Back to records list

Aguinaldo (Christmas Bonus)

With the month of December upon us, employers throughout Mexico are preparing for payment of aguinaldos (Christmas bonuses).  But, where does this payment come from?  Is it mandatory?   Must the worker who receives said bonus pay taxes?  We will try, in this article, to resolve these and other questions that have come up with our clients, and we hope it will be of assistance to our readers in order to comply with this payment, correctly and  in a  timely manner.

 

What is the aguinaldo?

The aguinaldo is an annual bonus given to workers before the 20th of December, equivalent to at least 15 days wages [1] in addition to wages earned for work done, given as an incentive for collaboration throughout the year in the company operation, thus helping workers to cover extra expenses incurred for the festivities of December, which they may not be able to cover with their regular salary.

 

Who is entitled to receive an aguinaldo?

All workers, even though they have not completed one year's service, regardless of whether they are working or not on the date of payment of the aguinaldo, shall be entitled to the proportional part of the aguinaldo, in accordance with the period they have worked, whatever the latter might have been

 

What is the form of payment for the aguinaldo?

The Mexican Federal Labor Law (Ley Federal del Trabajo in Spanish, hereinafter LFT) expressly provides that this benefit be based on the worker's wage, i.e., it must be in cash; this is due to the fact that the aguinaldo, on being considered within the Chapter "Salary" of the very law on the subject, shall be governed by the protective rules or standards and privileges of the former, and more specifically that contained in Article 101 of the LFT, which stipulates that wages must be paid in cash and not with vouchers, tokens or other alternative instruments for cash.[2]

In order to effect  the payment by any means other than cash, the employer must have such agreement in writing with the worker.

 

Are those who work from home entitled to an aguinaldo?

Although the special chapter on work-from-home does not contain express regulations for benefits with respect to prima vacacional (a yearly vacation bonus received when workers take their corresponding days off.  This bonus is in addition to their salary. Mexican Federal Labor Law stipulates workers get 25% of their salary plus 6 days off for the first year), nor with respect to the aguinaldo, payment of such  to the worker is mandated pursuant to a consistent interpretation of Articles 182, 329, 48, 80 and 87 of the LFT, since the article with respect to special types of work regulates aspects which exclusively apply to this type of work including general benefits deemed appropriate as long as they do not challenge those special benefits.[3]

                                                    

Under what circumstances can there be a reduced aguinaldo payment to workers?

If for each year worked, namely 365 days of work, employees are entitled to payment in an amount equivalent to 15 days’ wages, the aguinaldo may decrease proportionally due to a suspension of the employment relationship for  reasons such as:

a)      Disability due to general illness (sick leave),

b)      Leave without pay,

c)       Unexcused absences, and

a)      Deprivation of liberty/imprisonment  (Article 42, Section III of the LFT: if acting on behalf of the employer's interests, there is no reduction in the aguinaldo base ).

Likewise, deductions are permitted provided they are intended for payment of debts acquired with the employer such as a salary advance, payments made in excess to the worker, errors, losses, breakage/breakdowns or damages, or acquisition of articles produced by the company or establishment.  The amount due shall in no case exceed one month's wages, and the deduction shall be agreed to between the worker and the employer, and shall in no case be greater than 30% of the surplus of the minimum wage.[4]

 

Must the worker pay taxes on the aguinaldo?

The aguinaldo is exempt from payment of income tax in an amount equivalent to 30 days of the legal daily minimum wage (SMG) in force in the worker’s geographic area.  Those amounts for 2011 are:

MAXIMUM EXEMPTION AMOUNT FOR THE AGUINALDO

Geographic Area	Legal Daily Minimum wage (A)	Days exempt (B)	Exempt amount of the aguinaldo (A x B)
A	$59.82	30	$1,794.60
B	58.13	30	$1,743.90
C	$56.70	30	$1,701.00

In the case of workers who maintain their residence in geographic area "B" or "C", but provide their services within geographic area "A" or "B", the SMG of said area where the worker provides his services may be considered for purposes of determining the amount of the aguinaldo which is exempt, provided the worker requested same, in writing, with his employer.  Such not being the case, and for purposes of said exemption (Article 143 of the Regulations of the Law on Income Tax – or RLISR in Spanish-), the employer must apply the SMG for the geographic area where the worker maintains his residence.[5]

This exemption shall apply in its entirety, i.e., it does not matter whether or not the employee worked the entire tax year (January 1 to December 31).

 

If a worker dies in the course of the year, is he entitled to the payment of the aguinaldo?

The beneficiaries of the deceased worker are entitled to payment of the proportional part of the aguinaldo, along with vacation pay and prima vacacional, with no deductions whatsoever, on the grounds that these payments are exempt from taxes in that they are from the estate of the deceased worker.

 

If a worker’s wages were increased during the year, what amount should be paid?

For the payment of such benefit and pursuant to Article 87 of the Federal Labor Act, the salary earned at the moment that the obligation to cover same arises should be taken into account, in other words, the salary received during December of the respective year.[6]

 

Are foreign employees entitled to an aguinaldo?

In terms of the Convention vis-à-vis the equal treatment of foreign and national workers for compensation as to work-related accidents, they shall indeed be entitled to an aguinaldo, and especially if the foreign worker has a permit granted by the Ministry of the Interior through the Mexican National Institute of Migration (Spanish: Instituto Nacional de Migración or INM) to provide a subordinate personal service for an employer, said worker shall be entitled to all payments which accrue to a worker of Mexican nationality.

In this scenario, the employer must take into account the provisions of Article 7 of the Federal Labor Law which states: "In every company or establishment, the employer shall employ at least 90% of Mexican workers. In the technical and professional category all the employees shall be Mexican, unless there are none available for a given specialty, in which case the employer may give temporary employment to foreign workers, provided the number of foreign workers thus engaged shall not exceed 10% of the total number of workers in that specialty. The employer and the foreign workers shall be jointly and severally responsible for training Mexican workers in the specialty concerned. All doctors in the service of the companies must be Mexican.

The provision of this article shall not apply to directors, managing directors and general managers.”

 

Can the aguinaldo be paid in installments or deferred?

Although the option for employers to be able to defer payment of this benefit is not inferred by the LFT, in practice and due to issues predominantly of an economic nature, labor authorities have authorized said benefit payment in installments, provided the Company and its staff execute such an agreement, which must be ratified before the respective Conciliation and Arbitration Board (Labor Board) in order to be valid for all legal effects (Art. 33, second paragraph, LFT).[7]

 

What is the obligation of the employer once the aguinaldo is paid?

The employer is obliged to keep receipts for payment of the aguinaldo for a one-year period.

 

CONCLUSIONS

The rules governing the payment of the aguinaldo are many and in some cases, can become complicated.

The aguinaldo payment is mandatory and failure to pay can lead the authorities to impose fines of 3 to 315 times the Legal Daily Minimum Wage in force for the geographic area where the offense would have been committed.  

We recommend you meet with professionals that specialize in this area in order to prevent conflicts or disputes that could easily be otherwise prevented.