An extra pay cheque feels like free money. It is not quite, because tax takes a share and December wants the rest.
Decide where the 13th cheque goes before it lands, and it does far more for you. Here is how.
What is a 13th cheque?
A 13th cheque is an extra payment, equal to a month’s salary in many cases, paid once a year and often in December. South African law does not require employers to pay one.
It exists if your employment contract, policy or collective agreement provides for it. Check your contract or ask HR.
How is a 13th cheque taxed?
It is part of your taxable income. Because the extra amount is added to the year’s earnings, part of it can fall into a higher tax bracket, so what you receive can be noticeably less than the headline figure.
Your payslip shows the details. Do not plan with the gross amount. See tax season for how tax works across the year, and the SARS website for the current tax tables.
What is a smart order for using it?
| Priority | Why |
|---|---|
| 1. Costly debt | Paying off high-interest debt saves more than a savings account earns |
| 2. Emergency fund | A buffer stops small shocks becoming loans. See emergency fund |
| 3. January costs | School fees, uniforms, transport. See school fees in January |
| 4. Savings goals | A deposit, an annual cost or a sinking fund. See sinking funds |
| 5. A treat | A planned amount, so you do not feel guilty |
How do you decide which debt to clear first?
List your debts with the interest rate on each. The highest-cost debt, often store accounts, cards or short-term loans, comes first.
If you owe a short-term loan, ask for a settlement quote and check the saving. See settling a loan early.
What could the plan look like?
Imagine a 13th cheque of R12,000 before tax and R9,500 after. The tax figure is assumed. Your own number depends on your income.
| Use | Amount |
|---|---|
| Clear a store account | R3,000 |
| Emergency fund | R2,000 |
| January school costs | R2,500 |
| Savings goal | R1,000 |
| Treat | R1,000 |
| Total | R9,500 |
The point is to have a plan on payday. Move the money out of your main account the day it lands, because spending is easier when it is visible.
What should you avoid?
- Spending it all in December.
- Lending it to relatives without a clear agreement. See black tax.
- Taking a loan against next year’s bonus. A first one-month R1,000 loan costs about R309 at the legal maximums.
- Ignoring the tax bill if you also have other income. See SARS tax refund.
What if you do not get a 13th cheque?
Many people do not. You can create a similar effect by saving a little each month into a December fund. See December budget survival.
Is it a 13th cheque or a bonus?
The words are used loosely, but the difference matters. Check your contract or ask HR.
| 13th cheque | Discretionary bonus | |
|---|---|---|
| Source | Your contract or policy | The employer’s decision |
| Amount | Often one month’s pay | Varies, and may be zero |
| Can you count on it? | Yes, if your contract says so | No |
| Planning use | Can be planned for | Treat as a surprise |
If your contract guarantees a 13th cheque, you can plan around it. If the payment is a bonus that depends on the company’s results, do not spend it before it arrives. Never borrow against a payment that is not certain.
Why does the tax look so large on a bonus?
Your employer calculates tax by estimating your annual earnings, so a large extra payment can push part of it into a higher tax bracket on paper. That is why the tax on a 13th cheque often looks bigger than the tax on a normal month.
Here is a hypothetical example, using the same R12,000 payment as before.
| Item | Amount |
|---|---|
| 13th cheque before tax | R12,000 |
| Tax withheld (assumed) | R2,500 |
| Received | R9,500 |
If you overpaid during the year, some of the tax can come back as a refund after your return is assessed. See SARS tax refund for how to use it.
Do not plan with the gross figure, and ask HR for an estimate before the payment date.
Could a retirement contribution make the 13th cheque go further?
Contributions to a retirement annuity can lower your taxable income, within SARS limits. Here is a hypothetical example, using an assumed marginal rate of 31%.
| Item | Amount |
|---|---|
| Put into a retirement annuity | R5,000 |
| Possible tax saved at 31% | about R1,550 |
| Net cost of the contribution | about R3,450 |
The money is locked until retirement, and the deduction has limits, so check the rules on the SARS website before you decide. It does not suit someone with costly debt or no emergency fund. For those people, the earlier order in this guide comes first.
What if you have no debt?
If you have no costly debt, the order shifts. Here is a hypothetical use of R9,500 for someone with a starter emergency fund and no store accounts.
| Use | Amount |
|---|---|
| Emergency fund, to one month of essentials | R3,000 |
| January school costs | R2,500 |
| Sinking funds for annual costs | R1,500 |
| Long-term saving | R1,500 |
| Treat | R1,000 |
Set the plan before the money lands, and move it the same day. Our guides to sinking funds and tax-free savings accounts show where the long-term part can go.
What mistakes do people make with this payment?
- Spending it in the first week. Money in your main account is easy to spend.
- Lending it to relatives with no agreement. See black tax.
- Buying on credit because “the 13th cheque will pay for it”, then finding the cheque is smaller than expected.
- Forgetting January. The money has to stretch past December.
- Ignoring tax on other income. If you earn on the side, keep records.
A written plan, a separate account and a few days before you decide anything are enough to avoid most of them.
How do you ask for the numbers before payday?
You do not have to wait for the payslip to know roughly what will arrive. Ask HR or payroll for an estimate of the net amount, and the date it will be paid.
A short message works: “Could you tell me the approximate net amount and the pay date for my year-end payment, so I can plan?”
Write the answer down, and plan with the net figure. If it is lower than you hoped, adjust the plan before the money arrives, not after.
Frequently asked questions
Is my employer required to pay a 13th cheque?
Not by law. It depends on your contract or workplace policy.
How much tax will I pay on it?
It depends on your total income and tax bracket. Check your payslip.
Is it better to pay debt or save?
Costly debt first, then a small emergency fund. Do both if you can.
Can I get it earlier?
Ask your employer. A salary advance is different. See salary advances.
Can my employer pay it in instalments?
It depends on the contract or the policy. Ask HR in writing, and plan around the dates.
Is a 13th cheque the same as a leave payout?
No. A leave payout is for untaken leave. A 13th cheque is an extra payment under a contract or policy. Check your payslip for each.
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