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 payment equal to roughly one month of an employee’s base salary, or one-twelfth of their yearly wages. In some countries it is required by law, while in others it is a widely followed employment practice. 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.

Is 13th-month pay just a bonus?
Not really. In countries where it’s required, it’s treated as earned salary, not a reward for performance.

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.

Knowing where the 13th month applies is only half the story. The real catch is when that additional salary hits payroll, because every country runs on its own financial year and plays by specific rules that employers can’t ignore.

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.

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 one of a few standard methods.

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.

If an employee earns a basic monthly salary of $4,000, their 13th-month pay is $4,000 when they have worked the full calendar year.

If an employee has worked less than a year, the amount is usually prorated. Employers calculate one-twelfth of the employee’s basic salary for each month worked during the calendar year.

An employee with a $3,000 basic monthly salary who worked 8 months would receive $2,000 in prorated 13th-month pay ($3,000 × 8 ÷ 12).

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 pay into two installments paid at different times of the year.

In the US, 13th-month pay is not legally defined. Employers typically treat it as a discretionary year-end bonus, calculated as a fixed amount, a percentage of annual salary, or an amount roughly equal to one month’s pay, and taxed as regular income.

What’s included in the calculation also matters. In most cases, only basic salary is considered, while overtime pay, allowances, and other performance-based bonuses are excluded.

The exact rules depend on local regulations, employment contracts, and collective agreements, so employers must always follow local labor laws when running global payroll.

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.

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.

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:

“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
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“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.”

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VP of Engineering, Cobu
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Wisemonk provides a one-stop solution for companies looking to build and manage teams in India. Whether you're a startup or an established company, Wisemonk simplifies the complexities of Indian Payroll management, allowing you to focus on growth and innovation. Contact Wisemonk today!