employers offer a 13th month pay or seniority bonus.

U.A. E

13th month pay is customary. 14th month pay is also customary and is paid at the end of the year.

Saudi Arabia

Customary to make payment on the Eid al-Fitr holiday.

South Africa

Many employers provide a 13th month pay during December

 

South and Central America

Argentina

13th month pay is mandatory, paid in two equal instalments. One is paid on or before June 30 and the other is paid by December 18

Bolivia

13th month pay is mandatory, and a 14th month holiday bonus is required if the GDP is over 4.5%.

Columbia

13th month pay is mandatory and paid in two equal parts. One part is paid in December and the other is paid in June to employees who do not receive an “integrated salary.”

Brazil

13th and 14th months’ pay are mandatory, paid in two equal instalments. One is paid by November 30 and the other by December 20. The mandatory 14th month pay is considered to be a holiday bonus.

Ecuador

13th month pay is mandatory and paid in December and the 14th month pay is paid in March or April.

Paraguay

13th month pay is mandatory, paid at the year-end.

Peru

13th and 14th months’ pay are mandatory. 13th month pay is paid in July and 14th month pay is paid in December.

Uruguay

13th month pay is mandatory, paid over 2 instalments, one in June and one at the year-end.

Venezuela

13th month pay is mandatory, paid at the end of the year.

El Salvador

13th month pay is mandatory and paid in December as a Christmas bonus. The amount depends on the number of years of service.

Guatemala

13th and 14th months’ pay are mandatory.

Honduras

13th and 14th months pay are mandatory. The 13th month pay is paid in December and the 14th month pay is paid in July.

Nicaragua

13th month pay is mandatory, paid by December 10th

Panama

13th month pay is required but paid over three equal instalments

Costa Rica

13th month pay is mandatory in Costa Rica, paid by December 20th.

Dominican Republic

13th month pay is mandatory, equal to one-twelfth (1/12) of the total regular salary earned during the year and paid by December 20th as a Christmas bonus.

Mexico

13th month pay is mandatory, paid by December 20th as a Christmas bonus.

 

Conclusion

If you are operating in multiple regions or being in the same region handle payroll compliance of different countries, you need to adhere to the laws as well as the customary requirement of 13th and 14th months’ pay. Even if it is mandatory in different countries, the way it’s calculated and how it’s taxed will probably vary, and with these complications the failure of compliance and chances of getting things wrong multiplies. It is so, always advisable to consult an expert in global payroll to clarity and guidance.