What is 13th month pay?

13th month pay is a form of additional compensation given to employees, typically equivalent to one month's salary. It is commonly provided by employers as a year-end bonus or holiday benefit.

Is 13th month pay mandatory?

Whether it’s required for employers to provide 13th month pay, also called a 13th month salary, varies by country and jurisdiction. 

In some places, such as the Philippines, 13th month pay is mandated under local employment laws, which require it to be part of every employee’s annual salary. In other countries where 13th month pay is customary, it may not be a legal requirement, but may be written into the employment contract or negotiated as part of collective agreements with unions, both of which would require employers to pay it.

In many countries, though (like Canada and the US, to name a few), 13th month pay is neither customary nor legally required.

What’s the difference between 13th month pay and a bonus?

13th month pay is commonly referred to as a 13th month bonus, holiday bonus, or Christmas bonus in many of the countries where it is common. 

But while both 13th month pay and bonuses are forms of additional compensation, there are key differences between the two. 13th month pay is typically a fixed amount equivalent to one month's salary and is often mandated by law or company policy. Bonuses, on the other hand, can vary in amount and frequency and are often based on performance or other factors.

Where did 13th month pay originate?

The practice of providing a 13th month pay originated in the Philippines in 1975, when a presidential decree made an additional salary payment mandatory for all employees who earned a basic salary of less than PHP 1,000. In 1986, the government removed the salary cap and extended the additional payment to all employees, regardless of their earnings.

What countries have 13th month pay?

Over time, 13th month salaries have become a common practice in many different countries around the world, particularly in regions with strong labor movements and social welfare systems. While it originated as a way to compensate for low minimum wages, it’s now often seen as an employee benefit used for holiday or vacation spending.

Does the US have 13th month pay?

The US does not have a formal requirement for employers to provide 13th month pay. However, some employers may choose to offer year-end bonuses or other forms of additional compensation to their employees.

What employers need to know about 13th month pay

When are 13th month payments made?

This depends on the country and company. Some jurisdictions have strict requirements including exact deadlines for when employees get their 13th month payments. In other cases, payments can be more flexible, or even change year-to-year to coincide with employees’ vacations or certain holidays.

How do you calculate 13th month pay?

The computation of 13th month pay also varies by jurisdiction and employer policies. In general, it’s calculated as one-twelfth of the employee's total base salary earned within the calendar year.

Is 13th month pay taxable?

The tax treatment of 13th month pay also varies by country. In some places, the extra payment may be considered taxable income subject to income tax, while in others, it may be exempt or taxed at a reduced rate.

Who is entitled to 13th month pay?

Whether a worker is entitled to 13th month pay may vary based on a lot of different factors—such as their employment status, length of service, and company policies. In many cases, full-time employees are entitled to receive 13th month pay, while freelancers, part-time, or temporary employees may be excluded.

What if an employee is terminated or leaves before their 13th month payment?

Employees who are terminated or leave the company before the end of the calendar year may still be entitled to receive a prorated amount of 13th month pay based on their length of service. In this case, you’d calculate the payment based on the number of months they’ve worked in the year so far.

What is 14th month pay?

Some companies choose to provide additional compensation beyond the traditional 13th month pay, commonly referred to as 14th month salary. In some countries, 14th month salary is even legally required—though in others, it’s considered an additional bonus or incentive provided to employees for exceptional performance or other reasons.

How do you make 13th month salary payments to global employees?

Navigating the legal requirements of 13th month salaries is one of the things that can make global employment so complex—but it doesn’t have to. You just need the right global payroll service to simplify the complexities of managing your global team. In other words, you need Rippling.

With Rippling, it’s easy to hire, pay, and manage people around the world. You can pay all your global contractors and employees in their local currencies, set up new hires in just 90 seconds, and automate your global compliance work. That includes 13th month salary payments. Rippling automatically applies relevant local labor and employment laws based on where your employees live, so if they’re entitled to a 13th month payment, it’ll make sure they receive it—on time and in the correct amount.

Rippling is the easiest way to pay employees and contractors around the world while complying with local laws like 13th month salary laws.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.