For any company operating in multiple countries, juggling cross-border human resources requirements can easily become an overwhelming complex task. After all, each jurisdiction has its own laws, regulations, and expected inclusions.
How you address regulations and benefits has serious implications for business success. In some countries, paying a 13th-Month salary is either an expected custom or required by law. To successfully administer this, human resource departments must be diligent and learn how this benefit impacts payroll.
What Is 13th-Month Pay?
13th-Month Pay is known by many names: 13th-Month Bonus, 13-Month Salary or 13th Salary. All of these denote an additional benefit that is required or culturally routine in some countries. Obviously, in the jurisdictions where it is a statutory benefit, companies that hire there are required to comply with the parameters. In cases where it is a customary benefit, it’s highly recommended that companies explore how offering or not offering this benefit will impact their talent strategy.
In most cases, each given bonus is based on the salary pay of the worker it applies to and it should equate to a full month’s pay. Sometimes, this is calculated as one-twelfth of their total base salary. Across countries that observe 13th-Month Pay, there are various contingencies in determining the precise bonus amount. For example, sometimes the bonus amount is computed based based on the highest month’s salary while other times companies consider the average pay in the three months prior. Sometimes an employee’s total years of service are a factor in calculation.
While the bonus is usually distributed at the end of year, it does not count as a holiday bonus. Companies in many countries provide both bonuses separately, with the holiday bonus serving as an additional employee benefit.
Understanding the Context of 13th-Month Pay
For companies originating in countries where 13th-Month Pay is not a traditional benefit, it’s helpful to understand its history. Originating in December of 1975 by Philippine President Ferdinand Marcos, the custom has its roots in allowing workers to celebrate the Christmas holiday and cover expenses. The custom quickly spread to other countries, becoming either a standard custom or a statutory benefit.
Sometimes companies opt to release the salary in two halves, with the first being paid out in May and the second being disbursed in December. While the December distribution ties back to the original holiday celebration history, the May distribution aligns with the time when parents in the Philippines are often required to make down payments on school tuitions.
While these are the reasons that apply to the 13th Salary’s country of origin, the Philippines, the additional salary in other countries goes toward various expenses. However, in most contexts, it’s still understood that the mid-year and year-end bonuses support educational and holiday expenses. In some countries, the laws or custom agreements have evolved to allow employees to request a portion of the payment benefit before the set date so that it can be used for personal needs. This is often reserved for family emergencies or extenuating circumstances.
Where Is the 13th-Month Salary Observed?
For countries that do not observe the 13th-Month Salary, e.g., the US or the UK, it may be surprising to learn how many countries have adopted the practice. And if your company is operating in one of these countries, it’s critical to be aware of the requirements, parameters, and timelines.
In looking at the regions that GoGlobal services, here’s how various countries regard 13th-Month Pay:
|China||Customary||Paid out during the month of the Lunar New Year or before the Spring Festival Holiday|
|Hong Kong||Customary||Typically disbursed for the Lunar New Year or for year-end|
|India||Mandatory in most cases||Calculated as a percent of the annual salary and must be paid out within eight months of the fiscal year-end|
|Indonesia||Mandatory (religious holiday bonus)||Must be paid out at least one week before the respective holiday that applies to the employee. The government recognizes the following religions: Islam, Protestantism, Catholicism, Hinduism, Buddhism, Confucianism|
|Japan||Customary||13th month is usually a summer bonus paid out in June; 14th month is a customary winter bonus paid out in December|
|Malaysia||Customary||Must be paid out for year-end|
|Philippines||Mandatory||Must be paid out by December 24th|
|Singapore||Customary||Usually paid out for year-end|
|Taiwan||Customary||Typically paid out for Lunar New Year|
|Vietnam||Customary||Typically paid out for Lunar New Year|
|Austria||Customary||Due at the end of June; 14th month is also customary and is due at the end of November
|Belgium||Customary 13th-month bonus; Mandatory holiday bonus||Holiday bonus is paid at the time of the holiday|
|Croatia||Customary||The amount is unspecified and varies but is paid around Christmas or Easter|
|Finland||Customary||Typically paid out before the holiday|
|France||Customary, regulated by Industry Collective Agreement||Generally paid out for year-end|
|Germany||Customary||Referred to as “Christmas and holiday bonus” and is typically paid out in equal installments twice a year around June and Christmas|
|Greece||Mandatory (plus mandatory vacation and 14th month bonuses)||To be paid on Easter (half-month salary), ahead of summer vacation and Christmas, respectively|
|Italy||Customary||Paid out in December; 14th -month bonus is sometimes paid in June depending on Collective Agreement|
|Netherland||Customary||Typically paid around November or December|
|Portugal||Mandatory and 14th month||Paid out by December 15th(14thmonth payable in June)|
|Spain||Mandatory (14th-month bonus is also mandatory)||Paid out in summer and at Christmas|
|Switzerland||Customary||Typically paid out year-end|
13th-Month Pay FAQs
Whether the HR staff are from a country where 13th-month salaries are not customary or whether crossing borders into another participating country, there are many aspects to consider. Here are some of the most frequently asked questions we get from clients.
- Who Am I Required to Pay Out the 13th-Month Salary to?
Typically, only the rank-and-file employees of an organization with fixed monthly wages are entitled to receive 13th-Month Pay. The bonus is usually awarded regardless of employment status, but usually the employee must have been employed by the company for at least one month during the calendar year at hand.
- Who Am I Not Required to Pay the 13th-Month Salary to?
There are several employee groups that are not usually entitled to a 13th-month salary, including:
- Managers or employees with the power to implement and enforce policies, hire, lay-off, discharge, suspend, transfer, recall, assign or discipline other employees.
- Employees who already receive the equivalent of one month’s salary in a bonus payment.
- Private servants, such as personal home nurses or drivers.
- Employees compensated by commission or those compensated on a boundary system or project basis
- Employees who are compensated on a fixed rate for specific project-based work, except for workers who are compensated on a piece-rate/unit-rate basis.
- Any employee that qualified as a civil servant by law.
- When Should I Pay Out the Benefit(s)?
The timeline and due dates for 13th-month payments depend on the customary expectations and legal requirements of each observing country. Sometimes companies split the bonus into two halves. Frequently they include a 14th-Month Pay as well, in which case there are two payment dates. Other countries just have different timelines for when the 13th month of pay is required or expected to be released. It is advisable to check the latest guidance for each country where your company has workers.
- Is the Benefit Taxed?
Notably, 13th-Month Pay is usually exempt from any taxation. However, typically any payments over the one-twelfth denomination of the employee’s basic salary are indeed subject to tax. For example, the exclusion rate in the Philippines is set at P90,000, meaning this is the maximum amount allowed without taxation.
How GoGlobal Can Help
Fully understanding and complying with foreign laws and customs can be a challenging undertaking. A mistake can be incredibly costly, even in cases where 13th-Month Pay is merely customary.
At GoGlobal, we’re here to help our clients understand the legal and business implications of 13th-Month Pay.