13th-Month Pay: Calculation, Taxation & Country Rules (2026)

Is 13th-month pay mandatory or optional?

We see this question come up often with US and global founders hiring across borders.

Hiring expands quickly.
Payroll runs smoothly.
Then someone asks about a 13th-month payment.

By definition, 13th-month pay is an additional annual salary payment that is legally required in some countries and completely optional in others. In certain regions, it’s treated as earned wages. In others, it functions more like a bonus or customary benefit.

The confusion isn’t about the concept itself. It’s assuming the same payroll rule applies everywhere.

This article breaks down how 13th-month pay actually works, where it’s mandatory, how it’s calculated and taxed, and what US-based companies need to know to stay compliant when managing global teams.

What is 13th-month pay?[toc=13th Month Pay]

13th-month pay is an additional annual salary payment equal to roughly one month of an employee’s basic salary. In many countries it is mandated by labor law, while in others it is offered as a customary year-end benefit. The payment is typically calculated as one-twelfth of an employee’s annual salary.

In Latin America, it is deeply embedded in workplace norms and commonly known as aguinaldo.

This payment is not linked to individual performance or targets. It represents an extra month of salary that employers often account for when structuring total annual compensation. In most cases, it is paid toward the end of the year, typically around Christmas or the New Year.

In certain countries, such as Spain, employers may distribute the 13th-month pay across monthly payroll cycles, provided this arrangement is clearly defined in the employment contract.

13th-month pay vs bonus: what’s the difference?[toc=13th Month Pay vs. Bonus]

13th-month pay and bonuses are often confused, but they serve different purposes in payroll.

In countries where it is mandated by labor law, 13th-month pay is treated as earned compensation, not a performance reward. Employees are legally entitled to it once they meet eligibility requirements.

Bonuses, on the other hand, are usually discretionary payments provided by employers based on company performance, individual performance, or company policy.

In some countries, employees may receive both a statutory 13th-month salary and additional bonuses, depending on company policies and compensation structures.

Where did 13th-month pay originate?[toc=Where Did It Originate]

13th-month pay was formally introduced in the Philippines in 1975, when President Ferdinand Marcos enacted it into law. The policy was designed to provide workers with additional financial support during the holiday season.

Over time, similar practices were adopted in several other countries, particularly in Latin America. In many of these regions, the payment began as a year-end or Christmas allowance intended to help employees manage seasonal expenses and celebrate important holidays without financial strain.

Now that we’ve unpacked where the thirteenth salary came from, it’s time to look at where it actually applies today and how local employment laws change the rules country by country.

What countries have 13th-month pay?[toc=Country Rules]

13th-month pay rules vary widely by country and directly impact how employers structure payroll, contracts, and compliance. Some countries mandate it by law, others treat it as a customary practice, and a few leave it entirely to employer discretion.

• Mandatory: Required under local labor laws. Employers must pay the 13th-month salary to eligible employees, follow defined calculation methods, and meet statutory payment timelines or face penalties.
• Customary: Not legally enforced, but widely expected in the market. Employers often include it in the employment contract to remain competitive and align with local compensation norms.
• Discretionary: Entirely optional and decided by the employer. Payment terms, eligibility, and timing depend on company policy and employment agreements, not statutory obligations.

With our hands-on experience helping global companies manage EOR, payroll, and compliance across countries, we’ve curated the table below to clearly show where 13th-month pay is mandatory, customary, or discretionary.

Countries where 13th-month pay is not mandatory

While 13th-month pay is widely practiced across Latin America, parts of Europe, and Asia, several major economies do not legally require employers to provide it.

In these countries, employers may still offer year-end bonuses or holiday payments, but they are voluntary benefits rather than statutory obligations.

Examples include:

• United States – No federal or state requirement for a 13th-month salary. Employers may offer discretionary year-end bonuses instead.
• Canada – 13th-month pay is not required under Canadian employment standards legislation.
• United Kingdom – Year-end bonuses may be offered by employers but are not mandated by law.
• Australia – Compensation structures typically include base salary and discretionary bonuses rather than statutory extra salary payments.

Because there is no legal requirement in these countries, companies usually structure additional year-end payments as performance bonuses or discretionary holiday bonuses.

Knowing where 13th-month pay is mandatory, customary, or not required is only part of the story. The next question for employers is when this additional payment actually hits payroll, since every country follows its own timelines and statutory deadlines.

When are most 13th-month payments made?[toc=When to Pay]

Based on our experience managing payroll processing across multiple countries, we’ve mapped how 13th-month pay timelines vary by local labor laws, contracts, and customary practices.

These deadlines are defined by local labor laws and may vary depending on collective agreements or employer policies.

The timing of 13th-month pay differs significantly by country. In places like the Netherlands, Germany, and the UK, it is not a legally required part of an employee’s annual salary. However, many employers still include it in the employment contract as a customary holiday bonus, typically paid around Christmas.

In countries such as Spain, 13th-month pay is mandatory and is commonly split into two payments. Employees receive one installment mid-year, often referred to as the 13th month, and a second installment at the end of the calendar year, sometimes called the 14th month.

Colombia follows a similar structure, where employers divide the payment into two parts. One portion is paid around June, while the remaining amount is paid in December, aligned with year-end holidays.

In countries like Brazil and Mexico, local laws require employers to make the 13th-month payment, most often in December, unless an alternative payment schedule is clearly defined in the employment contract.

Once you know when the 13th month is paid, the next challenge is how it’s calculated. To maintain transparency, employers need to account for several factors, including what counts as salary versus additional benefits, which can vary widely by country.

How do you calculate 13th-month pay?[toc=How to Calculate]

From what we’ve seen helping global companies stay compliant with payroll across multiple countries, here’s how 13th-month pay is typically calculated.

13th-month pay is calculated based on local labor laws and payroll rules, but most countries follow a similar principle: the payment is based on the employee’s basic salary earned during the year.

In many countries, the most common calculation method is to divide the employee’s annual basic salary by 12. This means the employee receives an extra payment equal to one month’s basic monthly salary, often referred to as the thirteenth salary.

Calculation for employees who worked the full year

If an employee worked the entire calendar year, the calculation is straightforward.

Example:

An employee earns $4,000 per month.
Annual salary: $4,000 × 12 = $48,000

13th-month pay: $48,000 ÷ 12 = $4,000

In this case, the employee receives a payment equal to one month of their basic salary.

Prorated calculation for employees who worked part of the year

If an employee worked less than a full year, the payment is usually prorated based on the number of months worked. Employers calculate one-twelfth of the employee’s basic salary for each month worked during the year.

Example:

An employee earns $3,000 per month and worked 8 months.

($3,000 × 8) ÷ 12 = $2,000

This ensures employees who joined mid-year or left before the end of the year still receive a fair proportion of the 13th-month salary.

Calculation when salary changes during the year

If an employee’s salary changes during the year, the 13th-month pay is typically calculated using the total salary earned across the year, rather than the most recent salary.

Example:

An employee earns: $2,500 per month from January to June |  $3,000 per month from July to December
Total salary earned: $15,000 + $18,000 = $33,000

13th-month pay: $33,000 ÷ 12 = $2,750

This approach ensures the payment reflects the employee’s actual earnings throughout the year, even when salary adjustments occur.

How unpaid leave affects 13th-month pay

Unpaid leave can affect the 13th-month pay calculation because the formula usually considers basic salary actually earned during the year.

If an employee takes unpaid leave, their total salary for that period may be reduced, which can lower the amount used in the 13th-month pay formula.

Example:

An employee earns $4,000 per month but takes two months of unpaid leave during the year.
Salary earned during the year: $4,000 × 10 months = $40,000

13th-month pay: $40,000 ÷ 12 = $3,333

Paid leave, such as maternity leave or approved vacation, usually does not reduce the calculation because the employee continues receiving their regular salary during those periods.

Some countries use different formulas. For example, certain jurisdictions base the calculation on the employee’s highest monthly earnings within a defined period, while others split the 13th-month payment into multiple installments during the year.

What components are included in the 13th-month pay calculation?

In most countries, 13th-month pay is calculated using the employee’s basic salary earned during the year. Additional compensation such as overtime or allowances is usually excluded unless local labor laws state otherwise.

Because payroll regulations vary across jurisdictions, employers should always follow local labor laws and employment contracts when determining what salary components must be included.

Is 13th-month pay taxable?[toc=Is It Taxable]

From working closely with global teams on payroll and compliance, we’ve broken down how different countries tax 13th-month pay, including where it’s taxable, partially exempt, or completely tax-free.

Philippines: Partially tax-exempt up to a threshold

13th-month pay is non-taxable in the Philippines up to ₱90,000 when combined with other bonuses and benefits. Any amount exceeding this limit is taxed as regular compensation income. [Source]

Brazil: Two instalments, tax on second portion

Employers pay the 13th-month salary in two instalments. The first instalment is paid without tax or social security deductions, while the second instalment is subject to income tax and INSS contributions, similar to regular wages. [Source]

Mexico: Partial exemption based on minimum wage

A portion of the 13th-month “aguinaldo” is tax-exempt up to 30 days’ minimum wage; the rest is taxed as normal income. [Source: Mexico Income Tax Law (LISR), Article 93, Section XIV – SAT]

Austria: Preferential tax rate

In Austria, 13th- and 14th-month payments are taxed at preferential rates (starting at ~6%) within statutory limits, with excess amounts taxed at regular salary rates. [Source]

Greece & Italy: Taxed as regular salary

13th-month pay (tredicesima) is generally treated as ordinary taxable income under standard personal income tax rules. [Source: Greece, Italy]

Bolivia, Costa Rica, Honduras, Guatemala, Nicaragua: Typically tax-free

In these Latin American countries, 13th-month pay is commonly exempt from income tax when structured strictly as the statutory 13th-month salary.

We’ve seen how 13th-month taxation works across countries. The next piece is understanding who actually qualifies, because before employers provide employees with a 13th month salary, they must follow clear eligibility criteria set by local rules and contracts.

Who is entitled to 13th-month salary?[toc=Eligibility Criteria]

Eligibility criteria for 13th-month pay depends on local labor laws and employee classification. In countries where it is mandatory, entitlement typically applies to rank-and-file employees with an employer–employee relationship, including new hires and eligible foreign employees, with payments prorated based on time worked.

Certain categories are commonly excluded under local regulations, such as managerial staff, specific public sector employees, commission-only workers, interns not classified as employees, and independent contractors.

While excluded employees are not legally entitled to 13th-month pay, many employers choose to offer discretionary year-end bonuses to support retention and morale.

Do part-time employees qualify for 13th-month pay?

In many countries where 13th-month pay is mandated, part-time employees are also entitled to receive it as long as they have an employer–employee relationship and meet the minimum service requirements.

The payment is typically calculated based on the actual salary earned, meaning part-time employees receive a prorated amount corresponding to their wages and time worked during the year.

However, eligibility rules may vary depending on local labor laws and employment contracts.

Do employees on leave receive 13th-month pay?

Employees on approved leave such as maternity leave, paternity leave, or paid vacation are usually still eligible for 13th-month pay.

If the leave is paid, the salary received during that period is included in the calculation.

If the leave is unpaid, the employee’s total annual salary may be reduced, which can lower the amount used in the 13th-month pay calculation.

Do employees who resign or are terminated receive 13th-month pay?

Employees who resign or are terminated before the end of the year are usually still entitled to prorated 13th-month pay based on the time they worked during the calendar year.

Example:

If an employee earns $3,000 per month and leaves the company after 8 months, their prorated 13th-month pay would be: ($3,000 × 8) ÷ 12 = $2,000

In countries where 13th-month pay is mandatory, this amount is typically included in the employee’s final paycheck or separation pay.

Employers generally cannot withhold statutory 13th-month pay simply because the employee resigned or was terminated.

Employers should always follow local employment laws when determining how leave periods affect the calculation.

What are the common mistakes employers make with 13th-month pay?[toc=Common Mistakes]

Employers expanding internationally often misunderstand how 13th-month pay works across different jurisdictions. These mistakes can lead to payroll errors, compliance risks, and disputes with employees.

Some of the most common issues include:

• Treating 13th-month pay as a discretionary bonus: In countries where the payment is mandatory, it is treated as earned salary, not an optional reward.
• Including allowances or overtime in the calculation: Most countries require the payment to be calculated using basic salary only, excluding overtime, allowances, and performance bonuses.
• Failing to prorate payments for partial-year employees: Employees who join or leave during the year are usually still entitled to prorated 13th-month pay based on the months they worked.
• Missing statutory payment deadlines: Many countries require employers to pay the benefit by specific dates, such as December 24 in the Philippines or December 20 in Mexico and Brazil.
• Not documenting the payment structure in employment contracts: Employers should clearly define how 13th-month pay is structured to avoid confusion between statutory salary payments and discretionary bonuses.

Understanding these requirements is essential for maintaining payroll compliance when managing international teams.

How can businesses in the US implement 13th-month pay?[toc=How US Business Implement]

Based on our experience helping US and global companies stay compliant with payroll and employment laws, here’s the clean way to think about 13th-month pay in the United States.

In the US, 13th-month pay is not a legal requirement or mandatory benefit. There’s no concept of a mandatory payment tied to an employee’s monthly salary the way it exists in Latin America or parts of Asia. Still, many companies pay a similar monetary benefit in practice.

Here’s how US companies usually handle it:

US employers treat 13th-month pay as a discretionary end-of-year bonus, not as guaranteed wages. It’s positioned as an additional payment in the offer letter or bonus policy, separate from base pay, and never as a statutory entitlement.

The bonus amount often mirrors one month of the employee’s monthly salary or a percentage of annual pay. The key is clarity. If companies pay it as guaranteed compensation instead of bonus pay, it can create wage-and-hour risks under US labor laws.

From a tax standpoint, thirteenth month pay in the US is fully taxable. It’s processed as supplemental income and subject to federal withholding, Social Security contributions, Medicare, and applicable state taxes. Payment varies by company policy, not by law.

To stay compliant, US businesses should:

• Clearly document it as a discretionary bonus, not a legal requirement
• Keep it separate from base salary and overtime calculations
• Run it through payroll as a taxable bonus with proper withholding

This distinction matters when scaling globally. What’s a mandatory benefit in other countries becomes an optional end-of-year bonus in the US, and applying the wrong model across borders is a common compliance miss we see when companies expand.

Many companies expanding internationally use an Employer of Record (EOR) to manage payroll compliance across countries.

How Wisemonk EOR simplifies 13th-month pay taxation and compliance?[toc=How Wisemonk EOR Helps]

Wisemonk is a leading Employer of Record (EOR) service provider trusted by 300+ international companies that helps global businesses to hire, pay and manage employees in India without establishing a local entity. Wisemonk handles wage calculations, tax withholdings, deductions, direct deposits, and generation of detailed pay statements.

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.

Client review/feedback:

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Mid-Market
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