Thirteenth Month Salary in Panama: Bonus and Calculation

The thirteenth month salary in Panama is a much-anticipated labor bonus for all workers, equivalent to an additional salary per year divided into three payments. This "thirteenth salary", as it's also known, rewards employee performance and is established by law. Below, we explain what the thirteenth month is, how to calculate it easily with an online calculator, when it's paid, and other important details to know everything about the thirteenth month salary in Panama.

How to Calculate the Thirteenth Month Salary in Panama?

Calculating the thirteenth month can be simple if you use the right tools. We recommend using our Thirteenth Month Calculator online, where you just need to enter your income for the corresponding months and, optionally, the overtime hours worked. The tool will automatically calculate and show you the amount you're entitled to receive. This saves time and avoids errors in your calculations, ensuring you get what's fair according to the law.

What is the Thirteenth Month Salary?

The thirteenth month salary is a mandatory additional income that all Panamanian workers in both public and private sectors receive three times a year. It's essentially an extra annual salary distributed in three payments, established to compensate work more fairly and achieve greater social justice for employees. This right was created through Cabinet Decree No. 221 of November 18, 1971, and subsequently regulated by Decree No. 19 of September 7, 1973.

An important feature is that the thirteenth month cannot be garnished for debts; the law expressly protects it against any garnishment attempt. However, certain mandatory deductions do apply (explained below), such as Social Security contributions and, if applicable by income level, Income Tax (ISR).

When is the Thirteenth Month Paid in Panama?

The thirteenth month payment in Panama is divided into three installments throughout the year, on the following established dates:

• Payment 1: April 15 (corresponding to the January-April period)
• Payment 2: August 15 (corresponding to the May-August period)
• Payment 3: December 15 (corresponding to the September-December period)

Although by law these are the official dates, some companies choose to advance this special payment to their employees at opportune times. For example, some employers pay the first installment in early March (to help with school year expenses), the second in early July (before mid-year vacations), or the third in early December (before Mother's Day and year-end holidays).

How is the Thirteenth Month Calculated?

To calculate the thirteenth month for each installment (April, August, and December), the following components must be considered:

• All income received during the previous four months (base salary for each month, commissions, bonuses, etc., both ordinary and extraordinary).
• Overtime hours worked in that four-month period, calculated at the corresponding rate.
• (Optionally, if the company grants other regular incentives, they might also be added.)

Once all gross income from the 4 months is added, the calculation is very simple: divide the total by 12. In formula form:

Thirteenth Month = (Total Income from 4 months + Overtime) ÷ 12

Dividing by 12 is equivalent to taking approximately one-third of the quarterly total, which corresponds to one additional month of salary prorated (since 4 months/12 = 1/3). This result is the gross amount the worker should receive as thirteenth month on the indicated payment date.

Example of Thirteenth Month Calculation

Let's look at a practical example to illustrate the calculation:

Suppose that in the four months of the period you had a fixed base salary of $3,500 per month, and additionally earned a total of $2,000 in overtime during those months. Here's what to do:

1. Add income from 4 months plus overtime: $3,500 × 4 = $14,000 base salary, plus $2,000 overtime, gives us $16,000 total income in the quarter.
2. Divide that total by 12: $16,000 ÷ 12 = $1,333.33.

That result, $1,333.33, is the amount the employee is entitled to receive as thirteenth month. For example, if this calculation corresponds to the second installment of the year, the worker should receive approximately $1,333.33 on August 15 as their thirteenth month salary.

Important Note: According to Panama's Labor Code (article 142), "Payments that the employer makes to the worker as production bonuses, bonuses and gratuities are considered as salary only for purposes of calculating vacations, maternity leave and seniority bonus to which the worker is entitled". That is, these additional incomes do count as part of salary for internal labor calculations (vacations, maternity leave, seniority bonus), but not for Social Security quotas unless they exceed 50% of the monthly salary.

Legal Foundations of the Thirteenth Month

The thirteenth month is backed by Panamanian laws to guarantee its correct payment and calculation. Main legal regulations governing it:

• Cabinet Decree No. 221 (November 18, 1971): Established the right to the thirteenth month as a form of social justice for workers, granting them additional remuneration proportional to their annual effort.
• Decree No. 19 (September 7, 1973): Regulated the scope of the previous decree, defining that thirteenth month payment must be calculated on the average of salaries received during the four-month period corresponding to each installment.

These laws ensure that both employers and workers are clear about how to calculate and pay the thirteenth month, avoiding confusion and conflicts.

Legal Foundations of the Thirteenth Month

The thirteenth month is backed by Panamanian laws to guarantee its correct payment and calculation. Main legal regulations governing it:

• Cabinet Decree No. 221 (November 18, 1971): Established the right to the thirteenth month as a form of social justice for workers, granting them additional remuneration proportional to their annual effort.
• Decree No. 19 (September 7, 1973): Regulated the scope of the previous decree, defining that thirteenth month payment must be calculated on the average of salaries received during the four-month period corresponding to each installment.

These laws ensure that both employers and workers are clear about how to calculate and pay the thirteenth month, avoiding confusion and conflicts.

Importance of Knowing Your Thirteenth Month

Knowing in advance how much you're entitled to in thirteenth month is very important for your personal financial planning. By knowing how to calculate it, you can verify that your employer is correctly paying you what's required by law. Additionally, having a clear idea of the amount you'll receive allows you to plan expenses or savings: for example, allocating part of that extra money for debt payments, important purchases, or emergency savings.

In summary, understanding the thirteenth month calculation empowers you as a worker. Now that you know how to do it simply, you can calculate it yourself in advance. And if you manage a business or have many employees under your responsibility, remember that you can always delegate this calculation to professionals or specialized tools to manage payroll correctly.

Differences Between Public and Private Sectors

It's important to note that there have been historical differences in how the thirteenth month was handled between the public and private sectors in Panama, although they have recently been equalized. In the public sector, the Government traditionally calculated this bonus with a salary cap, meaning certain high-income officials received a thirteenth month based on a limited base. However, the Supreme Court of Justice declared it unconstitutional to establish a cap for calculating the thirteenth month for public officials, considering that "equal work deserves equal pay".

This Supreme Court ruling essentially equalizes the rules: now the State is obligated to pay the thirteenth month to its servants without discrimination and under the same principle as the private sector. In practice, this eliminates unfair differences and ensures that all workers, public or private, receive this benefit according to their actual earned salary, without caps or arbitrary limits.

Tax Considerations for the Thirteenth Month

Although the thirteenth month is additional income, it's not exempt from mandatory contributions. 7.25% Social Security is deducted from the gross thirteenth month amount (a slightly lower rate than a regular month, which is 9.75%) and, if applicable by the worker's annual salary level, Income Tax (ISR) withholding also applies. These deductions ensure that the worker continues to meet their social security and tax obligations even on this extra income, contributing to the system without ceasing to receive the majority of their bonus.