Aguinaldo

What Is an Aguinaldo?

The term aguinaldo refers to an annual Christmas bonus that businesses in Mexico are required by law to pay to their employees. The payment, sometimes called the thirteenth salary, must be made by December 20 of each year. Companies that fail to make an aguinaldo payment may be fined as much as 5,000 times the legal daily minimum wage. Some other Latin American nations, such as Costa Rica, also require employers to pay their employees an aguinaldo.

Understanding Aguinaldos

Mexican labor laws require employers to pay their employees a bonus or an aguinaldo every year. This is on top of their regular salaries and other benefits. The law, which was established by legislation passed in 1970, mandates that workers are entitled to an annual bonus in December that is the equivalent of at least 15 days' wages. An aguinaldo may be prorated for those employed less than one year.

Employers must withhold taxes from aguinaldos as they are subject to taxation. Employees are not required to pay income tax on their aguinaldo payment of an amount equivalent to 30 days of the legal daily minimum wage. For example, if the minimum daily wage is $60 pesos, the tax-exempt amount of the aguinaldo is $1,800 pesos, or $60 pesos x 30 days.

Aguinaldos are also commonly paid by employers for the Christmas season in other Latin American countries, such as Guatemala and Costa Rica. Employers in Argentina and Uruguay give their employees an aguinaldo in two payments: one in June and the other in December.

Foreign workers with appropriate employment documentation are also entitled to receive bonuses.

Special Considerations

Aguinaldos are mandatory. This means that all employers are legally required to pay them. Employees who don't receive their bonuses can report their employers to the Federal Office of the Defense of Labor. Failure to pay, paying late, or making partial payments can result in fines as much as 50 to 5,000 times the minimum wage, which is $141.70 pesos per day.

Despite the consequences, only a minority of Mexican workers actually receive the payment, due to unfavorable working conditions, such as informal contracting and temporary employment. For example, a part-time gardener without a formal contract may not receive an aguinaldo payment. Some people may choose to tip their workers, including maids, postmen, delivery people, before the holidays even if they aren't required to do so.

Thirteenth salaries like the aguinaldo are found around the world but are subject to their own variations. For instance, it is mandatory for employers in Bolivia to pay a second aguinaldo if the country's gross domestic product increases by more than 4.5%.

Advantages and Disadvantages of Aguinaldo

The aguinaldo provides a seasonal boost in demand for retail products such as automobiles, appliances, clothing, and furniture. A large portion of this additional income gets spent in department stores. Some employers increase aguinaldo payments to boost sales during El Buen Fin, which is Mexico’s equivalent of Black Friday.

Employees who receive an aguinaldo payment are more likely to show loyalty to a company that values them. Loyal employees are typically more productive and less likely to leave, which reduces recruitment and training costs.

Critics believe that these mandatory payments may put financial pressure on struggling companies that could result in layoffs and/or closures. To combat this risk, companies are permitted to make aguinaldo payments to their employees via installments, provided that they don't defer the entire payment. 

Examples of an Aguinaldo

Let's say someone has been employed with the same company for 10 years and their annual salary is $180,000 pesos. By law, their employer must pay them an aguinaldo or bonus of $7,500 pesos. Here's how it's calculated:

This is the equivalent pay of 15 days.

As mentioned above, aguinaldos for workers employed less than a year are prorated. So someone who only works for six months gets the equivalent of 7.5 days by December 20.

In some cases, though. large companies may pay employees 30 days of wages or 13 months of salary per year. This is why the aguinaldo is sometimes referred to as the thirteenth salary. Some employees, including those who work in higher positions, may be able to negotiate higher bonuses with their employers.

Are People Who Work From Home Eligible for an Aguinaldo?

If you work for an employer from home, you should be eligible for aguinaldo in Mexico. The main exception is for freelancers, who are self-employed and not part of the established payroll of a company. In this case. you do not qualify for an aguinaldo bonus.

What Circumstances Qualify for Reduced Aguinaldo Payments?

The actual payment is calculated based solely on income. This means lower-earning workers will receive a proportionally lower aguinaldo.

Who Receives the Aguinaldo if a Worker Dies?

If an eligible employee dies during the year, their aguinaldo payment is disbursed among that employee’s named beneficiaries.