Each year, employees in Mexico look forward to their annual year-end bonus – the aguinaldo in Spanish. Workers’ rights, benefits, payroll, and social security was established in 1930 and is governed by the Ley Federal del Trabajo (English: Federal Work Law). The aguinaldo came about with reforms in 1970 with the addition of Article 87. In this article, we discuss who receives an aguinaldo and how to calculate the amount.
Definition of Aguinaldo
An aguinaldo (English: bonus) is an end of the year payment dispersed no later than December 20th. There is no situation that exempts an employer from making the payment of the bonus to employees. Under the Federal Work Law, the benefits must be made, even if the company is facing economic problems.
It is important to understand that the Aguinaldo is not a Christmas/Holiday bonus. This distinction is important because unlike bonuses, which can be subjective on business agreements, job performance, or benevolence by the employer) payment of the aguinaldo is a legal responsibility of all employers, governed by the Federal Work Law.
Eligibility for Aguinaldo
Article 87 of the Federal Work Law makes no distinction of the type of employee that will receive an aguinaldo. Regardless of status, every person that works for a company or business in Mexico has the right to this protected benefit. The sole exclusion to aguinaldo recipients is freelancers – typically, freelancers are self-employed and are not actually part of the established payroll.
Due to the recent Mexican Supreme Court ruling that all domestic workers and gardeners must receive Social Security from their employers, it is currently not clear if homeowners who have a house cleaner or gardener come in once a week must be registered as employers with the Hacienda. Until the new law came into force, occasional workers were considered self-employed and like freelancers were excluded from the aguinaldo. To be safe, most homeowners have long paid the aguinaldo to occasional house cleaners and gardeners.
In the event of an employee’s death during the year, the aguinaldo benefit is disbursed to the employee’s dedicated beneficiaries. This is also legally mandated in the Federal Work Law.
If a company chooses to not adhere to the law, it may face lawsuits or other legal liability at both the local and federal level.
What Amount to Pay
Legally, an aguinaldo payment is equivalent to:
- A minimum of 15 days of salary, or
- A sum proportional to the time someone has worked for the company
The 15-day minimum includes national holidays, as well as any doctor-approved sick days (which must be verified by the Mexican Social Security Institute).
According to the legislation, employees who do not work for an entire year must still be compensated based on an amount proportional to their time in their position. Maternity and paternity leave pay is also included in the payment as of the 2015 update to Article 87.
For improving retention many companies opt to pay a full month’s salary (30 days), hence the term “13th Month Bonus” that is widely referred to in conversations concerning aguinaldo. The full money salary bonus, however, is subject to negotiation between the employer and employee.
Calculating the Aguinaldo
Employees Paid by the Week
In calculating the aguinaldo, it is important that employees paid by the week are actually paid for 7 days, with Sunday being a paid day of rest. In determining the daily rate, the pay for the week is divided by 7 days to establish the daily rate. Thus, the aguinaldo is determined by taking the daily wage value and multiplying it by the 15-day minimum.
Example: An employee who is paid by the week receives $1400 pesos. Thus, $1400 / 7 days = $200 pesos as a Daily Wage Value
Aguinaldo = Daily Wage Value ($200) x 15 Days = $3000 pesos
Employees Paid by the Day
For workers with a daily wage contract:
Daily Payment = Daily Wage x 15 days
Employees Paid by the Hour
For an hourly worker, their salary can vary drastically from day to day based on the amount of time worked. In this case, the daily wage calculation is based on total earnings divided by the number of days in a year (365, or the total amount of days that the employee worked that year).
Example: An employee who is paid an hourly rate of $30 pesos and earned a total of $62,400 pesos during the year. Thus, $62,400 / 365 = $170.96 Daily Wage Value.
Aguinaldo = Daily Wage Value ($170.96) x 15 days = $2,564.40 pesos
The final value of an aguinaldo varies depending on an employee’s calculated daily payment. The values used for calculation depend on employee contracts; daily wage contracts are calculated differently to workers on hourly contracts. In a daily employee’s contract, the wage is predetermined.
Aside from the legal obligation, employers can use the aguinaldo to improve employee retention. An employer can opt for the “13-Month-Bonus” which effectively doubles the aguinaldo, but lets the employee feel that their hard work is appreciated by the employer.
While the aguinaldo was never intended to be a Christmas/Holiday bonus, employees who do not budget well can find themselves in a financial bind as money become short, especially for those with children or who travel to spend time with distant relatives. And, while the payment is not “officially” due no later December 20, it is greatly appreciated when the employer makes the payment early in December. This early payment provides for better planning and more relaxed shopping for holiday gifts for their family.