A 13th cheque is an additional payment equal to about a month's salary, paid once a year on top of the twelve normal months. Unlike a discretionary bonus, it is usually a guaranteed part of the package.
What it means
Because it is a large once-off amount, taxing a 13th cheque in the month it is paid would push the employee into a higher slice of tax for that month. Payroll handles it by annualising - spreading the amount across the year - so the PAYE reflects the true annual position rather than over-taxing the single period.
Where it fits in
A 13th cheque is an earnings component that adds to gross remuneration in the month paid. It is treated as a periodic payment for PAYE and reported on the IRP5 under the relevant source code. It differs from a performance bonus mainly in that it is contractual rather than discretionary.
Key rules
- A guaranteed extra month's pay, usually in December.
- Annualised for PAYE to avoid over-taxing the single period.
- An earnings component included in gross remuneration when paid.
- Contractual, distinct from a discretionary performance bonus.
