13th month pay is an additional month of salary, mandated by law in around two dozen countries and customary in many more. It is not a bonus and not a Christmas gift, and budgeting for it as discretionary is a common and expensive mistake when entering a new market.
Where it is required, non-payment is a breach of employment law rather than a missed nicety. Where it is customary, employees will expect it regardless. Last updated September 2026.
| 13th month pay | Discretionary bonus | |
|---|---|---|
| Legal status | Mandatory in many countries | At the employer's discretion |
| Amount | Typically one month's salary | Whatever you decide |
| Linked to performance? | No | Usually |
| Can you withhold it? | Not where mandated | Yes |
| Budget treatment | Part of employment cost | Variable |
What is 13th month pay?
An additional payment, usually equivalent to one month's salary or one twelfth of annual earnings, paid on top of the normal twelve months.
The calculation varies. Some countries use a straight twelfth of annual base salary. Some pro-rate by months served. Some average recent months' earnings. A few require a 14th month payment as well, typically split across the year.
It is normally based on base salary and excludes allowances, overtime and benefits, though this differs by jurisdiction.
Is it the same as a Christmas bonus?
No, and this is the most common misunderstanding.
It is often paid in December, which is where the confusion comes from. But a Christmas bonus is discretionary and performance-linked. 13th month pay, where mandated, is a legal entitlement that does not depend on performance and cannot be withheld.
In several countries employees receive both.
Is it taxed?
Usually, as ordinary employment income.
There are exceptions. The Philippines, for example, exempts 13th month pay and other benefits up to a defined threshold, with amounts above it taxable. That exemption is specific to the Philippines rather than a general rule, and treating it as typical will produce wrong figures elsewhere.
Check the position in each country rather than assuming.
Which countries require it?
Mandated by law, in alphabetical order:
Angola, Argentina, Bolivia, Brazil, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Greece, Guatemala, Honduras, India, Indonesia, Mexico, Nicaragua, Panama, Paraguay, Peru, Philippines, Portugal, Spain, Uruguay, Venezuela.
Which countries treat it as customary?
Not legally required, but widely expected, and often written into collective agreements or individual contracts, which makes it contractually binding even where the law does not mandate it:
Austria, Belgium, Chile, China, Croatia, Finland, France, Germany, Hong Kong, Israel, Italy, Japan, Luxembourg, Malaysia, Netherlands, Nigeria, Saudi Arabia, Singapore, Slovakia, South Africa, Switzerland, Taiwan, United Arab Emirates, Vietnam.
Treat both lists as indicative. Requirements change, and the detail matters more than the category: qualifying periods, calculation method, payment timing and which employees are covered all vary. Verify the current position for any country before budgeting. Requirements are in CountryPedia.
Who is entitled to it?
This is set by each country's law, and generalising is where employers get caught out.
Some countries require a minimum qualifying period. Some exclude senior or managerial employees. Some exclude anyone already receiving an equivalent contractual bonus. The Philippines, for instance, has its own rules on qualifying service and on which employees are covered, and those rules do not apply anywhere else.
Establish eligibility country by country rather than applying one policy.
How is it calculated?
A common approach is monthly base salary multiplied by months worked in the year, divided by twelve. That pro-rates correctly for joiners and leavers.
But the method is set locally. Some countries use total earnings rather than base salary. Some specify payment in two instalments. Some tie it to a reference period rather than the calendar year.
Getting the calculation wrong underpays people and creates a compliance issue, so use the local formula rather than a general one.
What does this mean for your budget?
An extra month of salary is roughly 8% on top of base pay, before employer contributions on that amount.
That is enough to change which market is cheapest. A country that looks less expensive on salary alone may not be once mandatory payments are counted, which is why total employment cost is the figure to compare rather than salary. Our employment cost calculator covers it, and the wider point is in gross, net and cost to company.
It also affects offer conversations. A candidate in a 13th month country thinks in terms of thirteen payments, so quoting an annual figure divided by twelve will understate what they expect monthly.
How do you handle this across several countries?
Someone has to track which countries mandate it, how each calculates it, when it is due, and whether the rules have changed.
An Employer of Record handles that as the legal employer. Mandatory payments are calculated and made correctly in each country, and applied when the rules change rather than when someone notices.
Related reading: the benefits worth offering and common payroll processing challenges.
Work with Global Expansion
We run payroll across 214 countries and territories, with statutory payments applied correctly in each one.
Talk to our team about the countries you are paying into.
Frequently asked questions
What is 13th month pay?
An additional payment, usually equal to one month's salary, paid on top of the normal twelve. It is mandated by law in around two dozen countries and customary in many others.
Is 13th month pay the same as a Christmas bonus?
No. A Christmas bonus is discretionary and often performance-linked. 13th month pay, where mandated, is a legal entitlement that cannot be withheld. Employees in some countries receive both.
Is 13th month pay taxable?
Usually, as ordinary employment income. Some countries provide partial exemptions, such as the Philippines, which exempts it up to a defined threshold. Do not assume an exemption applies elsewhere.
How is 13th month pay calculated?
Commonly monthly base salary multiplied by months worked, divided by twelve. The method is set by local law, and some countries use total earnings, specify instalments, or apply a different reference period.
Do we have to pay it if we hire through an Employer of Record?
Yes. The entitlement belongs to the employee under local law regardless of who the legal employer is. The EOR calculates and pays it correctly, and it forms part of your employment cost.
What happens if we do not pay it where it is required?
It is a breach of employment law, with penalties and back payment obligations that vary by country. In some jurisdictions employees can claim it retrospectively with interest.
