13th Month Pay: Legal, Tax Requirements & Global Guide 2025

Trying to figure out what 13th month pay really means? You’re not alone. Many US founders and HR teams wonder if it’s a legal must or just a cultural bonus, especially when hiring in countries like the Philippines, Brazil, or Mexico, where it’s a statutory requirement.

Understanding the rules behind 13th month pay, who qualifies, how to calculate it, and when to pay, is essential for staying compliant and running a reliable global operation. In this article, we’ll walk you through everything you need to know to manage 13th month pay accurately and confidently across borders. Let’s dive in.

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

13th-month pay is an additional payment equal to one month’s salary, given in addition to a regular annual salary. It’s usually paid at the end of the year, most often in December, though some employers split it into mid-year and year-end installments.

Where did the concept of 13th-month pay come from?

As global businesses navigate compensation practices, understanding the origins and evolution of the 13th-month pay provides essential context for staying compliant and competitive.

A short history

The 13th month pay was first legalized in the Philippines through Presidential Decree No. 851, issued on December 16, 1975, during the presidency of Ferdinand Marcos. This decree mandated that all employers pay their employees a 13th month salary, which is equivalent to one-twelfth of an employee's annual salary. 

The introduction of this law was largely a response to growing public dissatisfaction regarding stagnant wages that failed to keep pace with the rising cost of living.

Evolution and global adoption

Following its establishment in the Philippines, the concept of the 13th month pay gained traction in various countries around the world. The practice has evolved into a common form of employee compensation, particularly in Latin America, where it is often referred to as the aguinaldo.

Countries like Argentina, Brazil, and Greece have made the 13th month pay a legal requirement, while in others, such as China and Japan, it is customary but not mandated by law.

In many regions, the 13th month pay is viewed as a vital component of employee compensation, often aligning with significant cultural events, such as Christmas in predominantly Christian countries. 

The global adoption of this practice reflects a broader recognition of the importance of additional financial support for employees, especially during economically challenging times.

Today, the 13th month pay is not only a legal requirement in several nations but is also considered a standard practice in many companies, enhancing employee retention and satisfaction across diverse labor markets.

Now that we’ve learned about the evolution of 13th-month pay, let’s explore which countries legally require it and how it’s commonly implemented.

Which countries require or commonly offer 13th-month pay?[toc=Countries with 13th-Month Pay]

Based on our experience in helping companies with global payroll and compliance, here’s a breakdown of which countries require or commonly offer 13th-month pay, and how it impacts employee compensation.

Mandatory 13th-month pay (legally required)

Mandatory 13th-month pay refers to compensation that is legally required by labor laws or government regulations. Employers must comply to avoid penalties or legal action.

Examples:

• Philippines: Mandated under Presidential Decree No. 851, requiring private employers to provide this benefit to all employees.
• Brazil and Argentina: Require employers to pay a 13th-month salary, commonly known as aguinaldo.

Implications:

• Employees have a legal right to this payment, and noncompliance can result in penalties.
• Ensures additional financial support for employees during key holiday seasons.

Countries with mandatory 13th-month pay:

• Latin America: Argentina, Bolivia, Brazil, Colombia, Costa Rica, El Salvador, Guatemala, Mexico, Nicaragua, Peru
• Asia: India (for certain worker categories), Indonesia (Tunjangan Hari Raya), Philippines
• Europe: Greece, Italy, Portugal, Spain
• Africa: Angola, Mauritius, Nigeria, South Africa

These countries enforce 13th-month pay through labor codes or national decrees, often aligning payments with cultural holidays like Christmas.

Customary 13th-month pay (traditionally expected)

Customary 13th-month pay is not legally mandated, but it’s a long-standing tradition or business practice in certain industries or countries. Employers offer it to remain competitive and maintain good employee relations.

Examples:

• Mexico and parts of Europe: Employers commonly provide 13th-month pay during the holiday season, even without legal obligation.
• Asia: Many companies offer this pay to attract and retain talent, following local expectations.

Implications:

• Employees expect this payment as part of total compensation, and skipping it can hurt morale.
• Employers use it to align with market standards and foster goodwill.

Countries with customary 13th-month pay:

• Europe: Austria, Belgium, Croatia, Czech Republic, France, Germany, Netherlands, Slovakia, Sweden, Switzerland
• Asia: China, Hong Kong, Malaysia, Singapore, Taiwan, Vietnam
• Latin America: Chile

In these regions, customary 13th-month pay is viewed as a goodwill gesture that reinforces loyalty and aligns with year-end cultural celebrations.

Discretionary 13th-month pay (optional bonuses)

Discretionary 13th-month pay is neither required by law nor cultural tradition, it’s offered purely at the employer’s discretion. It’s often tied to company performance, profitability, or individual contributions.

Examples:

• Some companies give a 13th-month bonus as gratitude for employee performance in profitable years.
• Startups or small firms may use it as a flexible incentive to attract talent.

Implications:

• Employees have no legal claim to this payment; it may vary year to year.
• Acts as a motivational tool that rewards high performance and loyalty.

You might be interested in learning more about the different types of bonuses in India, their limits, and tax implications. Read our article on "Understanding Employee Bonuses in India: Types, Limits & Tax".

Does the US have 13th-month pay?[toc=13th-Month Pay in the US]

The United States does not have a legal requirement for 13th-month pay. Unlike in many countries such as the Philippines or Brazil, US employment laws don’t mandate an additional month’s salary or annual wage supplement as part of an employee’s annual salary.

However, many companies pay year-end or Christmas bonuses as part of their holiday bonuses or performance-based incentives. These are discretionary payments, not legally required, and depend on factors like employee performance, company profits, or collective agreements.

When offered, these extra payments are treated as taxable income subject to normal income tax rates. So while there’s no legal obligation for US employers to provide a 13th-month pay, offering such additional compensation can still be a valuable tool for motivating employees and aligning with global pay practices.

When do employers usually pay the 13th-month bonus?[toc=When 13th-Month Pay is Paid]

Through our experience helping companies with global payroll compliance, here’s a look at the standard 13th-month pay payment schedules across various countries.

Typical issuance in December

In most countries, the 13th month pay is issued in December, often before the Christmas holiday season. This is the case in countries like the Philippines, where the law requires payment by December 24th each year.

Providing the 13th month pay in December allows employees to use the additional funds for holiday expenses and celebrations with family. It aligns with the festive spirit and cultural significance of the year-end period.

Alternative payment schedules (Example: Panama)

While December is the most common month for 13th month pay distribution, some countries have alternative payment schedules. For example, in Panama, the 13th month pay is split into two equal installments:

• The first half is paid in the first 15 days of December
• The second half is paid by June 15th of the following year

This split payment system aims to provide employees with financial support at the end of both the calendar year and the first half of the following year. It helps ensure a more evenly distributed cash flow for workers.

Other countries, like Brazil, also have a 14th month salary paid in July, in addition to the 13th month pay in December. This further enhances the financial support provided to employees throughout the year.

While December is the most common month for issuance, some countries have alternative schedules to better suit their economic and cultural contexts. Regardless of the specific timing, the 13th month pay remains an important component of employee compensation worldwide.

Now that we've covered when 13th-month pay is typically paid, let's dive into how it's calculated and what factors affect the amount employees receive.

How is 13th-month pay calculated?[toc=Calculating 13th-Month Pay]

Based on our experience in helping companies with global payroll compliance, here’s how 13th-month pay is typically calculated across various countries.

1. Standard method: Annual salary ÷ 12

This is the formula used in many countries, including the Philippines.

Formula:

13th-Month Pay = Total Annual Salary ÷ 12

Example:

If an employee earns a monthly salary of $2,000, then:

• Total Annual Salary = $2,000 × 12 = $24,000
• 13th-Month Pay = $24,000 ÷ 12 = $2,000

The employee receives $2,000 as their 13th-month pay, which equals one month’s basic salary.

2. Country variation example: Argentina (Aguinaldo)

In Argentina, the 13th-month pay, known as aguinaldo, is calculated differently. Employees receive two installments, each equal to half of their highest monthly salary earned during each 6-month period of the year.

Formula:

Aguinaldo = Highest Monthly Salary ÷ 2

Example:

If an employee’s highest monthly salary during the year was $2,000, then:

• First Installment = $2,000 ÷ 2 = $1,000 (paid in June)
• Second Installment = $2,000 ÷ 2 = $1,000 (paid in December)

Total annual aguinaldo = $2,000, which is equivalent to one full month’s salary.

3. Prorated calculation for partial-year employees

For employees who worked less than a year, the 13th-month pay is prorated based on the number of months worked during the calendar year.

Formula:

Prorated 13th-Month Pay = (Monthly Salary × Months Worked) ÷ 12

Example:

If an employee earns $2,000 per month and worked for 6 months:

• ($2,000 × 6) ÷ 12 = $1,000

The employee would receive $1,000 as prorated 13th-month pay.

Now that you understand how 13th-month pay is calculated, you might be interested in learning whether global payroll services work for your business. Read our article on "Global Payroll Service Comparison".

Who qualifies for 13th-month pay?[toc=Who Qualifies for 13th-Month Pay]

With our expertise in global payroll solutions, here’s a breakdown of eligibility for 13th-month pay in different countries and for various employee types.

1. Full-Time Employees

In most countries, full-time employees who work for a complete calendar year are entitled to receive 13th-month pay. This pay is usually calculated based on the employee's monthly salary.

2. Part-Time Employees and Temporary Workers

In some countries, part-time employees and temporary workers who have worked for a significant portion of the year are also entitled to prorated 13th-month pay. The payment is typically adjusted based on the number of months worked.

Example: If a temporary employee worked for 6 months in a year, they would receive half of the standard 13th-month pay.

3. Employees with Less Than a Year of Service

In countries where 13th-month pay is a legal requirement, employees who have worked for less than a year are entitled to a prorated amount based on the number of months worked. For example, if an employee worked for 5 months, they would receive 5/12 of the full 13th-month pay.

4. Certain Categories of Workers

Some countries or companies may have special provisions for certain employees, such as contract workers, seasonal employees, or workers on probation. Depending on the employment contract and local laws, they may qualify for full or partial 13th-month pay.

5. Compliance with Local Laws

The eligibility for 13th-month pay often depends on whether the employee is covered by local regulations, such as labor laws or collective bargaining agreements. For instance, some countries like the Philippines and Brazil mandate that all employees (regardless of employment status) are entitled to 13th-month pay, while other countries may have exceptions.

Now that we've covered who qualifies for 13th-month pay, let's explore how US companies can implement a 13th-month bonus program for their teams.

How can US companies implement a 13th-month bonus program?[toc=US Companies & 13th-Month Bonus]

While 13th-month pay is not a legal requirement in the US, many global companies and US-based businesses with international teams choose to adopt it as part of their employee compensation package.

If you’re looking to implement a 13th-month bonus program in your organization, here’s how you can do it effectively:

1. Determine the Eligibility Criteria

First, decide which employees will qualify for the 13th-month bonus. Will it apply to full-time employees only, or will part-time and temporary workers also be included? Also, consider whether employees who haven’t worked a full year will receive a prorated amount based on the months worked.

2. Define the Bonus Amount

You can choose to calculate the 13th-month bonus based on the employee's base salary, or a fixed percentage of their total earnings for the year. Most companies use the standard method, which is simply:

13th-Month Bonus = Employee's Base Salary

In this case, employees would receive an additional payment equal to one month’s salary.

Alternatively, if you want to align with international norms, you can make it variable or performance-based, rewarding employees who meet certain targets or milestones.

3. Set the Payment Date

While December is the most common time for 13th-month bonuses, US companies can decide on a payment date that works best for their payroll system. You can choose to give it out before the holiday season, or split it into two installments (for example, one in mid-year and another at year-end, similar to practices in Panama or Brazil).

Make sure to communicate the payment schedule clearly with employees so they can plan accordingly.

4. Incorporate the Bonus Into Employment Contracts

If you’re making the 13th-month bonus a regular part of your compensation plan, it’s important to define it clearly in your employment contracts. Be specific about whether it will be guaranteed every year or performance-based. This helps set proper expectations for employees and avoids confusion later on.

5. Account for Tax Implications

Just like regular salaries, the 13th-month bonus is subject to income tax and should be included in the employee’s total taxable income for the year. Ensure that your payroll services are equipped to handle the tax implications and withhold the correct amounts from the bonus. In the US, this is generally taxed at the normal taxation rate unless stated otherwise.

6. Make It Part of a Broader Employee Engagement Strategy

While the 13th-month bonus serves as a financial reward, it can also be a powerful tool for employee motivation and retention. Many companies use this bonus to boost morale during the holiday season or to celebrate a successful financial year. You can enhance the program by tying it to employee performance or specific team achievements.

7. Stay Compliant with Local and International Laws

If your company operates internationally, ensure that you align with local employment laws in countries where you have teams. In countries like the Philippines or Brazil, 13th-month pay is legally required, so offering this bonus to your global team helps maintain compliance with local regulations and enhances the overall employee experience.

By understanding the steps to implement a 13th-month bonus program, you can ensure smooth payroll management and keep your compensation packages competitive.

Is 13th month pay taxable?[toc=Tax Compliance]

The taxation and legal frameworks surrounding 13th month pay vary significantly across different countries. Below is an overview of country-specific tax rules and examples of tax exemptions and reductions.

Country-Specific Tax Rules

• Philippines: In the Philippines, the Bureau of Internal Revenue (BIR) stipulates that the 13th month pay is taxable only if it exceeds ₱90,000. If the total amount received is below this threshold, it is exempt from taxation. This regulation encourages employers to provide this benefit without imposing a heavy tax burden on employees.
• Argentina: In Argentina, the 13th month pay, known as aguinaldo, is also subject to taxation. However, the tax treatment can vary based on the total annual income of the employee, with certain exemptions applicable for lower income brackets.
• Brazil: In Brazil, the 13th month pay is considered part of the employee's salary and is subject to income tax. The payment is made in two installments, and the total amount is included in the employee's annual income for tax purposes.
• Mexico: The aguinaldo in Mexico is similarly treated as taxable income. Employers must provide this payment by December 20th, and it is calculated as 15 days of salary for those who have worked the full year.

Examples of Tax Exemptions and Reductions

• Philippines: As mentioned, the first ₱90,000 of 13th month pay is exempt from tax, which allows employees to receive a significant portion of their additional compensation without tax deductions. This exemption can influence how employers structure their compensation packages, encouraging them to provide 13th month pay as a benefit.
• Argentina: While specific tax exemptions may apply, employees earning below a certain threshold may benefit from reduced tax rates on their aguinaldo. This system aims to provide financial relief to lower-income workers during the holiday season.
• Brazil: Although the 13th month pay is taxable, the Brazilian tax code allows for certain deductions that can reduce the taxable income, thus lowering the overall tax burden for employees.

Different countries have varying rules regarding tax exemptions and the treatment of this additional compensation, which can significantly affect employees' take-home pay. 

Employers must stay informed about these regulations to ensure compliance and to provide fair compensation to their workforce.

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

Wisemonk is a trusted Employer of Record (EOR) and Professional Employer Organization (PEO) in India, empowering global businesses to hire, pay, and manage top talent seamlessly, all while navigating legal and compliance complexities with ease.

Here’s what we provide:

• Local Expertise: Stay up to date with evolving labor laws and tax regulations across countries like India, Indonesia, and the Philippines, ensuring compliance with mandatory 13th-month pay requirements.
• Accurate Calculations: Automate the calculation of 13th-month pay, including prorated amounts for employees with less than a year of service, based on local legal frameworks.
• Timely Disbursement: Manage the timely payment of 13th-month bonuses, aligning with local customs such as the December 24th deadline in the Philippines.
• Tax Compliance: Ensure 13th-month pay is processed in compliance with local tax laws, including exemptions and deductions, to optimize employee take-home pay.

Ready to simplify how you handle 13th-month pay for your global team? Book a free consultation today and discover how we can help you stay compliant, streamline payroll, and ensure timely, hassle-free bonus payments.