Understanding how to calculate the 13th month salary is essential for both employers and employess. It helps forecast year-end income, plan finances, and design competitive compensation policies. In this article, terra will guide you through everything you need to know: from definition and calculation formulas to practical scenarios for different business models.
Concept of 13th month salary
If you’re an expatriate working in a country where the 13th month salary is common, the term might sound unusual at first. This payment is not part of your regular monthly wage but is usually offered as an additional bonus at year-end. However, it is often confused with holiday bonuses or other benefits, which can lead to misunderstandings about your actual compensation package.
What is the 13th month salary?
The 13th month salary is essentially an extra month’s pay, typically given at the end of the year as a token of appreciation for your work. Despite being called “salary,” it is not a guaranteed monthly wage but rather a discretionary bonus in many countries.
In most cases, local laws do not mandate the payment of a 13th month salary, but many employers provide it as a common practice to stay competitive and retain talent. This is especially true in countries across Asia and Latin America, where this tradition is deeply rooted in employment culture.
Purpose of the 13th month salary
The 13th month salary serves as a token of appreciation for the employee’s efforts throughout the year. For employers, calculating it correctly and paying it on time is a smart strategy to keep employees motivated and committed for the long term.
For employees, understanding whether your employer offers a 13th month salary can significantly impact your financial planning and expectations. This bonus is often tied to your length of service within the year, so if you join mid-year, the amount may be prorated.
See more: Gross to Net salary calculator
How to calculate the 13th month salary
The 13th month salary calculation can vary by country and does not always follow a fixed formula for all employees. In Vietnam, the 13th month salary is essentially a bonus so it does not follow a fixed formula like basic salary or overtime pay. Instead, the calculation can vary depending on the company’s policy, the employee’s actual working period, and the agreed salary structure. However, there are a few common methods widely used to ensure fairness for employees.
Case 1: Employees who worked the full 12 months
For employees who completed the entire year, companies usually apply one of these two common methods:
- Based on the average monthly salary over 12 months:
| 13th month salary = (Total income for 12 months) ÷ 12 |
Example: An employee has a fluctuating income throughout the year, with a total annual salary of VND 180,000,000. Therefore, the 13th-month salary is VND 180,000,000 ÷ 12 = VND 15,000,000.
- Based on December’s actual salary:
| 13th month salary = Actual take-home pay in December |
Example: Employee A has an actual take-home salary of VND 12,000,000 in December. The company’s policy states that the 13th month salary equals the December salary. Therefore, the 13th month salary is VND 12,000,000.
This method is simple, easy to apply, and commonly used by companies that prefer a fixed formula instead of calculating the annual average.
Case 2: Employees who worked less than 12 months
If the employee worked only part of the year, the 13th month salary is usually prorated based on actual months worked:
| 13th month salary = (Total income for 12 months ÷ 12) × (Number of months worked ÷ 12) |
Example: An employee works from May to December (8 months) with a total annual income of VND 120,000,000:
Average monthly salary = 120,000,000 ÷ 12 = VND 10,000,000
13th month salary = 10,000,000 × (8 ÷ 12) = VND 6,666,666
Variation based on internal policy
Some companies base the calculation on base salary, contract salary, or net take-home pay (after social insurance, health insurance, and personal income tax), depending on their financial strategy or the terms stated in the labor contract.
Other examples:
- Using basic salary: VND 8,000,000
- Using net salary (after deductions for social insurance, health insurance, personal income tax, etc.): VND 7,200,000
Whichever method is chosen should be transparent and applied consistently across employees to avoid misunderstandings or disputes.
See more: How to calculate overtime pay for employees – With examples
Key regulations you should know about the 13th month salary
Although the 13th month salary is a common bonus in Vietnam, especially at year-end, its payment entirely depends on the agreement between the employer and the employee, as well as each company’s internal policy. To avoid misunderstandings, employees should be aware of certain rules and practical considerations currently in place.
Legal basis for the 13th month salary
According to Article 104 of the 2019 Vietnam Labor Code, a “bonus” is any amount of money or property given by the employer to the employee based on business results or job performance.
This means the calculation of the 13th month salary depends completely on the mutual agreement, which should be stated in the labor contract, collective labor agreement, or the company’s internal regulations. There is no legal requirement for companies to pay a 13th month salary.
Not every company offers a 13th month salary
Not all companies offer this benefit. Some key references to determine eligibility include:
- Internal regulations: If the 13th month salary is clearly stated in company policy documents, employees can use this as a basis to claim it.
- Labor contract: If the 13th month bonus is mentioned in the contract, it serves as a binding legal obligation for the employer.
- Collective labor agreement: Some companies sign agreements with trade unions, committing to pay the 13th month salary to all employees.
Payment amounts can vary
Even if the company provides a 13th month salary, the amount may differ based on:
- Individual performance
- Job title, rank, or position
- Length of service during the year
Therefore, it should not be assumed that everyone receives the same amount. Payments can be flexible, depending on internal classifications or evaluations.
13th month salary is different from Tet bonus
Many people mistakenly believe the 13th month salary and the Tet bonus are the same, but in reality, they are two distinct benefits:
- 13th month salary: Usually calculated based on working time during the year, more stable, and part of long-term policy.
- Tet bonus: Often an additional incentive depending on the company’s year-end performance, primarily motivational in nature.
Some companies combine both into one payment, while others only offer one of the two.
Important notes when receiving the 13th month salary
When receiving the 13th month salary, employees should not only focus on the amount but also understand the accompanying rules and conditions. Below are key points to keep in mind to avoid misunderstandings or missing out on your well-deserved bonus:
- Subject to Personal Income Tax (PIT): Although it is considered a bonus, the 13th month salary is still counted as taxable income. If your total annual income exceeds the tax-free threshold, you are required to declare and pay PIT as per regulations.
- Not included in Social Insurance contributions: This bonus is not considered part of the base salary used to calculate social insurance contributions. Therefore, it is not subject to deductions for social insurance (SI), health insurance (HI), or unemployment insurance (UI). Employees should check their payslip carefully to avoid confusion.
- Payment timing may vary: Companies may have different payment policies. The 13th month salary is usually paid at the end of December or combined with the Lunar New Year bonus. Employees should monitor the official payment schedule announced by their employer.
- Eligible even after resignation (if policy allows): Some companies allow employees who leave before the payout date to receive a prorated amount based on their actual working months. However, this must be clearly stated in the company’s policy.
- Clarify with HR about your benefits: Employees should carefully read their labor contract, company policies, or consult the HR department to fully understand their rights regarding the 13th month salary. This clarity helps avoid unrealistic expectations or unnecessary misunderstandings, especially during the year-end period.
13th month salary and frequently asked questions
Not everyone fully understands how the 13th month salary is calculated and the rules that apply. Here are clear and concise answers to common questions:
Is the 13th month salary subject to personal income tax (PIT)?
Yes. The 13th month salary is considered a bonus and is included in taxable income. If your total annual income exceeds the tax-free threshold, you are required to declare and pay PIT according to regulations.
Do employees who resign before the Lunar New Year receive the 13th month salary?
It depends on the company’s policy. If the bonus policy requires employees to remain employed until the payout date, those who leave earlier may not be eligible. However, if the company calculates the bonus based on actual months worked during the year, employees may receive a prorated amount according to their working period.
Does the 13th month salary include the probationary period?
This depends on the company’s internal rules. Some companies include the probationary period if the employee subsequently signs a full-time contract, while others only calculate from the official employment start date.
Is the 13th month salary subject to social insurance contributions?
No. The 13th month salary is considered an irregular bonus and is not included in the base for social insurance contributions (social insurance, health insurance, unemployment insurance).
terra Payroll – a trusted payroll service
Calculating the 13th month salary might seem simple, but in reality, it often raises questions. Missteps in this process can lead to disputes, employee dissatisfaction, or even compliance issues.This is why many businesses choose terra Payroll – a trusted payroll service that delivers accuracy, transparency, and full compliance with current regulations.
terra delivers a comprehensive, accurate, and legally compliant payroll service in Vietnam designed for businesses of all sizes:
- Integrated solution: Free integration into the terra HR system, combined with employee data and time management features to help businesses optimize software costs and improve efficiency. terra payroll solutions ensure seamless management of employee compensation.
- Compliance expertise:: Our team of experienced C&B specialists applies up-to-date labor and tax regulations, minimizing the risk of legal or financial penalties. Payroll outsourcing services offered by terra provide peace of mind for compliance-heavy tasks.
- Accurate complex calculations: From the 13th month salary to KPI-based bonuses and allowances, every payout is calculated with precision and clarity. Choosing outsourced payroll services allows companies to focus on growth while leaving calculations to experts.
- Flexible service options: Customized solutions for companies of all sizes, from startups to large enterprises. Whether you need payroll outsourcing or a full payroll service, terra’s approach adapts to your business structure.
In addition to payroll processing, terra also supports foreign employee in handling one-time social insurance claim in a fast and compliant manner, helping you save time and protect your rights.
Contact terra today for a consultation and detailed quote!
Conclusion
While the 13th month salary calculation can vary, understanding its rules and purpose helps employees safeguard their rights. Always check your labor contract and company policies before year-end holidays to make sure you don’t miss this important bonus.
