As businesses expand internationally, understanding local compensation norms is essential.
In many countries, 13th month pay, also known as a 13th salary or year-end bonus, is an additional payment - typically equivalent to one month’s base salary - given on top of the standard annual earnings.
This extra pay can be distributed in a single year-end lump sum or in multiple instalments throughout the year, depending on local practices.
Mandatory by law in several countries – particularly across Latin America, parts of Europe, Asia, and Africa:
Latin America (e.g. Argentina, Brazil, Colombia, Mexico, Panama): payment often split into two or more instalments.
Europe: required in countries like Greece, Portugal, and Spain; often customary in Austria, Italy, Switzerland, and several others.
Asia: mandatory in the Philippines, Indonesia, and India; customary elsewhere in the region.
Africa: required in Nigeria, Angola, and South Africa.
In countries where it’s not legally mandated - like the US, UK, or Canada - it may still be offered as a discretionary year-end bonus.
Standard calculation: divide the employee's annual base salary by 12.
Proration: if the employee hasn't worked a full year, prorate the amount based on months of service.
Variations: some countries use alternate methods – e.g., Argentina may base it on the highest monthly earnings in the previous six months, while Italy or Brazil may divide annual salary by 13.
Tax treatment varies: certain countries like the Philippines cap tax-exempt amounts; others treat it as regular taxable income.
Legal compliance: missing mandatory 13th month payments can lead to fines and penalties.
Employee expectations: in customary markets, offering this pay boosts trust and morale.
Payroll planning: factoring in this obligation during budgeting and global payroll setup is essential.
Global consistency: uniform compliance across regions supports equitable treatment of employees worldwide.
Global payroll services: outsourced solutions for managing international employee compensation.
Payroll liabilities: the total wages, benefits, and taxes owed to employees.
Payroll outsourcing companies: external providers managing payroll compliance and administration.
Employer of Record (EOR): a service provider that legally employs staff on behalf of companies expanding internationally.
Salary benchmarking: comparing pay scales across industries and regions to ensure fair compensation.
Independent contractor payments: compensation for freelancers or consultants, often distinct from accrued payroll.