Employment benefits like the 13th month pay raise employee morale and help reward performance. But what is the 13th month pay, and is it mandatory in Kenya?
Companies use various tools to recognise and reward performance and boost employee morale. These include promotions, time off, thank you notes, and long service awards.
However, one of the most effective ways of recognising your employees' service to the company is to pay bonuses. Bonuses can be paid to top performers at any time, but if you want to reward and motivate all your employees, the best way is to pay them 13th month pay, commonly known as the annual bonus.
Paid in December and usually the same amount as the regular monthly salary, year-end bonuses have even been made a mandatory benefit in some countries, provided for in national statutes. But is 13th month pay mandatory in Kenya?
Let's find out.
What is 13th month pay in Kenya?
The 13th month pay is an extra sum of money employers pay their employees at the end of the year in appreciation of their service. Usually amounting to an entire month's pay and commonly referred to as an annual bonus in many countries, this additional salary is generally paid in December.
The 13th month pay is a type of bonus, so although they are related, the two terms do not refer to the same benefit and shouldn't be used interchangeably. The 13th month pay is an annual bonus paid in December in addition to the 12th salary cheque of the year, effectively making it the 13th month pay.
Bonuses generally describe cash payments by an employer to an employee as a reward and recognition for sterling job performance. They are tied to an employee's or the overall business's performance. Unlike 13th month pay, bonuses can be paid any time of the year.
Is 13th month pay mandatory in Kenya?
The 13th month pay is not mandatory in Kenya. Kenyan employers are not obliged to pay this additional salary. Whether they pay it or not is entirely at their discretion. Therefore employees should not expect the bonus every year-end.
Companies that pay the annual bonus in Kenya will often do so as a reward for their employees' efforts during the year. Other companies only pay it if workers meet specific performance targets or the company achieves a stated sales or profit goal.
Withdrawing a bonus the company previously paid, therefore, does not constitute a salary reduction under Kenya's laws. So, even though the payment of the annual bonus has become an employment standard around the world, its application largely depends on the laws of a country.
But while 13th month pay is not mandatory in Kenya, there are some countries, like the Philippines and others where it is. So for the employers that choose to pay an annual bonus, are there rules they must follow?
What are the rules for 13th month pay?
While the thirteenth month pay constitutes a cash bonus, its definition varies depending on the country. In some countries, it is treated as a performance bonus for the company as a whole, meaning if the company meets its targets that calendar year, everyone gets a bonus to enjoy with their families.
In other countries, the annual bonus has no conditions. It is paid to every employee as an additional salary, regardless of whether the business performs well.
An example is countries with strong Christian traditions like Austria, Spain, Portugal, and Italy, where the annual bonus is mandatory and is known as' Christmas money'. In Muslim-majority Indonesia, the 13th month cheque is paid before the start of Ramadan.
Therefore, with such loose definitions and applications, there is no one way to calculate the 13th month's pay. Even in the same country, companies may calculate the annual bonus differently.
So, there are no rules for calculating 13th month pay in a country like Kenya, where the annual bonus is not mandatory but customary. Where there are rules, employees and employers agree to include the annual bonus in the terms of the employment contract. They can also be negotiated as part of a collective labour agreement.
How is 13th month pay calculated?
The calculation of the 13th month pay depends on the country. Where it's customary, its calculation may also differ between companies. Some companies determine the annual bonus based on the profit or sales generated.
The percentage of the regular month's salary paid out as the annual bonus is determined by how well the company meets its profit or sales goals. So, if you meet your targets, employees will get an entire month's pay as their 13th month pay.
In Kenya, where there is no legal obligation to pay the 13th month salary, how the bonus is calculated is up to the employer. Employers can use one formula this year, another the next year, and even decide not to pay the bonus the year after.
However, the generally accepted formula for calculating 13th month pay is dividing annual salary income by 12, meaning the annual bonus is equivalent to one month's pay.
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While 13th month pay is not mandatory in Kenya, its payment helps you motivate and retain talent. If your best employees feel unappreciated, they may leave or drop their performance levels.
Therefore, the 13th month pay is critical to your employee compensation and reward apparatus. When you decide to pay the annual bonus, it's essential that you disburse it efficiently and timeously.
Paying bonuses late will dilute their intended benefits and reduce the trust and loyalty you are trying to foster among your employees.
A salary disbursement solution like Intasend streamlines salary payments. It not only saves time but also reduces disbursement costs significantly.
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