13th Month Salary: All you should know as an Employee

Statistics on the unemployment rate in Nigeria suggest that over 30% of the active workforce in the country is unemployed. More alarming is the KPMG’s report which projetcts that the country’s unemployment rate will likely hit 41% before the end of 2023. Despite these scary figures, it is interesting that the Nigerian labour market is also becoming more competitive and companies are taking all necessary steps to attract and retain top talents. The use of employee bonus schemes is one of the strategies that have been adopted over the years and the 13^th month’s salary is one of the bonuses employees enjoy.

Meaning of 13th month salary

This is the payment of an additional month’s salary to employees in a financial year, in addition to the regular salary paid at the end of each month. It often amounts to an extra month’s wage and is usually paid towards the end of the year. Although, there are countries where it is spread across the course of the year.

History of 13th month salary

There is yet to be a consensus on when employees started to receive the 13^th month salary. However, it has been established that the practice had been in existence in Italy as far back as the 1930s where it is known as “Tredicesima mensilit”. In a bid to justify the payment of 13th month salary, there are arguments that it is not a bonus stricto sensu, it is the payment of accumulated wages of months that are more than four weeks, all months apart from February fall into this category.

The payment is also known as Christmas bonus in some quarters and it is argued in some quarters that the goal of the payment is to support employees during festive seasons. Although, it has been argued that there are slight differences between the two concepts. In Latin American countries, the 13th month’s salary is usually paid in two installments, at the beginning of the school season and in December. This is because the payment is meant to serve the purpose of helping employees to pay school fees and also support them during the yuletide season.

Who is eligible?

In a bid to determine eligibility for 13th month salary, it is important to note that the practice varies across different countries. In countries where payment is mandatory, all employees are entitled to receive it as and when due. However, in a country like Nigeria where there is no statutory requirement to make the payment, employees are only eligible if it is contained in their contract of employment. This leads us to a consideration of the countries where it is mandatory to pay the 13th month salary.

Mandatory payment of 13th month salary

It has been stated earlier that the 13th month payment differs across different jurisdictions and territories. In countries like Uruguay, Venezuela, Philippines, Guatemala Indonesia, Puerto Rico, Columbia, Mexico, India, Argentina, Brazil, Bolivia and Cost Rica, employers are mandated to pay the 13th month salary. The same rule applies in countries such as Italy, Spain, Armenia, Portugal, Greece.

In countries where the payment is not mandated by law, it could be mandated by virtue of a collective agreement between the employer and employee union; while in other countries, it is merely paid as a matter of practice and based on the agreement between the employer and employee.

How is it calculated?

The general method of calculating the 13th month pay is by dividing an employee’s total annual salary by 12. This gives the idea that it is usually a full month salary. However, it could differ in places where it is not regulated by the law, based on factors such as when the employee joined the organization. In such organizations, only the number of months in which the employees worked is put into consideration.

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Comparison with other bonus schemes

While the 13th month pay has features similar to other bonus schemes such as the annual bonus and Christmas bonus, there are insinuations that these concepts are not exactly the same. One of the major differences between a Christmas bonus and 13th month pay is that the amount of Christmas bonus is solely at the discretion of the employer, there is no specific determinant of how it is calculated. However, as stated earlier, the amount of an employee’s 13th month pay is derived by dividing the total annual salary by 12.

This shows that while the two concepts are similar, mainly because they are paid during yuletide season, there are basic underlying differences between them.

Protecting your interest as an employee

It has been noted earlier that the Labour law provisions in Nigeria do not mandate employees to pay the 13th month salary. It is only done by some organizations as a means of compensating their employees. It implies that if you want it included in your contract of employment, you should consider the culture of the organization to know if it is customarily paid. You might also consider negotiating the payment alongside other contractual negotiations done at the point of accepting your employment offer.