Accountancy Resources
Latin America has a 13th month when it comes to salary. If you are planning to move your company or open an entity in a Latin American country, it is important to know about the requirement of the 13th-month salary. Employees, in most Latin American countries, are entitled to a 13th-month salary, which is payable by the employer in December of each year. Thanks to the additional payout, employees can happily celebrate the holidays and incur all of the additional expenses, such as buying wonderful presents for their loved ones.
It is important to understand that although the 13th-month salary is conveniently paid out in December, it is different from a Christmas bonus. The 13th-month salary, which had been set up in 1987 by the 13th Month Pay Law, is a requirement mandated by the government and unlike the Christmas bonus which is voluntary, the 13th-month salary is required. The law states that all firms are obliged to pay out their employees as long as the employee has a year of service. However, if the employee has not worked a full year, the 13th-month pay is calculated accordingly. In fact, even an employee who has recently resigned is entitled to “monetary benefit in proportion to the length of time he worked during the year” (Alviola, Andrea, What is the 13th Month Pay? ).
Each Latin American country has its own regarding rules regarding the payout of the 13th-month salary. However, the commonality is that this payout is a requirement and is government-mandated. For example, in Colombia and Argentina, the payment is calculated just like the basic salary paid in the last month of service. In Mexico, the law requires that the payment be made based on a minimum of a two-week salary instead of a month. In Chile, the payment is actually split and paid out in September and December. Also in Chile, September is deemed as an important month to receive the extra salary because that is when the school year begins. (Laughlin, Kirk, The 13th Month Syndrome and Other ‘Rigid’ Worker Protections).
The 13th-month salary is a great benefit to the employees and allows employees to rejoice and have that extra income to spend during the holidays. Employers need to account for the 13th-month salary when their budgets for the year due to the significant costs for companies. For anyone moving to Latin American countries to work, I say: enjoy your 13th-month pay! As for the companies moving to Latin American countries, be prepared for the additional expenses that will come your way!
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