As an employer, one of your main objectives is to hire talented staff that will help you drive sales and propel your business to greater heights.
However, finding the best talent for the job in your home country can be challenging.
This is why many companies are now hiring global remote employees who are best suited to meet their needs.
When engaging international employees on a regular basis, it's important to be aware of countries where a compulsory 13th-month pay is mandated, and in some cases, even a 14th-month pay.
What Are 13th– and 14th–Month Salaries?
In payroll terms, 13th-month pay is an extra wage usually equal to one month's base salary that is given to employees on top of their regular yearly wages.
As part of a global compensation policy, employers frequently provide this bonus to thank their employees for their hard work and dedication throughout the year.
Some companies refer to this as a 'Christmas bonus' as they pay it during the Christmas holidays, and most Latin countries refer to it as an “aguinaldo”.
The idea for 13th-month pay first came from the Philippines as a longstanding tradition to help families cover the costs of their Christmas holiday celebrations.
A law was officially passed in 1975 mandating the bonus, as a response to the minimum wage not being raised for 5 years.
On the other hand, 14th-month pay is an additional month of wages that is usually paid out in the summer months in addition to the 13th-month salary, but it’s less common.
Mandatory vs Customary 13th–Month Pay
Many countries require employers to pay their employees 13th-month pay every year. This additional pay is non-negotiable as it is required by law. Failing to provide this extra income may result in your employees suing your company, potentially causing damage to your reputation.
As such, it’s crucial to understand whether you’re obligated to pay your employees the extra salary. This allows you to:
- Avoid sanctions and hefty fines from the government if you fail to provide the extra salary.
- Maintain the reputation of your company — when talented individuals learn that you have been unwilling to pay the mandatory added salary, they may refuse to work for your company.
- Effectively budget your employees' salaries.
- Understand and meet your employees' financial needs and expectations.
Some countries have what’s called a “customary” 13th and/or 14th-month salary that is given out at the discretion of the company.
This extra salary is not legally required, and is thus considered a way to thank employees for their hard work and dedication throughout the year.
In return, the company sees a high employee retention rate and a way to attract top talent.
Since 13th– and 14th-month salaries are becoming more common in the global talent marketplace, employers who do not offer this benefit may find themselves at a competitive disadvantage.
Countries with 13th and/or 14th Month Salaries
Below are the countries that offer employees either mandatory or customary 13th and/or 14th-month pay.
Countries with mandatory 13th AND 14th month pay:
Countries with mandatory 13th month pay:
- Argentina
- Bolivia (14th month also mandated if GDP growth is >4.5%)
- Brazil
- Colombia
- Costa Rica
- Dominican Republic
- El Salvador
- India
- Indonesia
- Italy
- Mexico
- Nicaragua
- Panama
- Paraguay
- Philippines
- Uruguay
- Venezuela
Countries with customary 13th and/or 14th month pay:
- Austria
- Belgium
- Chile
- China
- Finland
- France
- Germany
- Israel
- Japan
- Luxembourg
- Malaysia
- Netherlands
- Singapore
- South Africa
- Switzerland
- Taiwan
- United Arab Emirates (UAE)
- Vietnam
How Countries Calculate the 13th– and 14th–Month Salary
The amount paid out as 13th- and 14th-month pay varies depending on the country. Some countries calculate the 13th salary as a percentage of the employee's regular monthly wage or as a full month of wages.
In most countries, the standard way of calculating the 13th-month salary is to divide the total annual pay by 12. That amount is then added to the employee's salary at the end of the year.
If your employee's country also mandates 14th-month pay, you repeat the process to calculate the second bonus payment.
In some cases, like in Brazil, companies include the 13th-month pay in the employment contract calculation, so each employee's total annual income is divided into 13 parts.
Who Qualifies for 13th–Month Pay?
Most salaried employees with employment contracts are typically paid the 13th-month salary, regardless of whether they receive direct payments or are hired via an Employer of Record (EOR) arrangement. Independent contractors and freelancers usually do not receive the 13th month's salary payment.
It’s important to note that even if your company is based in a country that does not require 13th– or 14th-month pay, you may still be obligated to pay the extra wages if your employee is living and working in a country that mandates it.
When To Pay Out the 13th– and 14th–Month Salaries
The payout dates of the 13th and 14th salaries vary across countries. This is because most countries don’t have a standard pay date for the 13th month's salary, and the date of the payment depends on the country's cultural norms and religious holidays (such as Christmas and Eid).
For example, in the Philippines, all employees under contract receive their 13th-month bonus before the 24th of December.
Chinese companies, on the other hand, pay their 13th-month pay bonuses during the Chinese New Year. 14th-month pay, when applicable, is usually paid in the summer months.
Alternatives to 13th– and 14th–Month Salaries
Apart from being mandatory in some countries, 13th– and 14th-month pay has long been considered an effective way to motivate employees, enhance job satisfaction, and retain top talent.
Nonetheless, not all companies offer such bonuses.
The good news is that companies that are not mandated to provide 13th-month and 14th-month salaries can still employ several alternative strategies that can work equally well in boosting employee morale, attracting and retaining talented individuals, and creating a positive work environment.
- Performance bonuses: Rewarding exceptional performance, either on an individual or team basis, can motivate employees to strive for excellence while encouraging healthy competition and continuous improvement. Performance-based bonuses can be tied to specific goals, key performance indicators (KPIs), or milestones, providing employees with a clear pathway to financial rewards.
- Referral bonuses: By implementing referral bonuses, companies can tap into their employees’ professional networks. This can lead to a higher quality pool of applicants and reduce the time and resources spent on traditional recruitment methods.
- Profit-sharing: Distributing a portion of company profits among employees can foster a sense of ownership for company goals and motivate them to contribute to the company's success. Profit-sharing can be implemented through various models, such as stock options, profit-based bonuses, or profit-sharing plans.
- Health insurance and retirement plans: Providing comprehensive health insurance coverage and retirement plans demonstrates a genuine interest in employees' long-term wellbeing and security. This can significantly enhance job satisfaction and talent retention.
- Professional development opportunities: Investing in employees' growth and professional development through training programs, workshops, or educational reimbursements not only enhances their skills but also signals that the company values their long-term career advancement.
Tips for Employers to Make 13th– and 14th–Month Pay Work
Here are some tips for successfully implementing 13th– and 14th–month pay within your organization:
- To avoid confusion and misunderstandings, be transparent about your company’s 13th and 14th-month pay, including the eligibility criteria and any conditions associated with these bonuses. This transparency will foster trust and ensure that employees understand what to expect.
- Establish clear guidelines for calculating and distributing 13th– and 14th–month pay to help avoid discrepancies and ensure a fair distribution process.
- Regularly communicate your company’s 13th– and 14th–month pay policy to keep everyone on board and highlight how the compensation works within your organization. Emphasize these bonuses as part of your employee value proposition, showcasing your commitment to rewarding exceptional performance.
- If offering 13th– and 14th–month pay is not feasible for your organization, consider other forms of compensation to demonstrate your appreciation for your employees' dedication and hard work.
Overcome Global Payroll obstacles with RemoFirst
With the rise of global remote work, there are so many opportunities to hire the best talent from anywhere in the world. To grow your team of international talent, you need a dependable partner to back you up who knows the nuances of each country’s employment laws.
RemoFirst is the most affordable Employer of Record with a presence in 180+ countries. We hire your full-time employees and/or contractors on your behalf so you don’t need to spend time and money setting up entities and studying local laws — let us do the paperwork so you can focus on managing your team.
Schedule a demo with our team today, start hiring tomorrow.
