Why Some Countries Require a 13th Month of Pay by Law
In Manila the bonus is guaranteed by a 1975 law. In Memphis, it's whatever the employer feels like giving. Here's why the gap exists.
More than a dozen countries require employers to pay their workers an extra full month of salary every year, on top of whatever they've already earned. The United States isn't one of them, and it isn't close.
Every December, that gap becomes concrete. A payroll clerk in Manila processes a legally required bonus check equal to a full month's pay; a payroll clerk in Memphis processes nothing of the kind, because no federal law requires it, and because American employment is at-will, no state fills the gap either, according to the HR platform Justworks. The practice, usually called "13th-month pay," is mandatory or customary across most of Latin America, a good stretch of Europe, and parts of Asia, Africa and the Middle East.
The custom is older than the law that eventually anchored it. In Italy, employers began paying a gratifica natalizia (a Christmas gratuity) in the early 20th century, and the practice was later written into Italian labor law, according to global payroll provider ADP. That's why Italians still call it the tredicesima, "the thirteenth."
What the Philippines did in 1975, when President Ferdinand Marcos signed the bonus into national law, was different: it converted a goodwill gesture into a guaranteed right for nearly every rank-and-file worker in the country, per Justworks. Both countries have a fair claim to "first." Italy invented the custom. The Philippines was first to make it unconditional.
The list of countries with a mandatory 13th month includes Argentina, Bolivia, Brazil, Colombia, Costa Rica, Peru, Mexico, Nicaragua, El Salvador and Guatemala in Latin America; Greece, Italy, Portugal and Spain in Europe; and Indonesia and the Philippines in Asia, according to ADP and Justworks. Saudi Arabia requires a bonus tied to Eid al-Fitr rather than a fixed calendar date. Dozens more countries, Austria, France, Germany, the Netherlands, South Africa, the United Arab Emirates and the United Kingdom among them, treat it as customary rather than legally required, which in practice means most employers pay it anyway to stay competitive for talent.
Calculation methods vary enough that "one month's pay" is more of a starting principle than a formula. Italy divides annual salary by 13, not 12, folding the bonus directly into the base pay structure. Spain splits the year into 14 parts to account for both a 13th-month payment in summer and a 14th-month payment at Christmas. Mexico's version, known as the aguinaldo, is set by law at a minimum of 15 working days' salary, though many employers pay more. In India, where the benefit applies only to specific categories of lower-paid workers, it runs between 8.33% and 20% of annual base pay, according to ADP. Japan's version doesn't even arrive in December: it's a customary bonus paid in summer, with a second, comparable payment at year's end, a rhythm tied to the country's April-to-March business calendar rather than the Western fiscal year.
Then there's the question of whether the government taxes what it just mandated. Jonathan Merry, a taxation expert at Moneyzine, told ADP that the answer depends entirely on the country and, often, how much an employee makes.
"Taxation may be applied if the payments go beyond certain limits for an employee. In the Philippines, for example, there's a law that specifically addresses the 13th-month salary, making it non-taxable up to a certain point. So, if your 13th-month pay, along with any other benefits, is below 90,000 Philippine pesos ($1,584), you're in the clear, tax-wise."
Jonathan Merry, taxation expert at Moneyzine, speaking to ADP
Similar carve-outs exist elsewhere. Argentina exempts workers earning up to roughly 150,000 pesos a month from tax on the bonus. El Salvador's threshold is $1,500. Austria taxes the 13th and 14th salaries at a flat 6%, well below its normal income-tax rates, and Bolivia, Costa Rica, Honduras, Guatemala and Nicaragua don't tax the payment at all. Brazil splits the bonus into two installments: one in November that arrives untouched by withholding, and a second in December that is taxed, which means the same "13th month" can look different on a worker's two paychecks in the same year.
None of that machinery exists in the US system, where an end-of-year bonus is a discretionary perk rather than an entitlement. That gap is less an oversight than a design choice. American labor law was built around at-will employment and merit pay, while the countries that mandate a 13th month generally built theirs around a fixed, protected floor for workers regardless of how the company's year went. A worker moving from Manila to Miami isn't just changing zip codes. They're trading one entire theory of compensation for another.
