Aguinaldo (Mexico)

DEFINITION of 'Aguinaldo (Mexico)'

Aguinaldo refers to an annual Christmas bonus that businesses in Mexico are required by law to pay to their employees. The payment must get made by Dec. 20 of each year. Companies that fail to make an aguinaldo payment may get fined between three and 315 times the legal daily minimum wage. Foreign workers who hold appropriate employment documentation are also entitled to receive an aguinaldo. Apart from Mexico, some Latin American nations, such as Costa Rica also require employers to pay an aguinaldo to their employees.

BREAKING DOWN 'Aguinaldo (Mexico)'

The aguinaldo is equivalent to at least 15 days wages and may be prorated if the employee has been with the company for less than a full year. For example, if an employee earns Mex $180,000 per year, they receive an aguinaldo payment of Mex $7,500 (Mex $180,000 / 12 months) / 2). Large companies may pay employees 30 days wages, which is effectively 13 months of salary per year. 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 Mex $60, the tax-exempt amount of the aguinaldo is Mex $1,800 (Mex $60 x 30 days).

Although an aguinaldo is required by law, only a minority of Mexican workers receive the payment due to unfavorable working conditions, such as informal contracting and temporary employment. For example, a part-time gardener who has not signed a formal contract with his or her employer may not receive an aguinaldo payment. To learn more about the Mexican economy, see: Is Mexico an Emerging Market Economy?)

Benefits and Limitations of Aguinaldo Payments

The aguinaldo provides a seasonal boost in demand for retail products such as automobiles, appliances, clothes and furniture. It is estimated that 70% of aguinaldo income gets spent in department stores. Some employers increase aguinaldo payments to boost El Buen Fin sales; El Buen Fin is Mexico’s Black Friday equivalent).

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 of the aguinaldo believe that these mandatory payments may put financial pressure on struggling companies that could result in layoffs and/or closures. To combat this limitation, companies are permitted to make aguinaldo payments to their employees via installments; however, they're not allowed to defer the entire payment.