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. Sometimes it can be hard to find the best talent for the job in your home country, so many people hire global remote employees to find the best people for their teams. If you frequently hire international employees, it's important to know the countries that have a mandatory 13th and/or 14th-month salary.
What are 13th and 14th month salaries?
In payroll terms, a 13th month salary is an extra wage usually equal to one month's 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”. A 14th month salary is an additional month of wages that is usually paid out in the summer months in addition to the 13th month salary, but is less common.
The idea for a 13th month salary 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.
Mandatory vs Customary 13th Month Pay
Although not mandated in most countries, many countries do lawfully require employers to pay their employees an extra 13th month salary every year. Mandatory pay is non-negotiable since it is required by the law. If you fail to pay your employees the extra income, they are free to sue your company which may damage your reputation. Knowing whether you need to pay your employees the extra salary helps 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 your employees' financial needs and expectations
On the other hand, 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.
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 — even if your company is based in a country that does not require 13th or 14th month salaries, you may still be obligated to pay the extra wages if your employee is living and working in a country that mandates it.
How countries calculate the 13th and 14th month salary
The amount paid out in a 13th and 14th month salary 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 a 14th month salary, 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.
When to pay out the 13th and 14th month salaries
The payout dates of the 13th and 14th salaries vary across countries. For example, in the Philippines, all employees under contract receive their 13th month bonus before the 24th of December. Most countries do not 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, Chinese companies pay their 13th month salary bonuses during the Chinese New Year. The 14th month salary, when applicable, is usually paid in the summer months.
Countries with 13th/14th Month Salaries
Countries with mandatory 13th AND 14th month salaries:
Countries with mandatory 13th month salaries:
- Bolivia (14th month also mandated if GDP growth is >4.5%)
- Costa Rica
- Dominican Republic
- El Salvador
Countries with customary 13th and/or 14th month salaries:
- South Africa
- United Arab Emirates (UAE)
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 150+ 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.