All you need to know about the 13th Month Pay / Salary

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All you need to know about the 13th Month Pay / Salary

If you’re based in a country like Australia, the United States, Ghana, or the United Kingdom, the chances are that you’ve never heard of 13th or 14th-month pay. And if one of your employees tried telling you about it, you’d probably think they were pulling your leg!

13th and 14th-month pay is a real thing in some countries, though. It is also known by other terms such as “13th-month salary”, “13th salary”, or even “holiday” or “Christmas” pay. Note, that where it applies, this is completely distinct from paid vacation leave.

While it may not be a common practice where you are, it’s crucial to know 13th and 14th-month pay regulations if you hire foreign employees. If you fail to compensate workers with 13th or 14th-month pay where it’s required by law, your company could fall out of compliance with local laws and be liable for some hefty legal penalties.

In this short guide, we’re going to cover everything that you need to know about 13th and 14th-month pay and How Ghana and other countries do it.

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What is the 13th Month Pay?

In short, the 13th month’s pay is the payment of an additional month’s salary during the financial year. It’s a common practice around the world, but some variations rest on the specific employment laws of a particular country or legal jurisdiction.

In the Philippines, for example, 13th-month pay is a form of compensation in addition to an employee’s annual (12-month) salary prescribed by law. It was in the Philippines where 13th-month pay (or “thirteenth salary” as it’s known there) originated. It was introduced to bridge the gap between minimum wage—which hadn’t been increased for several years—and the higher cost of living.

In contrast, some countries don’t require 13th or 14th-month pay by law. Instead, they leave it to the discretion of employers whether or not it is paid.

Which Countries Have Thirteenth Month Pay?

Quite a lot of countries have thirteenth-month pay. There are so many countries that offer it with their own rules and customs, however, that would be too much information to list here.
Thirteenth Month Pay in Europe

In Africa, the following countries have thirteenth-month pay:

Angola: Mandatory vacation bonuses before holidays and 14th month Christmas pay.
Nigeria: Paid before Christmas.
South Africa: Paid at the end of the year.

Ghana; You might be given Rice and Oil or Nothing…funny

According to the Chief Executive of Automation Gh Group, Kwaku Asmah, incentivizing staff with a thirteenth or fourteenth salary encourages them to achieve set targets.

Speaking at a workshop organized by the Stanford Seed Transformation Network, Ghana Chapter, Mr. Asmah said, “The shared reward scheme enables employees to identify themselves and position the role they play in achieving the company’s success.

“If an employee knows they have a stake in a certain output, they will give their all. If they know they play a role in their small corner but at the end of the day, the bigger picture is for the bosses to enjoy, they will not give their all,” he added.

In Europe, thirteenth-month pay is mandatory in Armenia, Portugal, Greece, and Spain. In other countries such as Belgium and Croatia, it’s customary (but not a legal requirement.) Some countries, such as Greece, Spain, and Austria, offer fourteenth-month pay (or bonus), too.

In Switzerland, employees are paid their annual salary in 13 installments rather than 12. This means that employees usually receive two months’ worth of wages in December, which helps pay for Christmas bills.

Meanwhile, in Germany, a legal distinction is made between a thirteenth-month payment and a Christmas bonus, whereas in most other countries, the terms are used interchangeably: The thirteenth-month pay is salary, whereas the Christmas bonus (fourteenth month) is a special Christmas bonus intended to pay additional holiday expenses.

Thirteenth Month Pay in Latin America

Across most of Latin America, thirteenth-month pay—which is known as Aguinaldo or prima (bonus) in Spanish—is required by law. However, how and when this is paid depends on the country.

In Brazil, for example, the thirteenth-month pay is paid in two equal parts, by November 30 and by December 20. A mandatory 14th-month bonus is a holiday bonus. In contrast, Peru requires a thirteenth-month pay to be paid in July and a fourteenth-month bonus to be paid in December.

The only country in Latin America with customary thirteenth-month pay not required by law is Chile, where it’s paid in December as a lump sum or in two halves, in September and December.
Thirteenth Month Pay in Asia

Just like in Latin America, much of Asia has thirteenth-month pay. The only countries in Asia that legally mandate thirteenth-month pay are India, Indonesia, the Philippines, and Saudi Arabia, where payments are made on Eid al-Fitr.

In China and Hong Kong, customary thirteenth-month pay is made during the month of the Lunar New Year. In Japan, bonuses are paid in both June (summer) and December (winter).
Thirteenth Month Pay in Africa

Is 13th Month Pay Mandatory?

As you’ve probably worked out by now, it depends on each country’s laws and customs. [For more details about different types of pay schedules, read here]

Returning to the example of the Philippines, 13th-month pay is required by law here. But in many other places, it’s customary (i.e., businesses don’t have to pay it by law, but they do anyway.)

In places where 13th-month pay is customary, the terms of it are typically set out in employment contracts or through collective industry or trade union agreements. Businesses in these countries are also well within their legal rights to not pay it. In a country where 13th-month pay is required by law, however, serious penalties can be dished out for companies that refuse or otherwise fail to pay it.

Here are the countries where 13th-month pay is required by law, correct at the time of writing in February 2021:

Europe

Armenia: paid before the New Year holidays.
Greece: 14th-month and holiday bonuses are paid at Christmas, Easter, and summer.
Portugal: paid by December 15th.
Spain: mandatory 14th-month bonuses paid in summer and at Christmas. These bonuses can be divided up and paid via monthly salary instead.

Latin America

Argentina: paid in two equal installments, by June 30th and December 18th.
Bolivia: up to one month’s wages plus a 14th-month pay if GDP is above 4.5%.
Brazil: paid in two equal parts, plus mandatory 14th-month pay as a “holiday bonus.”
Colombia: paid in two equal parts, 1st-15th June and 1st-20th December.
Costa Rica: paid during the first 20 days of December.
Dominican Republic: paid by December 20th.
Ecuador: Mandatory 14th-month bonus paid in parts or as a lump sum.
El Salvador: paid as a Christmas bonus based on the number of years served.
Guatemala: 13th and 14th-month pay equal to one month’s salary.
Honduras: 13th and 14th-month pay equal to one month’s salary.
Mexico: paid by December 20th.
Nicaragua: equal to one month’s salary, paid by December 10th.
Panama: paid in three equal parts on April, August, and December 15th.
Paraguay: paid at the end of the year.
Peru: 13th and 14th-month pay paid in July and December.
Uruguay: paid in two halves on June 30th and by the end of the year.
Venezuela: paid at the end of the year.

Asia

India: paid within eight months of the end of each financial year.
Indonesia: religious holiday bonus, paid one week before the holiday.
Philippines: paid to employees in December or in two installments (May/Nov).
Saudi Arabia: paid on Eid al-Fitr.

Who Gets It?

In places where 13th-month pay is mandatory (required by law), it’s typically the case that all employees are entitled to it, so long as they have worked for at least one month within each calendar year.

This isn’t always the case, however. Exceptions to the 13th-month pay rules can be made for certain job roles such as management, or industries such as the public sector. Zero-hours employees (i.e., those without full employment contracts), contractors, and freelancers are also typically excluded from 13th-month pay entitlements.

Again, the rules and customs depend entirely on each specific situation; far more than location alone needs to be accounted for in most cases.
How Do You Calculate 13th Month Pay?

In some countries, like in the Philippines, 13th-month pay is calculated as an additional month’s salary. So, an employee paid $24,000 per year will receive an extra $2,000 for their 13th-month pay, because $24,000 divided by 12 is $2,000.

In other countries, such as Brazil and Italy, 13th-month pay is calculated as part of the annual salary. This means that the annual salary will be divided by 13 and paid out in 13 equal installments. So, $24,000 would become $1,846 per month.

There are exceptions to these two formulas for calculating 13th-month salary, such as in India where it’s calculated as a bonus percentage relative to a worker’s annual salary.

How 13th-month pay is calculated depends on each jurisdiction, their laws, and customs.

Usually, 13th-month pay should be listed on an individual’s pay stub or payslip.
Is 13th Month Pay Taxable?

More often than not, 13th-month pay is subject to normal income taxes. How this is done, however, varies between countries. Some countries will apply full tax while others will only apply tax once a certain threshold has been met or will lower the tax rate applied.

When paying remote employees, you’ll need to be aware of the tax situation in each country, including what rate needs to be withheld for 13th-month pay.
When Does it Need to Be Paid?

As you’ve probably guessed from the information above when the 13th (and in some cases 14th) month pay is paid out depends on the country in question and what its regulations are. Exact timings, if not defined in law as they are in the Philippines, are often laid out in employment contracts or other agreements.

More often than not, the date when the 13th-month pay needs to be paid is tied to a country’s cultural norms, religious holidays, or other significant dates. Many have Christian roots, and thus this “extra” pay is paid out in December, just in time for Christmas. Meanwhile, in Saudi Arabia, it’s paid out in time for Eid, while in China and Singapore, it’s paid out in time for Chinese New Year.
What Is 14th Month Pay?

Instead of dividing an annual salary into 13 components (as with 13th-month pay), sometimes it is divided into 14. In this case, the employee receives both 13th month and 14th month pay. Countries with 14th month salary include Greece, Spain, Austria, Italy, Bolivia, Brazil, Guatemala, Honduras, Peru, Japan, UAE, and Angola.

credit source; nhglobalpartners.com

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