13th Month Pay

What is 13th Month Pay?

13th month pay is an additional payment, typically equal to one month’s salary, granted to employees at the end of the year. Its purpose is to help employees cover holiday expenses and ensure fair compensation across different industries and employment types.

Why Do Global Employers Need to Understand 13th Month Pay?

Whether you’re entering a new market or hiring internationally, 13th month pay matters. It’s not just about legal compliance — it’s about budgeting, payroll accuracy, and employee satisfaction.

Key questions for employers:

• Is it mandatory in the countries where we hire?

• Which of our employees qualify?

• How do we calculate and report it?

• Are we legally exposed if we get it wrong?

How Does 13th Month Pay Work?

Employers required to issue 13th month pay must ensure timely calculation, distribution, and documentation according to local regulations. Responsibilities include:

Reviewing legal requirements

• Verifying whether 13th month pay is mandatory under national labor law
• Understanding exemptions based on employee type or contract classification

Calculating accurate 13th month payment

• Using statutory formulas to determine the correct bonus amount
• Including relevant wage components (e.g., base salary, overtime, allowances where applicable)

Ensuring on-time disbursement

• Meeting local payout deadlines (e.g., December 20 in Mexico, December 24 in the Philippines)
• Communicating with employees clearly and consistently

Handling taxation and reporting

• Withholding taxes if required
• Issuing proper documentation for payroll and labor audits

This process requires precision and local expertise, especially in multi-country operations.

Who is eligible for 13th month pay?

Not all types of workers are eligible for 13th month pay. While it’s normally full-time workers that meet the eligibility criteria, freelance and contract workers typically do not.

Which workers are eligible for 13th month pay?

In most jurisdictions that mandate 13th month pay, the following categories of workers are generally entitled to receive it.

Full-time employees on regular contracts

Employees working under a standard, full-time employment contract are almost always covered by national labour laws or collective bargaining agreements that require 13th month pay. This includes salaried employees working a set number of hours per week with an ongoing agreement.

Rank-and-file employees

Many countries (such as the Philippines) specify that rank-and-file workers — those who don’t hold managerial or executive positions — are entitled to 13th month pay. This is meant to ensure equitable treatment for frontline and operational staff.

Probationary or fixed-term employees

In countries like the Philippines, probationary employees are still eligible if they have worked at least one month within the calendar year. In some jurisdictions, fixed-term employees are also covered, provided they meet minimum service thresholds.

 Typically excluded workers

Some categories of workers may be exempt from receiving 13th month pay — either due to legal classification or because they fall outside the scope of national labour codes.

Independent contractors and freelancers

Workers classified as independent contractors or freelancers are usually excluded, as they are not considered employees under most labour laws. However, misclassification — where a contractor performs duties similar to a full-time employee — can trigger legal penalties if challenged by labour authorities.

Commission-based sales agents

In some jurisdictions, pure commission-based roles may not qualify for 13th month pay, especially if their compensation is highly variable and not anchored to a base salary. However, mixed compensation models (e.g. base salary + commission) may still qualify.

Executive and managerial Staff

While rank-and-file workers are commonly covered, some jurisdictions exclude executives or managerial employees — particularly if their compensation includes discretionary bonuses or profit sharing instead. That said, in other countries, managerial staff are still eligible if there’s no explicit exemption in law or contract.

 Country-specific exceptions

• Philippines: All rank-and-file employees who have worked at least one month during the calendar year are entitled, regardless of contract type.

• Mexico: Applies broadly to employees under the Federal Labour Law, including fixed-term and seasonal workers.

• Brazil: Covers nearly all employees in formal employment relationships, including domestic workers.

How is 13th month pay calculated?

While the principle is straightforward — one extra month of pay per year — the actual method of calculation varies significantly depending on the country, contract type, and even the month of disbursement. Understanding the right formula is critical for global payroll accuracy and compliance.

In many countries, the standard formula is:

Annual Base Salary ÷ 12 = 13th Month Pay

This assumes that the employee worked the full calendar year. If the employee only worked part of the year, the amount is usually prorated based on the number of months or days worked.

How 13th month pay calculations vary by country

Philippines: Based on Total Basic Pay

In the Philippines, 13th month pay is not based on gross income, but on basic salary alone — excluding allowances, overtime, and bonuses. All rank-and-file employees who’ve worked at least one month in a calendar year are entitled, and partial payments must be prorated.

Philippines formula: total basic salary earned ÷ 12

Mexico: Based on 15 Days of Wages

Formula: Daily Wage × 15

Known locally as the “Aguinaldo,” this bonus is equal to 15 days of daily wage and must be paid before December 20. Unlike other countries, the amount is fixed by law and does not follow a monthly division. Employers must apply income tax withholding unless the amount is exempt.

Argentina: Two Installments Based on Highest Salary

Formula: 50% of Highest Monthly Salary in Each Half-Year

Employees receive half the 13th month pay in June and the other half in December, based on the highest monthly salary earned in each 6-month period. This favors employees who received raises or promotions within the half-year.

Brazil: Monthly Accrual and Two-Part Payment

Formula: Monthly Base Salary ÷ 12

Known as the Gratificação de Natal, Brazil’s 13th month pay is accrued throughout the year and paid in two instalments — typically in November and December. It is fully taxable, and often includes proportional contributions to social security.

Italy: Standard 13th Month as Part of Annual Package

Formula: One Month’s Base Salary

In Italy, the 13th month is built into most employment contracts and collective agreements. It is usually disbursed in December, alongside the normal salary. Some sectors may also include a 14th month pay in summer.

Countries Where 13th Month Pay Is Mandatory

Global requirements around 13th month pay vary significantly — some countries mandate it through national labour laws, while others follow customary practices or industry-specific agreements.

Below is a breakdown by region to help employers understand their obligations across different markets in 2025.

Latin America

13th month pay is widely mandatory across Latin America, often embedded in national labour codes and deeply tied to cultural expectations.

Brazil

Known as the Gratificação de Natal, this payment is legally required and must be disbursed in two instalments — the first by November 30, and the second by December 20. It is calculated based on the employee’s December salary and includes proportional amounts for partial years.

Argentina

Employees receive a 13th month bonus in two halves, paid in June and December, each calculated based on the highest monthly salary earned in the respective half-year period.

Colombia, Peru, Ecuador, Venezuela

These countries all mandate 13th month pay, often referred to as “prima” or “aguinaldo,” with some variations in eligibility and calculation.

Panama

Unique among the region, Panama splits the 13th month pay into three equal parts paid out in April, August, and December.

Asia-Pacific

Many Asia-Pacific nations legally require or strongly encourage 13th month pay, particularly to align with local festivals or year-end financial needs.

Philippines

One of the strictest enforcers of this policy, the Philippines mandates that all rank-and-file employees receive their 13th month pay no later than December 24. The amount is calculated as 1/12 of the total basic salary earned within the calendar year.

Indonesia

13th month pay, called Tunjangan Hari Raya (THR), is legally required and must be paid at least seven days before major religious holidays — typically Eid al-Fitr for Muslim employees. The amount is generally one month’s salary.

India

While not mandated nationally, many Indian states or sectors offer festival bonuses equivalent to a 13th month pay, especially during Diwali. It is commonly governed by company policy or collective agreements.

Europe

European practices vary: some countries make it mandatory, others implement it through collective bargaining agreements or custom.

Portugal, Spain, Greece

All three countries mandate a 13th month salary, typically paid in December, often referred to as a Christmas bonus. In Spain and Portugal, a 14th month is also common, paid in summer.

Italy

Though not legally mandated, 13th month pay is deeply embedded in collective labour agreements and standard practice. It’s normally paid in December and often accompanied by a 14th month bonus in July.

Germany, France

These countries do not require 13th month pay by law, but many employers provide it as part of collective or sectoral agreements — especially in manufacturing, banking, and public sector roles.

 Africa

Some African nations have formalised 13th month pay in legislation, while others treat it as a widespread norm.

Angola

Angola mandates both 13th and 14th month bonuses, with payments typically linked to holidays and vacation periods.

Nigeria

Though not nationally mandated, 13th month pay is a common practice in many industries, especially among formal employers in Lagos and Abuja.

Kenya

While not legally required, 13th month bonuses are often provided as part of year-end incentives, especially in larger enterprises or foreign-owned firms.

🌍 Middle East

Most Middle Eastern countries do not mandate 13th month pay under labour law, but discretionary bonuses are often offered.

UAE, Saudi Arabia

Though there’s no legal requirement, multinational companies and large local firms often pay discretionary year-end or holiday bonuses. These payments are typically based on performance or tenure, and are not treated as fixed entitlements.

 North America

The approach to 13th month pay in North America is highly polarised.

Mexico

Mexico is one of the few countries in the Americas with a strict legal requirement. The “Aguinaldo” must be paid by December 20 and is equivalent to 15 days of wages. It is subject to tax, and failure to pay is considered a serious labour violation.

United States and Canada

Neither country mandates 13th month pay. However, holiday or year-end bonuses are common in certain sectors — typically performance-based or discretionary. These bonuses are not guaranteed and may fluctuate annually.

13th Month Pay vs. Year-End Bonus

These two payments are often confused but serve different purposes:

In some regions, both are expected—making compliance even more complex.

Does It Apply to Contractors?

In most jurisdictions, independent contractors are not entitled to 13th month pay. However, contractor misclassification could lead to penalties if local authorities deem that the individual functions like a full-time employee.

Companies engaging international freelancers should work with a compliant Employer of Record (EOR) to mitigate misclassification risks and define clear contractor boundaries.

Is 13th Month Pay Taxable?

Tax rules vary by country:

• Philippines: Exempt up to a limit (currently ₱90,000 as of 2025)
• Brazil: Fully taxable
• Mexico: Subject to income tax and must be reported

Employers must apply accurate tax treatment during payroll processing and ensure proper reporting to tax authorities.

Penalties for Non-Compliance

Failure to comply with 13th month pay laws can lead to:

• Government fines or sanctions
• Labor disputes and lawsuits
• Loss of business licenses in some countries
• Damage to employer reputation

Delays or underpayment—even if unintentional—can attract penalties and erode workforce trust.

How to Stay Compliant Across Borders

With regulations differing by jurisdiction, global employers must:

• Monitor country-specific labor laws
• Align internal payroll systems with local standards
• Maintain clear employee communication
• Leverage EOR platforms to automate compliance

A trusted EOR partner like TopSource offers seamless management of local bonuses, reducing compliance risks and simplifying payroll execution globally.

13th Month Pay for Visa-Sponsored Employees

Visa holders are typically subject to the same labor protections as local workers. If governed by domestic labor law, these employees must receive 13th month pay—regardless of nationality. Employers should verify legal obligations based on visa type and employment agreement.

AOR vs. 13th Month Pay: Not to Be Confused

While 13th month pay is a payroll compliance requirement, Agent of Record (AOR) is an insurance intermediary responsible for policy administration. Both concepts are vital to global operations, but they serve distinct functions in HR and risk management.

Practical Example of 13th Month Pay:

An employee in the Philippines with a monthly salary of $2,000 who has worked the entire year would receive an additional $2,000 as their 13th month pay, typically disbursed in December.