13th Month Pay: The Ultimate Guide for Employers
Hiring employees overseas carries one core requirement for employers, which is compliance with the host country laws on compensation, labor rights and employment laws. While compensation may seem like the employer’s sole prerogative, some countries even mandate year end bonuses for all employees, commonly known as 13th month pay. If you have never encountered statutory 13th month bonuses, how will you account for this expense when offering a new employee a compensation package? Will your employee expect 13th month pay even if it is not statutory, but is customarily paid in the host country? Should you include it in the employment contract? To help you understand 13th month pay and how to include it in your payroll we have put together this quick guide.
What is 13th Month Pay?
Simply, the 13th month pay is an additional amount of compensation, usually calculated from a single month salary. If the 13th month pay is set by statute (rather than internal company policy) then every employee is entitled to receive it.
Typically, it is paid at year end to be used for holidays, but may be paid at other times if the country has other important cultural dates. For example, in Argentina and Columbia, it is paid in two equal 50% installments in June and December.
For this reason, it is not really a “Christmas or New Year’s Bonus”, which is different and varies by amount or type of gift, and is usually optional.
How Does the 13th Month Pay Work?
13th month pay is calculated based on either a single month salary, or four weeks salary, depending on how compensation and payroll are structured. This is important for employers that are hiring overseas, because if the amount is not included in the original salary package it could be an additional, unexpected expense.
One approach to statutory bonuses is to set compensation at an annual rate, and then divide that by 13 to arrive at monthly gross salary. That way, the 13th month bonus will not be an additional employment cost, and could be included in the employment contract as a part of annual stated compensation.
Countries that Mandate 13th Month Pay
Most countries in Latin America mandate the 13th month pay, while in Europe and Africa it is customary but not required by statute. In Asia, a 13th month bonus is mandatory in Philippines, Indonesia and India, and only customary in other countries.
It should be noted that countries like Greece, Spain and several Latin countries also require a 14th month bonus.... read more
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