13th Month Pay: Rules, Calculation & Country Guide 2026

Is 13th month pay a bonus you can skip, or a salary you legally owe?

That single question trips up most companies the moment they hire across borders. In one country it is a discretionary perk. In the next, withholding it is a labor violation with penalties attached.

13th month pay is an extra annual salary payment that is mandatory in some countries and optional in others. This guide breaks down where it is required, how it is calculated and taxed, who qualifies, and what employers need to know when paying global teams.

What is 13th month pay?

13th month pay is an additional annual salary payment equal to roughly one month of an employee's basic salary, or one-twelfth of their annual wage. In some countries it is mandated by labor law. In others it is a customary year-end benefit paid around Christmas, separate from any performance bonus.

This payment is not tied to targets. It is an extra month of salary that employers fold into total annual compensation. In Latin America it is deeply embedded in workplace culture and known as "aguinaldo."

In some countries, such as Spain, employers spread the payment across the monthly pay cycle, as long as the arrangement is written into the employment contract. In others it lands as a single lump sum before the holidays.

Once the definition is clear, the next question is whether you are actually required to pay it.

Is 13th month pay mandatory or optional?

Whether 13th month pay is mandatory depends entirely on the country. There is no universal rule, which is exactly why cross-border employers get caught out.

Wisemonk handles global onboarding for 300+ companies, and from what we see day to day, the same payment can be a strict legal obligation in one market and a simple nice-to-have in the next.

There are three models in practice. Mandatory means local labor law requires it, with defined calculation methods and statutory deadlines. Customary means it is not legally enforced but so widely expected that employers write it into contracts to stay competitive. Discretionary means it is entirely the employer's choice.

Even a customary payment can become binding. A collective bargaining agreement with a union, or a clause in the employment agreement, turns an optional benefit into a contractual one you must honor.

So before you treat it as optional, check both the law and the contract.

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

13th month pay is a fixed amount equal to one month's salary and is often required by law or contract. A bonus is discretionary, varies in size and timing, and usually depends on performance. The two serve different purposes.

Where it is mandated, 13th month pay is treated as earned compensation, not a reward. Employees are legally entitled to it once they meet eligibility rules.

In some countries employees receive both a statutory 13th month salary and a separate supplemental payment, depending on company policy.

That difference becomes clearer once you see where the payment came from.

Where did 13th month pay originate?

13th month pay originated in the Philippines in 1975, when President Ferdinand Marcos enacted it into law through Presidential Decree No. 851. The decree initially applied to employees earning a basic salary below PHP 1,000 per month and was designed to protect real wages from inflation.

In 1986 the government removed the salary cap and extended the payment to all rank-and-file employees regardless of earnings. The original aim was simple: give workers extra income to celebrate the holiday season.

From there the practice spread, particularly across former Spanish colonies in Latin America, where it took root as a year-end allowance to offset low minimum wages.

With the origin in view, here is where it applies today.

What countries have 13th month pay?

13th month pay rules vary widely and directly shape how employers run payroll, contracts, and compliance. Having processed over $20M in payroll across 2,000+ employees, we group these the way our payroll teams track them, because the timing and conditions are what actually drive payroll deadlines.

13th month pay in Latin America (commonly called "aguinaldo")

Latin America is where the payment is most deeply embedded and almost always mandatory.

Across the region, deadlines are strict and enforced, so the timing column matters as much as the requirement.

13th month pay in Europe

Europe is a mix, with some countries mandating it and many treating it as custom.

In the customary markets, collective agreements often turn an expectation into a firm obligation.

13th month pay in Asia and the Middle East

Asia leans customary, with timing often tied to local festivals rather than December.

The Philippines is the clear exception here, with a hard statutory deadline and penalties for late payment.

13th month pay in Africa

Africa is smaller in scope but still has both mandatory and customary markets.

Knowing where it applies is half the picture; the other half is where it does not.

Which countries do not require 13th month pay?

Several major economies have no legal requirement for 13th month pay. Employers there may still offer year-end or holiday bonuses, but as voluntary benefits. The United States, Canada, the United Kingdom, and Australia all fall into this group.

In the US there is no federal or state mandate. The Fair Labor Standards Act does not require it, and US employment is largely at-will, so any year-end payment is discretionary. Canada has no requirement under employment standards legislation. The UK and Australia treat extra payments as optional bonuses set by company policy.

Because there is no statutory basis, companies usually structure any year-end payment as a performance or holiday bonus rather than guaranteed wages.

Whether mandatory or optional, the next thing employers need to pin down is timing.

When is 13th month pay paid?

Most 13th month payments are made at the end of the year, around Christmas, but the exact timing is set by local law, contracts, and custom. Across the 300+ global companies we support, we have seen the same pattern repeat: some countries require a single December payment, others split it into two or three installments, and a few tie it to local festivals.

In the Netherlands, Germany, and the UK it is not legally required, so employers who offer it usually pay a customary holiday bonus around Christmas. In Spain it is mandatory and split into two payments, one mid-year and one at year-end, sometimes called the 13th and 14th month.

Colombia follows a similar two-payment structure. Brazil and Mexico require payment by set December deadlines unless the contract defines another payment schedule. In parts of Asia, timing shifts to the Lunar New Year.

Once you know when to pay, the next step is working out how much.

How do you calculate 13th month pay?

The standard calculation is the employee's annual basic salary divided by 12, giving one extra month of basic pay. Most countries base it on basic salary earned during the year and exclude overtime, allowances, and bonuses unless local law says otherwise.

Full year worked

For someone employed the whole year, it is the cleanest case.

Employee earns $4,000 per month. Annual salary: $4,000 x 12 = $48,000 13th month pay: $48,000 / 12 = $4,000

This gives a full extra month of basic salary.

Prorated for a partial year

New joiners and mid-year leavers get a proportional share.

Employee earns $3,000 per month and worked 8 months. ($3,000 x 8) / 12 = $2,000

A common shortcut is (monthly salary / 12) x months worked in the calendar year.

When salary changes during the year

If pay changed mid-year, use total earnings, not the latest rate.

$2,500/month Jan to Jun, $3,000/month Jul to Dec. Total earned: $33,000 13th month pay: $33,000 / 12 = $2,750

This keeps the payment tied to what the employee actually earned.

When unpaid leave is taken

Unpaid leave reduces the base, because it lowers total salary earned.

$4,000/month with two months unpaid leave. Earned: $4,000 x 10 = $40,000 13th month pay: $40,000 / 12 = $3,333

Paid leave such as maternity or approved vacation usually does not reduce the figure. Some countries use a different basis entirely, such as the highest monthly salary, a three-month average, or tenure.

What components are included in the calculation?

Inclusions and exclusions decide the final number.

When in doubt, follow the local labor code, since inclusions vary by country.

With the amount settled, the next concern is tax.

Is 13th month pay taxable?

Tax treatment of 13th month pay varies by country. Some jurisdictions tax it as regular income, some grant a partial exemption up to a threshold, and a few treat it as fully tax-free. Getting the payroll tax treatment wrong creates errors and penalties.

In the Philippines, 13th month pay is non-taxable up to PHP 90,000 when combined with other bonuses; anything above is taxed as regular income. In Brazil, it is paid in two installments, with the first free of deductions and the second subject to income tax and social security.

Mexico exempts the aguinaldo up to 30 days' minimum wage, taxing the rest, under the Mexican income tax law (SAT). Austria taxes 13th and 14th month payments at a preferential rate starting around 6% within limits.

Greece and Italy tax it as ordinary income. In Bolivia, Costa Rica, Honduras, Guatemala, and Nicaragua, the statutory payment is commonly tax-free.

Once tax is handled, the final piece is who actually qualifies.

Who is entitled to 13th month salary?

In countries where it is mandatory, entitlement usually applies to rank-and-file employees in a genuine employer-employee relationship, including new hires, paid interns, tenured staff, and documented foreign employees, with prorated amounts for partial years.

Certain groups are commonly excluded: managerial staff, some public sector workers, commission-only earners, and independent contractors. Even where excluded, many employers still offer a discretionary year-end bonus.

Do part-time employees qualify?

In most countries that mandate it, yes, as long as they have an employer-employee relationship and meet minimum service. The amount is prorated to actual wages and time worked.

Do employees on leave qualify?

Paid leave is included in the calculation. Unpaid leave can lower the figure because total earned salary drops. Approved paid leave such as maternity generally counts in full.

Do leavers and terminated employees qualify?

Employees who resign or are terminated before year-end usually receive a prorated amount. Someone earning $3,000/month who leaves after 8 months is owed ($3,000 x 8) / 12 = $2,000, typically in the final settlement. Employers generally cannot withhold statutory 13th month pay because someone left.

Knowing who qualifies helps you avoid the mistakes that catch most employers.

What are the most common mistakes employers make?

The most common mistake is assuming one country's rule applies everywhere. The errors lead to payroll mistakes, compliance risk, and disputes.

• Treating mandatory 13th month pay as a discretionary bonus, when local law classifies it as earned salary.
• Including overtime, allowances, or bonuses in the calculation, when most countries base it on basic salary only.
• Failing to prorate for employees who joined or left mid-year.
• Missing statutory deadlines, such as December 24 in the Philippines or December 20 in Mexico and Brazil.
• Not documenting the structure in the employment contract.

Avoid these and you have covered the core of compliance, but one related payment still surprises employers.

What is 14th month pay?

14th month pay is an additional payment beyond the 13th month, required by law in a few countries and offered voluntarily in others. Where the 13th is a year-end payment, the 14th is often paid mid-year and may be tied to performance.

Countries including Brazil, Greece, Guatemala, Peru, and Spain have a 14th month payment. It is typically calculated as one-fourteenth of annual salary, or by splitting two months' pay across the 13th and 14th. Some markets go further with 15th month arrangements in specific industries.

The takeaway matches the 13th month: check the local rule before you budget, because in some countries this is statutory, not a fringe benefit.

That leaves one practical question for US-based teams.

How can US businesses implement 13th month pay?

In the US, 13th month pay is not a legal requirement, but many companies pay something similar. The clean way is a discretionary end-of-year bonus, clearly separated from base salary, never framed as guaranteed wages, because guaranteed framing can create wage-and-hour risk.

The amount often mirrors one month of salary. From a tax standpoint, it is fully taxable, processed as supplemental income subject to federal withholding, Social Security, Medicare, and applicable state taxes.

To stay compliant, document it as a discretionary bonus, keep it separate from base salary and overtime, and run it through payroll with proper withholding. The risk comes from applying a foreign mandatory model to US payroll, or treating a mandatory foreign payment as optional when hiring internationally.

When you are managing both at once, the right partner removes the guesswork.

How Wisemonk helps with 13th month pay and global payroll

Wisemonk is an India-native EOR. We help you hire, pay, and manage talent without the overhead of setting up a local entity, and we handle the payroll compliance details that trip up cross-border teams, including statutory payments like 13th month pay and India's annual statutory bonus.

For the companies we work with, that means wage calculations, tax withholdings, deductions, payslips, and on-time statutory payments handled correctly the first time. We process $20M+ in payroll, manage 2,000+ employees, support 300+ global companies, and hold a 4.8/5 rating on G2.

Why global companies rely on us for payroll compliance:

• Recruitment: End-to-end hiring support from screening and assessments to interview coordination and final selection, ensuring fast access to top talent.
• Payroll Processing: Managing $20M+ in payroll each month with tax optimization, local compliance, and automated, error-free payslips for 2K+ employees, ensuring timely and accurate compensation.
• Dedicated HR Support: Simplifying onboarding for 300+ companies with seamless document collection, background checks, and policy setup to maintain smooth HR operations across teams.
• Contractor Management: Seamless contractor payments and compliance with local laws, plus tools to track and manage your freelance workforce.
• Compliance: Keeping global teams compliant with Indian tax, labor, and statutory laws by managing filings, updates, and audits, preventing costly errors or legal issues.
• Equipment Management: We lease, track, and recover work equipment for remote and on-site teams, ensuring everyone has what they need to stay productive.

We are a leading EOR in India, expanding our services into the United States and the United Kingdom, so you get a reliable partner for your broader global hiring journey.

Client review/feedback:

“I love their payroll feature, which allows me to pay my workforce easily without any errors. In just a few seconds, I can see the invoices generated for all of the payouts” - Mithun V. Mid-Market Read the full review on G2 →

“Wisemonk has successfully hired high-quality candidates, which has impressed the client. The team is responsive to the client's requests and changes via Slack. The team also collaborates through a hiring tracker in Google Sheets. Wisemonk communicates via email and virtual meetings.” - Dan Sampson VP of Engineering, Cobu Read the full review on Clutch →