Payroll regulations are rarely the same for any two countries. And if you’ve looked into taking your business’ operations global, chances are you’ve come across the concept of a ’13th-month salary’ or perhaps a 14th-month salary. Whilst 13th-month payments don’t exist in places like the UK, Australia or the USA, they’re commonplace and often mandatory in dozens of countries worldwide.
So, if you’re thinking about expanding your company into the global market, it’s vital to know which locations will require you to provide this additional salary to your employees.
Everything you need to know
Annual salaries are usually paid out once a month in 12 equal instalments. However, that’s not always how it works everywhere. In some countries, employers are expected or required to provide a 13th salary payment.
What are 13th and 14th-month pay?
Thirteenth-month pay is simply the payment of an extra month’s salary. Usually, rather than dividing an employee’s salary into 13 instalments, it’s an additional payment offered as a benefit — sometimes referred to as a 13th-month bonus. The bonus is usually calculated against each worker’s salary and should equal a whole month’s pay (i.e. one-twelfth of their total base pay), which is then paid out once per calendar year.
There’s no universal rule for 13th-month salaries, meaning there are variations to look out for from country to country. For example, 13th-month pay in Brazil is calculated by dividing the employee’s annual salary by 13 rather than 12. However, in Argentina, 13th-month salaries are paid out twice a year in June and December at a rate of 50% of the employee’s highest monthly salary in the previous six months.
If you’re hiring in South America, you can assume a 13th-month salary —or Aguinaldo — is mandatory. Employers in every Latin American country are required to pay a 13th salary (except in Chile, where it’s customary to do so but is at the employer’s discretion).
Similar to 13th-month pay, a 14th-month salary requires two additional bonus payments (equivalent to two extra months’ pay) to each employee throughout the year. It’s mandatory in Brazil as a holiday bonus, as well as in Guatemala, Greece, Angola and Spain.
Who’s entitled to 13th-month salaries?
Typically, every salaried employee with an employment contract receives the additional payment in line with local payroll legislation. In some cases, certain employees aren’t entitled to 13th-month pay, such as managers or those in public sector roles. Each country’s local authorities will specify which positions are exempt from a 13th payment.
When is it paid?
An employee’s 13th salary is often paid out in December (like in the Philippines, Mexico and Portugal), which is why you’ll sometimes hear it referred to as ‘Christmas pay’ or an ‘end-of-year bonus’. But you’ll find that in countries such as Colombia, Uruguay and Argentina, it’s paid in two equal instalments — once in the middle of the year (often around Easter or in June) and once in December. In Panama, the 13th-month payment is spread over three equal instalments and paid out on 15 April, 15 August and 15 December each year.
Why does it exist in some countries and not others?
In countries where the additional payments are mandatory, employees often depend on the compensation due to lower wages. And in locations where a 13th salary isn’t required by law but is common practice for businesses, an employer’s reputation is likely to suffer from not offering the benefit, and you’re unlikely to stand out to the country’s top talent for all the wrong reasons.
Are 13th and 14th salaries taxed the same as a regular salary payment?
Again, tax rules depend on where in the world you’re employing and whether a 13th or 14th-month payment is mandatory.
In countries where it’s required by law, the additional payments are usually taxed in the same way as any other monthly salary payment. But this rule doesn’t always apply! For example, in the Philippines, any payments exceeding PHP 90,000 are taxed. And in countries like Austria, the 13th-month payment is subject to a lower tax rate of just 6%, despite being optional for businesses.
Overcoming global payroll hurdles
If you’re paying remote employees stationed in multiple countries worldwide, some will require a 13th-month salary, and some won’t. Even if every country you’re hiring from mandates this additional payment, the way it’s calculated and how it’s taxed will probably vary. And, of course, you’ve got to work everything out in each country’s local currency and make sure the correct amount gets paid on time.
With so much to think about and several undesirable consequences if you get it wrong, many businesses employing internationally choose to outsource their global payroll obligations to a payroll service provider like TopSource Worldwide.
Our team is on the ball with every country that mandates a 13th or 14th-month payment, meaning you’re always compliant with local payroll regulations. What’s more, we’ll help you manage this bonus in countries where it’s not required by law but expected from prospective employees, ensuring you remain competitive and don’t miss out on the best talent.
As part of our payroll processing services, we offer a single, centrally managed payroll system that delivers a fluent and consistent service to you and your employees, giving you complete visibility and flexibility. We also offer a global payroll solution that reduces transfer costs and improves compliance when paying employees across multiple jurisdictions. We’ll give you one consolidated invoice in your chosen currency that covers all payments across the globe whilst your employees get paid in their local currency — on time, every time.
Take advantage of our comprehensive payroll processing services and streamline your global payroll today. Get in touch now to find out more.