Offering a 13th month pay or year-end bonus is a great way to attract and retain top talent. While not legally required in all cases, this extra compensation is often viewed as a valuable employee benefit that boosts morale and enhances job satisfaction. Here's what employers should know about calculating, taxing, and distributing these bonuses in a compliant and fair way.

What Is a 13th Month or Year-End Bonus?

The 13th month pay and year-end bonus are forms of additional compensation typically given at the end of the year. Though these terms are sometimes used interchangeably, they differ in structure:

1. 13th Month Pay: Equal to one full month’s gross salary, excluding holiday allowance.
2. Year-End Bonus: A variable amount, often based on company profits or a percentage of the employee's annual salary.

Employers usually distribute these payments in December, in addition to the regular monthly salary.

Is the 13th Month Pay or Year-End Bonus Mandatory?

In general, these bonuses are not required by law unless specified in a collective labor agreement (CAO) or an individual employment contract. If not mandated by your CAO, and you still wish to offer this benefit, it’s essential to outline the terms clearly in the employment agreement.

Do Bonuses Include Holiday Allowance or Pension?

Typically, holiday pay and pension contributions do not accrue on the 13th month or year-end bonus—unless your CAO or employment contract states otherwise. Always check the applicable terms before calculating additional benefits.

How to Calculate the 13th Month or Year-End Bonus

1. 13th Month Pay: Equal to the employee’s gross monthly wage.
2. Year-End Bonus: You determine the amount or percentage based on performance or profit. You may also set a fixed base amount to ensure a minimum bonus payout.

Taxation on Bonuses

Both the 13th month and year-end bonus are subject to payroll taxes. These include wage tax and national insurance contributions. To calculate the correct deductions, you must use the special payroll tax tables for irregular or one-time payments (bijzondere beloningen). You can find the appropriate table using the Dutch Payroll Tax Table Tool.

Who Is Eligible for the 13th Month or Year-End Bonus?

Equal treatment laws require that all employees be treated fairly, regardless of their contract type. This means that temporary, part-time, or on-call employees are also entitled to the bonus if it's offered to others in the company.

What Happens When an Employee Resigns?

Employees who leave the company during the year are generally entitled to a pro-rated portion of the 13th month or year-end bonus based on the months worked. This payment should be included in their final settlement.

When Should You Pay the Bonus?

The most common time to pay out bonuses is December, aligning with the end of the financial year. However, for departing employees, the bonus can be disbursed at the time of final settlement.

Conclusion

While the 13th month pay and year-end bonus are optional in many cases, offering them as part of your compensation package can significantly improve employee satisfaction and loyalty. Just ensure compliance with your CAO, employment contracts, and tax obligations.