13th Month Pay in the Philippines vs. Latin America: A Practical Approach

The increased global mobility among employees has opened countless opportunities. However, it also brought up unique challenges that employers face.

One hurdle is the disparity between mandatory bonuses from each country. An example of that is the 13th-month pay policy. This type of employee compensation is most common in Latin American countries and the Philippines.

Understanding the differences in 13th-month pay per country is crucial for employers of multinational companies to ensure a more efficient global compensation strategy. It helps employers uphold regulatory compliance while championing diversity. At the same time, employers can focus on operational cost management.

To achieve that, we’ll cover what 13th-month pay is, which countries have it, and how to compute for 13th-month pay in the Philippines, Latin America, and more. That way, you can refine your business compensation setup for a global team.

What is 13th-month Pay?

The 13th-month pay is an additional compensation given at the end of the work year, usually during December. It was legally mandated in 1975.

It’s supplementary compensation given aside from your employee’s base salary. In general, it costs the same as their basic monthly salary.

Some employee compensations appear similar to a 13th-month pay. Let’s discuss their similarities and differences. That way, you can accurately differentiate between them for your employees’ compensation strategy.

What is the Difference between 13th Month Pay and a Bonus?

Unless indicated, the 13th month’s pay differs from performance-based or holiday bonuses. In some countries, it is legally mandated.

On the other hand, bonuses are discretionary benefits for employees. That means employers aren’t legally obligated to pay them.

What is the Difference between the 13th-month Pay and the 14th-month Pay?

The 14th month’s pay may or may not be the same as the 13th month’s pay.

You pay the equivalent of a month’s salary at the end of the work year. It will be in addition to the 13th-month pay. However, in some countries, the 14th month’s pay can cost less than your employee’s monthly salary. This may be reflected in your performance and achievement of business targets and goals.

One difference is that not all countries that provide 13th-month pay give 14th-month pay. In other cases, both can be legally mandated employee compensation.

Is the 13th Month Pay Legally Mandated?

The 13th-month pay law differs for each country or jurisdiction.

You can think of 13th-month pay regulations in three categories based on whether an employer is legally obligated to pay them:

• Legally mandated: It’s when the 13th-month pay is part of the country’s labor laws and regulations. Thus, employers must include that in their employees’ compensation package.
• Customary: The 13th-month pay isn’t legally mandated. However, companies are free to give it at their discretion.
• Not legally mandated nor customary: This is when the country does not recognize 13th-month pay, both legally and customarily. This is the most common approach to 13th-month pay in the USA, Canada, Australia, and the UK.

When managing a global workforce, you must know which countries have the 13th-month pay. That way, you know your legal payroll obligations to your offshore employees.

See also: Looking for qualified offshore workers to reinforce your company’s workforce? Here’s how you can find them.

Who is Eligible to Receive a 13th Month Pay?

The employees qualified to receive the 13th-month pay changes depending on the jurisdiction. Some factors that affect one’s eligibility for a 13th month pay, aside from country, would be the following:

• Employment status
• Employee’s length of service
• Specific company policies
• Company Type (public vs. private)
• Employee’s job position

Mostly, the people ineligible for a 13th month’s pay would be independent contractors, freelancers, and workers paid on commission.

For example, in the Philippines, all employees who worked for at least a month with a company are entitled to it.

Which Countries Have 13th-Month Pay?

13th-month pay is most commonly legally required in Latin American countries and the Philippines. However, other countries have it customarily.

Here are the different approaches to 13th-month pay based on varying jurisdictions. That way, you can plan your compensation approach for your global team.

13th Month Pay in Latin America

Many Latin American countries legally require 13th-month pay. Here is a list of Latin American countries with 13th-month pay as a reference.

Table 1: 13th Month Pay in Latin American Countries

In most Latin American countries, 13th-month pay is a legally mandated Christmas or holiday bonus. They have a term for it called “aguinaldo.” That’s why it’s given to employees not later than December of that work year. For example, the 13th month pay in Mexico has a deadline of December 20th.

There are also special payment conditions that differ between each country. For example, the 13th-month pay salary in Brazil is split in two: one due on November 30, and the other half on December 20.

Employees in Brazil can even get a portion of their 13th-month salary in advance. They do that when they take a vacation break between February and October.

As for the 14th-month pay, it’s not a prevalent practice in Latin American countries. If it is given, it usually comes in two forms:

• Legally mandated holiday bonuses
• Added compensation based on base salary, similar to 13th-month pay

The difference in payment approaches per country in Latin America alone is complicated. Hence, many companies with global teams work with reliable offshore companies. They assign the management of offshore employees’ payroll regulations to a company with local expertise.

13th Month Pay in the Philippines

While most of Asia doesn’t legally require 13th-month pay, the Philippines has it legally mandated. All rank-and-file employees in the Philippines receive this.

The Philippines is a reputable hub of offshore teams and outsourced employees. Therefore, knowing how 13th-month pay works here is key for many companies working with an offshore or remote Philippine team.

See more: Planning to outsource call center services to the Philippines? Find out a better way to approach that here.

The 13th-month salary is due on or before December 24 every year. While it may be due in December, the 13th month’s salary isn’t the same as a holiday or Christmas bonus. Employers can give that separately at their discretion, but it’s not legally required for Philippine employees.

The 14th-month pay in the Philippines was proposed back in 2022. However, it’s still not legally mandated.

13th Month Pay in Other Jurisdictions

13th-month pay will become a more uncommon practice outside of Latin America and the Philippines. However, a few countries aside from these two jurisdictions have 13th-month pay.

Here, we’ll cover the other countries that have 13th-month pay. That should inform your global compensation strategy if you have team members from these countries, too.

13th Month Pay in Asia

Plenty of Asian countries have 13th-month pay. However, unlike in most Latin American countries and the Philippines, 13th-month pay is more customary than statutory.

Here is a list of Asian countries with 13th-month salaries:

Table 2: 13th Month Pay Regulations in Asian Countries

The timing for 13th-month pay aligns with specific cultural or traditional norms. Hence, despite it not being legally mandated, many Asian countries still customarily give it to their employees. For example, workers from China, Hong Kong, Taiwan, and Vietnam receive theirs on the Lunar New Year.

13th Month Pay in Europe

A few European countries have 13th-month pay. However, similar to most Asian countries, most of them are customary compensations.

Table 3: 13th Month Pay Regulations in European Countries

Some European countries that give 13th-month pay have a different approach. For example, in Switzerland, they split the annual salary of their employees into 13 payments.

Other European countries offer 13th-month salaries only to specific national or industry agreements. Some examples of European countries where this applies are Italy, Germany, and Austria.

13th-month pay in European countries is costlier compared to countries with the same pay policy, like the Philippines. Factors influencing this cost disparity are the differences in cost of living, currency strength, and minimum wage regulations.

13th Month Pay in Africa

Few African jurisdictions have 13th-month pay regardless if it’s customary or legally mandated. However, there are a few African countries that offer them:

Table 4: 13th Month Pay Regulations in African Countries

The 13th-month pay deadline for these countries is usually at the end of the year or in December. It’s a similar pay deadline for remote workers from the Philippines and some countries in Latin America.

How Do You Compute the 13th Month Pay?

To know the cost of 13th-month pay, you should start by calculating the offshore employee’s salary. Most pay schemes for the 13th month’s salary are calculated as  1/12th of the annual salary.

Some countries can have different computations for 13th-month pay. There are differences even between Latin American countries.

For example, in Argentina, the 13th month’s pay is based on the highest monthly salary from the preceding six months. Similarly, in Nicaragua, it’s based on an employee’s November salary or the highest pay for the past six months.

Computing 13th-month pay as part of your offshoring strategy can help with cost planning. You can use it to compare labor costs before you start recruiting.

Computing the 13th-Month Pay in the Philippines

The Philippines’ Department of Labor and Employment has a set of guidelines for computing 13th-month pay. The formula for a 13th-month pay calculator is this:

Total Basic Salary Received for the Year ➗ 12 Months = 13th Month Pay

You can also apply this formula to employees who started working with you later in the year. 

Let’s say you have an employee with a monthly salary of PHP 30,000 or around USD 511. They started working with you in September. That means they worked with you for around three months. In that case, you can compute their 13th month salary like this:

PHP 30,000 × 3 (Number of Months Worked in the Year) = PHP 90,000 (Total Basic Salary Received for the Year)

PHP 90,000 ➗ 12 Months = PHP 7,500

In this case, the 13th month pay they’re entitled to would be PHP 7,500.

Check also: You can use this formula to calculate the salary costs of offshore employees as part of your offshoring strategy.

Are 13th Month Pays Taxable?

The tax regulations for 13th-month salaries differ per country.

For example, 13th-month pay in the Philippines is taxable only for payments exceeding PHP 90,000.

On the other hand, in Mexico, employees aren’t obligated to pay income tax for their aguinaldo. However, it becomes taxable once it exceeds 30 days’ worth of Mexico’s legal daily minimum wage.

Tax rules can be complex for each country. Working with reputable local payroll experts, like offshore companies, makes it easier to manage global tax compliance.

Related: Wondering about the cost-effectiveness of offshoring to the Philippines? Learn more about it here.

Ensure Compliance and Cost Efficiency for 13th Month Pay with an Experienced Offshore Partner

By comparing 13th-month pay policies for different jurisdictions, it’s observable that the Philippines has one of the more economical approaches. You can use that information to polish your location-based global compensation strategy.

Nonetheless, it does make payroll management more intricate for your company.

Working with an offshore company can improve the localization of your compensation approach in this case. With their expertise, you can streamline global payroll processes. You will stay compliant with local pay regulations. At the same time,  you’ll be up-to-date with the moving goalposts and reporting requirements for payroll and taxes.

Are you building a global team? Consider working with an offshore service provider to achieve cost-effective team expansion. You can better adapt to diverse payroll regulations like 13th-month pay with their guidance.