If it is better to collect in 12 or 14 payments

One of the most common questions that many workers answer when starting to work in a new company is: How do you want to collect your salaryin 12 or 14 payments? It is a question that seems simple, but choosing one or the other can be decisive for the personal finances of each employee.

As finance experts explain, understanding the advantages of each modality is essential to plan expenses and savings during the year or obtain greater profitability from your salary.

That is precisely the question that labor lawyer Andrés Millán posed since your profile on LinkedIn“if I could earn 15,000 euros in January, with knowledge of capital management, it would be ideal.”

More salary or more pay

As confirmed to us Marta Rayaces, tax expert TaxDownthe annual salary is the same, whether it is paid in 12 or 14 monthly installments. However, the amount that employees receive every month and the way in which each extra payment is received can change some financial habits.

The workers’ salary is not calculated monthly, but annually from of your gross salary. Then, depending on the choice of each employee (or by company imposition), that amount is prorated into 12 or 14 payments.

That is, if a person has an annual salary of 16,000 gross euros per yearthat amount will be the same in either of the two options, it is just distributed differently over the months. In the 12-month prorated option, the worker earns more each month (1,333.33 euros gross), but does not receive extraordinary payments.

With the 14-pay option, the monthly salary is lower (1,142.85 euros gross), but two extra income is generated, usually in June (summer pay), and December (Christmas pay), key months for the highest expenses.

This difference is reflected in the availability of cash by the worker, so that he can manage your money. Rayaces points out that the higher salary provided by the 12 monthly payments leaves more cash in the employee’s pocket, which allows him to establish a savings planinvest or meet regular expenses with greater liquidity.

On the other hand, with 14 payments you obtain less cash each month, but the two additional payments are useful to cover seasonal expenses, such as vacations, going back to school or the increase in expenses incurred during the Christmas holidays.

Personal income tax withholding and tax effects

According to the Taxdown expert, the choice between 12 or 14 payments also modifies how the tax is applied. monthly income tax withholding, although it does not affect the final amount paid to the State. “The annual gross salary is the same, the only thing that varies is the frequency of payment. It is just a question of how the withholding is distributed throughout the year,” Rayaces pointed out.

The personal income tax withholding It is calculated based on a percentage of the total salary. Therefore, as was the case with the annual gross salary, the lower the monthly amount, a proportional withholding is applied, so the amount that is withheld as personal income tax is also lower in the same proportion.

That is, taxation will not be a differential factor between the two options since it is exactly the same annual percentage in both regardless of whether it is done in 12 or 14 payments.

Manage or let others manage

Rayaces points out that the main condition that must prevail in this decision is the ability to manage the personal finance. “If you have financial and investment knowledge, it is better to pay 12 to earn more month after month,” says the Taxdown expert. In that way, you can invest part of that salary and obtain profitability from it.

On the other hand, if you do not organize well and then you have problems making ends meet when seasonal expenses arise (planning vacations, gifts and meals at Christmas, going back to school, etc.), then it is better to receive your salary in 14 payments and thus you will receive more money when those expenses occur.

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Image | Unsplash (Andres Simon)