Payment of thirteenth month bonus in suspended employment contracts

Panama, April 15, 2020. The Thirteenth Month is a special mandatory bonus that was established since 1971, to compensate the employees for their contribution to the benefits obtained by the company.

It was established by two special regulations, Cabinet Decree No. 221 of November 18, 1971, which established it, and Decree No. 19 of September 7, 1973, which regulated its meaning and scope, including the official interpretation of how it should be calculated.

Article 2 of Cabinet Decree No. 221 of 18 November 1971 states that it shall be calculated in the ratio of one (1) day’s salary for every eleven (11) days or fraction of actual work, whether continuous or not.  For purpose of this remuneration, the days on which the worker has been unable to render services due to an occupational disease, non-occupational disease, occupational accident, maternity, leave and vacation, duly verified, shall be considered as days worked.

Article 4 of Decree No. 19 of 7 September 1973, which regulates the scope of Cabinet Decree No. 221, clarifies that “the payment or consignment of each of the three installments of the Thirteenth Month bonus must be calculated on the average of the wages received by the worker during the period corresponding to each installment, including base salary, extraordinary working days, working days with legal surcharges, commissions, bonuses, maternity leave, vacations, paid leaves, professional risks and bonuses received during the respective period…”

Due to the COVID-19 pandemic affecting our country, a State of National Emergency has been declared which, among other measures affect labor relations, and gives employers the possibility of requesting the suspension of the effects of labor contracts.  The option to suspend adopted by some companies will affect the calculation of the first installment of the thirteenth month bonus, which must be paid on April 15, 2020.

The suspension of the effects of the employment contract relieves both parties of the main obligation incurred in the employment relationship.  The employee is not obliged to provide services and the company is not obliged to pay the agreed salary.  The impact on the calculation of the Thirteenth Month bonus occurs since no effective work during that period, nor the employee reported income, thus the period of suspension cannot be taken into account for the calculation of the Thirteenth Month bonus.

We reiterate, furthermore, that Decree No. 19 of September 7, 1973, that regulated Cabinet Decree No. 221 of November 18, 1971, is clear in pointing out the specific cases that must be taken into account for the calculation of the thirteenth month bonus, and the suspension of labor contracts due to force majeure or fortuitous event is not one of them.