Everything You Need to Know About 13th Month Pay Calculators

A global team with top talent is the goal, and with the right Employer of Record, it’s possible for every business. But, with a global team come cultural and legal differences you should consider, as they often differ on a country level.

One of the most interesting differences is the 13th month's salary. Some of your employees will expect it, others will hope for it. You might also have employees unfamiliar with the term altogether.

But, as an employer of a global team, you must be familiar with 13th-month pay in great detail. So, let’s cover all the bases in this comprehensive guide.

What is a 13th-month pay?

13th-month pay, also known as a bonus payment or end-of-year salary, is an additional sum of money given to employees in certain countries at the end of each year. It's usually calculated based on the employee’s annual income and serves as a supplement to their regular wages.

As it is paid to the employees at the end of the year, it is also known as a “Christmas bonus.” You’ll also see the terms “thirteenth salary,” “13th-month bonus,” and “13th-month salary” used interchangeably to define it. Employees can use this extra compensation for anything from paying off debts to saving up for something special like a vacation or home renovation project.

Is 13th-Month Pay Mandatory?‍

13th-month pay is mandatory in some countries and customary in others. To maintain compliance with local regulations of employees in your global team, you must be informed on whether you should pay it out.

The concept behind 13th-month pay dates back centuries ago when farmers would give laborers an extra portion after harvest season was over. This meant they had enough food during wintertime when there wasn't much work available due to weather conditions outside.

The first country to include a 13th-month pay provision was the Philippines in 1975. It aimed to compensate for the minimum wage requirement not being raised in five years. Since then, many countries have adopted this practice and made it mandatory for employers. In others, it remains a customary practice to show gratitude to employees.

How to calculate the 13th month's pay?

Calculating 13th-month pay can be tricky, especially since the math varies depending on the country.

In most countries, it is equivalent to a month’s pay. You’d calculate the thirteenth pay by dividing the total annual salary by 12. Typically, this total salary doesn't include bonuses, raises, or any other monetary reward offered that year.

In other countries, the 13th salary is calculated as an equal part of the annual salary. You should divide it by 13 to find out how much you should pay your employees for Christmas. Some countries require it to meet specific percentages.

Sometimes, it is paid in two installments, in summer and winter, so you should divide the 13th salary into two parts.

Calculating 13th Month Pay Accurately

Calculating the exact 13th month pay requires careful consideration. Different factors such as overtime hours worked and bonuses received will affect how much money you should give your employees at the end of each fiscal period.

To ensure accuracy in calculating this figure, here are a few steps that should be taken:

1. Determine whether or not you need to offer this benefit

Depending on the country you are hiring in, you may or not be required to pay this type of bonus. If you want to offer this benefit even if it’s not mandatory, you need to discuss it with your employees. They may prefer a smaller pay increase each month instead.

2. Gather all relevant information for payroll

Before starting the calculation process gather all necessary documents. The documents should include payslips, tax forms, and other documents containing details about gross salaries, overtime hours, and other deductions made.

3. Use the appropriate formula to calculate the final figure

You can use specific formulas provided by the government websites if the 13th-month pay is mandatory there. These will help you determine exactly how much your workers are entitled to once everything else has been accounted for. For example, the Philippines uses the "Multiplication Method" whereas Mexico applies the “Division Formula.”

Understanding the Laws and Regulations Surrounding 13th Month Pay

In many countries, employers are legally obligated to provide their employees with a 13th-month pay. The laws governing this type of compensation vary from country to country. Employers need to understand what they need to do to comply with local regulations.

Certain aspects may also apply depending on whether your company is in a public sector or private industry setting. Different jurisdictions may impose taxation for extra income earned through 13th-month pay.

Which countries have 13th month pay?

It’s important to know whether you must pay the 13th-month salary to each of your global employees. As mentioned before, it's mandatory in some countries, and you may face significant repercussions if you fail to follow the law.

You want to avoid paying hefty fines to the relevant government, and potential lawsuits from disgruntled employees. Ultimately, you want to keep your company’s reputation intact.

Or, you want to build its reputation as a great company to work for, so you should consider even the customary 13th-month pay. It’s an effective bonus to attract and retain top talent.

Also, these requirements may vary depending on the GDP growth, whether the company is public or private, and many other factors. Your Employer of Record knows these in each country they operate in, so you can rely on them to manage the 13th-pay requirements for your global team.

13th-month pay in Europe

Countries in Europe are very much divided between mandatory and customary. In many European countries, 13th-month pay is an uncommon practice.

For example, thirteenth-month pay is mandatory in:

1. Greece - Greece has two mandatory half-salary bonuses for the private sector on top of the mandatory 13th-month salary. Employers must pay the 13th-month salary in mid-December, and half-salaries in mid-April and mid-July.

2. Spain - Spain also has a mandatory 14th month salary. Employees will expect the 13th around Christmas, and the 14th in the summer. The 13th and 14th salaries each equal an employee’s 1/14 of annual wages.

3. Italy - Italy has a mandatory 13th salary, with the 14th being common practice in some industries.

4. Portugal - Portugal has mandatory 13th and 14th salaries. 13th is paid in December and the 14th at the time of the employee’s summer holiday.

It’s customary to pay a 13th (or even 14th) month pay in these European countries:

1. Austria - In Austria, 13th and 14th-month pay is a market-norm benefit for many industries.

2. Germany - It is prevalent for German employees to receive a 13th salary. But, it depends on the type of contract they have.

3. Belgium - Most employees expect a 13th-month salary in Belgium.

4. France - In France, the law sees the 13th salary as a bonus, and it’s not mandatory.

13th-month pay is neither customary nor a legal requirement for Finland, Czechia, the UK, and Poland, to name a few.

13th-month pay in Asia

Even though the 13th-month pay originated in the Philippines, it is not mandatory in most Asian countries. On the other hand, it is customary or encouraged by the local government.

13th-month pay is mandatory in:

1. The Philippines - The practice remains strong in the country of its origins. In the Philippines, all private sector workers should receive a 13th-month bonus.

2. India - 13th-month pay is mandatory for all employers.

3. Indonesia - Indonesia mandates the extra month’s pay. The employees will expect the payment on one of the religious holidays. Which holidays the employer should meet depends on the employee’s beliefs.

In Asia, the common practice involves performance-based bonuses for the Lunar New Year. It typically falls between the 21st of January and the 20th of February. This practice is common in China, Vietnam, Hong Kong, and Taiwan.

Japan prefers performance-based bonuses. However, bonuses are not expected on a particular date and are left to the employer's discretion.

Singapore is one of the countries whose government encourages employers to pay an additional month of salary. It's known as the Annual Wage Supplement (AWS).

13th-month pay in Latin America

13th-month pay is prevalent in Latin America, where it’s also known as “el aguinaldo”. Chile is the only country in Latin America where this type of bonus is not mandatory by law. It is still customary in Chile, though.

Even though almost all Latin American countries require employers to pay this bonus, there are significant differences in “how much” and “when”.

For instance, in Argentina and Uruguay, half the 13th salary is paid in June, the other half in December. In Guatemala and Honduras, the first half is paid in July.

Brazil requires two installments - one by the end of November, and one by the end of December. Panama’s employees receive a third of the 13th salary each April, August, and December.

Others, like Costa Rica, El Salvador, and the Dominican Republic require the 13th salary to be paid by the 20th of December.

There are also differences in how much the employees will get. In Mexico, the bonus equals 15 days of salary.

Employers might have to pay the 14th salary in Guatemala, Peru, and Honduras.

Is there a 13th-month bonus in the USA?

In the US, it's neither mandatory nor customary for employers to pay the 13th or 14th month salary. US companies prefer to offer sign-up, performance-based, or incentive bonuses instead.

All bonuses in the US are up to the employer's discretion. They may be a part of the employment agreement.

Is there a 13th-month pay in Australia?

It’s not a common bonus in Australia. The employee has to ask and stipulate it in the contract, otherwise, they won't be even offered the thirteenth pay. Some Australian companies offer performance-based bonuses at the end of the year, but it’s not mandatory.

Australia is famous for “Leave loading” instead. Leave loading is an extra pay some Australian employees receive, usually while the employee is on annual leave.

Who is eligible for 13th-month pay?

Similarly to calculating the 13th-month pay, who is eligible for it differs from country to country. Generally, every salaried employee is eligible for this bonus. However, it might depend on how long the person works for a company and other factors.

Some countries impose 13th-month pay on private-sector companies, while public-sector workers are exempt from this. Freelancers, independent contractors, and personal service employees usually don't receive this bonus.

Tips for Accurately Calculating 13th Month Pay

Calculating 13th month pay accurately is essential to ensure their employees are receiving the correct amount of compensation. Employers must take into account a variety of factors when calculating this payment, such as hours worked, overtime pay, and other bonuses or allowances.

To help employers calculate 13th month pay correctly and efficiently, here are some tips:

Understand Local Laws

You must understand local laws in your employee’s country regarding 13th-month payments before attempting to calculate them. Different countries have different rules about how much an employee should receive in terms of bonus payments.

It’s best to familiarize yourself with all these regulations first. If possible, it’s best to consult with a payroll expert. The latter will also help you avoid any potential legal issues down the line if there is ever a dispute over wages or benefits owed by your company.

Calculate Gross Earnings Accurately

When calculating gross earnings for purposes of determining 13th-month pay, make sure that all income sources (including regular salary, overtime, and commissions) are taken into consideration. You need to ensure no money goes unaccounted for during calculations.

Additionally, certain deductions may need to be made from total earnings before calculation. This depends on what type of employment agreement exists between the employer and the employee.

Use Automated Tools & Software Solutions

There are many automated tools to simplify the process involved in computing accurate figures. These software solutions often come equipped with built-in features designed for streamlining processes like wage and bonus calculation while ensuring accuracy at every step along the way.

Keep Detailed Records

Keeping detailed records about payroll can be useful for avoiding errors later on down the road. Discrepancies could lead not only to costly disputes but even litigation against companies who fail to comply.

Try to always maintain meticulous documentation on salary and bonus disbursement procedures, including 13th-month pay. It will allow you to access this information whenever needed, which may prove useful in cases of audits, or other checks.

Seek Professional Advice If Needed

Finally, don't hesitate to seek professional advice from qualified experts. It will help you gain a better understanding of various types of incentive schemes that businesses across the globe offer.

Discussing it with an expert might help if you want to provide your employees with a 13-month pay. They can help provide the most accurate calculations, and streamline the process further.

Common Mistakes to Avoid When Calculating 13th-Month Pay

When it comes to calculating 13th-month pay, employers often make mistakes that can lead to costly consequences. Employers need to understand the common errors made when calculating this bonus. They can avoid them and ensure their employees receive accurate payments.

One of the most frequent mistakes employers make when calculating 13th-month pay is failing to include all eligible employees. This means not including part-time or contractual workers who the law entitles to receive a part of the bonus as well.

Certain categories such as apprentices and learners may be excluded. Some types of employees may be excluded from receiving any form of extra compensation under labor laws.

Another mistake commonly seen with 13th-month pay calculations involves incorrect calculations. These could be due to simple miscalculations. Or, misunderstandings about how much an employee should get paid based on his/her salary level and length of service within a company.

To prevent this, companies must double-check their figures before issuing payments. Discrepancies could arise between what you promised your employees versus what you delivered. This could result in employees taking legal action against the employer. They might seek restitution for unpaid wages owed.

Some businesses believe only full-time permanent employees should receive 13th Month Pay benefits. This isn't necessarily true, as it depends on local regulations on employment contracts and other factors. It's essential to take time to review applicable laws about who qualifies for bonuses within your company.

The last potential pitfall with the 13th-month pay lies in factoring overtime hours into the equation. Instead of basing calculations on salaries, employers should also include overtime and bonuses.

Is the 13th-month pay just a bonus?

While companies use both the 13th-month pay and other bonuses to show gratitude to their employees, they do differ. Bonuses often come with strings attached and the employee has to meet certain performance criteria to earn it.

However, the 13th pay sometimes means you’ll be paying your employees less throughout the year, as you divide the annual pay by 13. It’s recommended to discuss this issue with your EOR so that you maintain compliance.

If it's customary, you should discuss the topic with your employees. Some may prefer to skip the 13th salary and get higher pay each month in its equivalent.

Also, how these incentives are taxed may vary by country. It’s recommended you consult with your EOR on the best way to approach the “Christmas bonus.” Depending on the country, they will guide you on what's best for both your company and your employees based on local laws and regulations.

FAQ:

What is the difference between the 13th month's pay and the bonus?

There may or may not be a significant difference between the two, depending on the local law. In some countries, a 13th month is one extra month’s wages dictated by the country. A bonus is often left to the employer’s discretion and based on the employee's performance.

It’s best to inform yourself of regulations in a specific country or consult your EOR to determine whether you'd benefit from a 13th-month pay or a bonus.

When are most 13th-month payments made?

Most 13th-month payments are made in November or December, but typically before Christmas. In some countries, companies pay this bonus in two installments, with one paid in summer or when an employee takes their annual vacation.

How do you calculate an annual bonus?

Calculating an annual bonus depends on the country your employee resides in, as the legal requirements may vary. You might need to divide the annual salary by 12, or 13, or calculate a percentage of it to find the right amount you need to pay to stay compliant.