When expanding your business globally, there are many laws and best practices to navigate. One of the most important of those is payroll and in particular 13th month pay.
In some countries in Europe 13th month pay is a legal requirement while in others it is expected as the norm. Either way, when employing foreign employees, it is vital you have an in depth understanding about 13th month pay in Europe and compliantly run payroll to avoid a cultural faux pas or worse still, a costly case of noncompliance.
What is 13th month pay?
Otherwise known as the 13th month salary or even holiday or Christmas pay, 13th month pay is the payment of an additional month’s salary. Originating in the Philippines, this practice has become commonplace in many countries around the world, specifically Europe.
While terms may vary, in any country there are generally three types of pay:
- Mandatory pay – this is what must be paid by employers as outlined in employment laws
- Customary pay – while not the law, this is pay that is expected in certain countries
- Discretionary pay – this pay is entirely down to individual employers and can be deemed unexpected perks or bonuses
Whether 13th month pay falls under mandatory or customary pay will largely determine whether employers are required to pay this extra salary.
Do I have to pay 13th month pay in Europe?
You must pay 13th month pay whether you are a local or foreign business operating in Europe. However, whether 13th month pay is mandatory or customary depends entirely on what country in Europe you are in and in some cases, the industry you operate in.
For example, in Spain, Portugal and Greece 13th month pay is mandatory and as such failing to pay can result in hefty legal penalties. Meanwhile, in the likes of Austria, The Netherlands, Italy and Switzerland to name but a few, 13th month salaries are expected with failure to do so being highly disapproved of.
In some countries, such as France and Germany 13th month pay may be mandated via collective agreements.
Other countries in Europe, including the UK, do not have 13th month pay as standard or common practice but may introduce bonuses which are at the discretion of the employer.
When do I have to pay 13th month salary?
Again, this largely depends on the country. Most receive 13th month pay over the Christmas period or the summer months – hence the colloquial name of Christmas or holiday pay. However, most employers outline when 13th month pay will be paid in line with local employment laws and collective agreements.
Help with 13th month pay
Whether 13th month pay is mandatory or expected, it is vital that expanding businesses get to grips with where 13th month pay is required and how it is expected to be paid in order to avoid social error or worse still a breach of employment laws. However, with 13th month salaries varying from country-to country and sometimes industry-to-industry, this can be easier said than done.
As your PEO partner, Leap29 can help you to navigate 13 month pay in addition to other complexities that come with hiring employees and running payroll on an international scale. If you would like to find out more, contact our experts today.
