When you expand your business across the Asian continent, you will need to ensure compliance with the requirements of local labor laws and regulations, as well as employment customs and best practices. One such requirement is to provide 13th month pay to your employees. Read on to learn everything you need to know about 13th month pay across Asia.
What Is 13th Month Pay?
13th month pay is extra compensation that employees are paid in one year that is usually equal to one month’s salary. This pay is often provided at the end of the calendar year, but individual countries may take a different approach.
In China, for example, the 13th month is often paid around the time of the Chinese New Year celebrations in January. Some countries require this type of employee benefit as a matter of law, whereas it is simply customary in other countries.
If you operate your business in Asia, you will need to know whether the country in which your business has operations mandates payment for the 13th month, or whether this is merely a recommended practice there. It is important to know whether the requirement is a legal one, as in remitting the final 13th month pay of the year, you will need to ensure you comply with your host country’s labor and employment laws around salary declarations.
Note that even if the payment is made at the end of the year, 13th month pay is not treated the same as a holiday or end-of-year bonus.
Why Is there 13th Month Pay?
The tradition of paying a 13th month began in the Philippines, where the primary religion is Christianity and where Christmas is a major holiday. The idea was that by providing a 13th month’s value of pay, families could afford to gather with their loved ones and have a nice dinner and exchange gifts. The extra funds helped pay for the celebration.
President Ferdinand Marcos of the Philippines passed the law in 1975 and required that employers provide this pay. The law was widely supported, as minimum wage rates in the country had not been updated since 1970. Low-salary employees often would be left without the money needed to celebrate the Christmas holiday.
Other countries latched onto the idea and have adopted similar rules. In countries where Christianity is not the predominant religion, workers may use the extra compensation to pay for other non-holiday related expenses.
Which Countries in Asia Observe 13th Month Pay?
Countries throughout Europe, Africa, and Latin America observe 13th month pay. As mentioned, in Asia, pay for the 13th month is mandatory in some countries while only customary in others. Here are some specific details:
13th month pay is mandatory in:
In the Philippines, payment must be made by December 24 or by the end of the contract, whichever date is sooner. In Indonesia, 13th month pay is a mandatory religious holiday bonus that must be paid at least one week before Christmas. In India, the bonus is calculated as a percentage of the annual salary and must be made within eight months of the end of the financial year.
Other Asian countries customarily provide 13th month pay to eligible employees. Some general guidelines include:
- China – 13th month pay is provided during the month of the Lunar New Year (Chinese New Year) or the Spring Holiday.
- Hong Kong – In Hong Kong, payment is typically made during the month of the Lunar New Year or at the end of the year.
- Japan – Payment is usually made in June as a summer bonus. Employers may also pay a winter bonus in December.
- Malaysia – Payment is paid at the end of the year.
- Saudi Arabia – Payment is made on Eid al-Fitr.
- Singapore – Payment is usually made at the end of the year.
- Taiwan – Payment is usually made at the Lunar New Year.
- United Arab Emirates – In the UAE, 13th and 14th month pay are paid at the end of the year.
- Vietnam – Payment is usually made at the Lunar New Year.
Who Is Entitled to 13th Month Pay?
Employees who receive fixed monthly wages are typically entitled to 13th month pay in the countries listed above. The employee must have worked for a minimum of one month during the calendar year to be eligible.
Certain types of employees are not entitled to this pay, however. These include:
- Other staff members who have the authority to terminate employees
- Private nurses
- Employees who work on commissions
- Employees who already receive the equivalent value of the bonus with another type of bonus
- Employees covered under the civil service law
How Do I Calculate 13th Month Pay?
How 13th month pay is calculated varies by country. Generally, 13th month pay is calculated as 1/12 of the employee’s annual base salary. However, some countries use the highest month’s salary, the average of the three months’ salary leading up to the bonus, or other methods. They may also consider the employee’s length of service.
If an employee has worked for less than one full year, their 13th month pay may be proportional to the number of days they have worked with the company. In countries that use this approach, you multiply the employee’s base monthly salary by the number of months they have worked during the year and divide this total by 12 to get the amount of the 13th month.
In some countries, it is customary for the additional month’s pay to be divided up between the 12 months of the year so that the employee receives a little extra compensation each month instead of a lump sum at the end of the year.
When do I Pay for the 13th Month?
Many companies pay the 13th month at the end of the year, but the approach for any particular company will depend on the country of operations and the company’s internal policy (where 13th month pay is not mandatory).
Some countries split this pay during the summer and winter. In some countries, employees can request a portion of their 13th month pay before the regular distribution date.
How Can New Horizons Help with 13th Month Pay?
New Horizons can handle your payroll and ensure that you are compliant with 13th month pay requirements. Failing to make these payments can result in significant penalties, but we can help you avoid them.
We can also advise you on how to structure a competitive employment package in countries where 13th month pay is customary. To find out more, contact our expert team of consultants today.