Paying employees and staying compliant with tax laws is one of the biggest pain points for firms that employ international workers. Laws and customs vary greatly between different countries, and this represents a huge compliance risk for companies that don’t properly understand and take care of what’s required of them.
1. For all businesses, paying holiday bonuses is a great way to increase employee engagement and motivation, and retain them in the long-term. This helps your bottom line
2. Holiday bonuses (also known as 13th-month pay) are a legal requirement in some countries and compliance is necessary to avoid costly fines and penalties.
3. In countries where holiday bonuses aren’t legally required, they should still be paid to employees as they’re a great way to build a strong reputation and attract top talent.
4. For businesses that don’t have the time or resources to research holiday bonus requirements, seeking help from the right partner like a global PEO can help you achieve 100% compliance.
Although not every country mandates a holiday bonus by law, they’re customary in most. In some countries, for example, holiday bonuses are only paid in specific industries or are used as a tool to attract the best talent. Whereas in others, they must be paid to everyone.
As an international employer, you should be aware of the rules and customs for every market that you operate in. Not only does this help you remain compliant and avoid hefty penalties, but competitive bonuses also help you stand out to the best talent, build a positive reputation, and benefit your bottom line.
In this guide, we’re going to cover everything that you need to know about holiday bonuses in general and then explain the rules as they currently stand for popular markets.
What is a Holiday Bonus?
A holiday bonus (sometimes called a year-end bonus) is a monetary gift given to employees by employers. In most economies, holiday bonuses are offered to staff as a means of motivating them to excel in their roles and do the best work that they possibly can in achieving specific goals, completing projects, and meeting targets.
As we’ll see, holiday bonuses can vary dramatically not only between different countries but depending on individual employees, too. Those with longer tenure are often paid much higher bonuses, and this can act as a key motivator and staff retention tool that benefits both the employee and the business on the whole.
Holiday bonus is also known as 13th or 14th-month pay.
Is Holiday Bonus Different from Holiday or Vacation Pay?
Yes—holiday bonuses and holiday pay are two very different things.
Holiday pay (or paid leave) is an allowance given in some jurisdictions which an employee earns through their work during the calendar year. This type of pay is usually aggregated with their normal pay and paid based on the principle that a worker shouldn’t suffer financially for taking holiday. The amount of pay that a worker receives for the holiday they take depends on the number of hours they work and how they are paid for those hours.
In the UK, for example, workers are entitled to at least 5.6 weeks’ holiday pay or paid annual leave per year. This means that a worker will still be paid for up to 5.6 weeks’ worth of time booked off of work. While it’s called holiday pay, it doesn’t actually have to be taken for an actual holiday or vacation. Many employers increase the amount of holiday pay employees are entitled to as they stay with the company for longer.
As with holiday bonuses, holiday pay laws and customs vary between different jurisdictions (some don’t offer it at all!)
Do I Have to Pay Holiday Bonuses?
Again, it depends on each country’s laws and customs. As we’ll see shortly, some holiday bonuses are required by law (e.g., in The Philippines) whereas others are merely paid by virtue of local customs at the discretion of the company.
In places where holiday bonuses are customary as opposed to mandatory, the terms of these bonuses are usually laid out in employment contracts or through trade union agreements. While businesses in countries with customary holiday bonuses are well within their legal rights not to pay it, they often do as a way to maintain their reputation and motivate their employees.
How Much Holiday Bonus Do Employees Get?
The amount of holiday bonus that employees are entitled to will depend on factors such as:
Generally speaking, companies are free to set their own rules for bonuses so long as they comply with legal requirements (where these exist).
In most cases, the size of the bonus will depend on the employee and their job role, with employees who have been at the company the longest receiving more holiday bonus. Similarly, employees with more complicated roles or who play more of a fundamental role in the company will also receive more bonus pay than others.
How bonuses are structured is also something that can vary. Employers often use one of the following:
Percentage of Salary
Employers commonly opt to pay bonuses according to a percentage of their employees’ salaries. This is the simplest and most equitable way. However, it doesn’t account for employees who have gone above and beyond in their roles.
Some companies like to pay holiday bonuses based on each employee’s goals and objectives. If an employee has exceeded expectations and has put in significant effort to do their very best for the company, this can be rewarded by a percentage bonus on top of a standard holiday bonus.
Flat Cash Amount Bonus
A flat cash amount bonus is just that—a set bonus that all employees received, usually relative to that year’s profits.
Whether employees’ holiday bonuses are taxed, and whether you withhold this tax or whether your employees are responsible for including it in their tax returns, is entirely dependent on each individual jurisdiction.
Why Should I Pay Holiday Bonuses if I Don’t Have To?
Although employers don’t always have to pay holiday bonuses by law and are free to set their own rules, it’s usually a good idea to do so if you’re operating in a country where holiday bonuses are customary.
When a holiday bonus is based on performance, for example, it can easily motivate employees to meet their targets and goals needed to secure the bonus. And because some companies choose to measure performance during the year before deciding on bonus amounts, higher performance metrics can translate to higher holiday bonus amounts. This is a powerful way to keep employees motivated and performing well throughout the year.
Paying holiday bonuses to your employees is also a great way to secure a good reputation in the jurisdictions where you operate. Over time, this will help you secure the very best talent, retain employees for longer, and benefit your bottom line.
Remember, whether the holiday bonus is paid voluntarily or by legal mandate, any amounts should be detailed in the employee’s paystub or payslip.
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Examples of Holiday Bonuses in Different Countries
How a Global PEO Can Help You Stay Compliant
If you’re thinking about growing your operations internationally, chances are that you’ll need to hire workers internationally, too. And when you do, you’ll need to ensure that you’re paying these workers the holiday bonuses that they’re entitled to.
Horizons works closely with companies like yours to help them achieve compliance with international labor and tax laws when it comes to things like hiring, payroll, taxes, and holiday bonuses.
We primarily do this by operating as a global PEO (“Professional Employer Organization”), or co-employer, meaning that we act as the “employer” of our clients’ international employees as an “Employer of Record.” In this capacity, we take on responsibility for all employer-related obligations in the relevant host countries, such as taxes and payroll.
We also offer an outsourced payroll solution where we handle payroll and taxes, but our clients remain as the sole legal employers of their international employees.