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Aguinaldo Meaning: Definition – Overview – Example

Aguinaldo Meaning

Aguinaldo MeaningAguinaldo meaning:  In Mexico and other Latin American countries, aguinaldo refers to an annual Christmas bonus.  In Mexico, it is required by law. Aguinaldo is a term used in Mexico and other Latin American nations to refer to an annual Christmas bonus. It is required by law in Mexico. The payment, sometimes known as the thirteenth salary, must be made by December 20 of each year. Failure to make an aguinaldo payment may result in a punishment of up to 5,000 times the lawful daily minimum wage. Employers in other Latin American countries, such as Costa Rica, are likewise required to pay their employees an aguinaldo.

Employers in Mexico are required by law to pay their employees a bonus or an aguinaldo once a year. This is in addition to their usual pay and benefits. Workers are entitled to an annual bonus in December that is the equivalent of at least 15 days’ wages.  This is according to the law, which was established by legislation passed in 1970. An aguinaldo may be prorated for those employed for less than one year. Employers must withhold taxes from aguinaldos because they are subject to taxation. However, employees are not required to pay income tax on aguinaldo payments of up to 30 days of the lawful daily minimum wage. For example, if the minimum daily salary is $60 pesos, the aguinaldo’s tax-free value is $1,800 pesos, or $60 pesos x 30 days.

Aguinaldo Meaning for Employees & Domestic Staff

An annual Christmas bonus that employers in Mexico are required by law to pay to their employees, and it must be paid by December 20. Aguinaldo is separate from vacation pay and it benefits families for the added expenses that come with the holiday season. Article 87 Federal Labor Law states that all employees in Mexico will be entitled to an annual bonus. Not only do business owners need to provide this bonus, but this also includes domestic workers, cleaning, gardening, or maintenance personnel you may employ on your property.

The aguinaldo is based on 15 days of wages for any worker that has one year or more of service, and if the employee has less than one year, the bonus will be calculated by proration. Calculating the bonus for employees that have one year or more is based on their wage divided by 30 days (a month) which provides the daily wage, the daily wage multiplied by 15 days is the bonus. (Source: mexlaw.com)

Aguinaldo Meaning in Latin America

Employers in other Latin American nations, such as Guatemala and Costa Rica, pay Aguinaldos over the Christmas season. Employers in Argentina and Uruguay pay their employees an aguinaldo twice a year.  Once in June and once in December.

Aguinaldo in practice

Aguinaldos are often required by law. Therefore, employers in those countries are compelled by law to pay them. In Mexico, employees who do not get their bonuses may file a complaint with the Federal Office of Defense of Labor. Failure to pay, late payment, or partial payment may result in fines ranging from 50 to 5,000 times the minimum wage.  For example, in Mexico, the minimum wage is $141.70 pesos per day. Despite the repercussions, only a fraction of Mexican employees gets the payout. This is due to adverse working circumstances such as informal contracting and temporary employment.  A part-time gardener, for example, who does not have a legal contract may not earn an aguinaldo payment. Even if it is not necessary, some people may prefer to tip their employees.  This gesture includes maids, postmen, and delivery persons, before the holidays.

Thirteenth-month wages, such as the aguinaldo, may be found all across the world.  However, each has its unique set of modifications. Employers in Bolivia, for example, are required to pay a second aguinaldo if the country’s GDP rises by more than 4.5 percent.

Aguinaldo – Advantages and Disadvantages

The aguinaldo boosts retail demand for items like autos, appliances, apparel, and furniture. A considerable share of this extra money is spent at department stores. Some employers raise aguinaldo payouts to stimulate sales on El Buen Fin, Mexico’s equivalent of Black Friday. Employees who get an aguinaldo payment are more likely to remain loyal to a firm that recognizes their worth. As a result, employees that are loyal to their employers are more productive and less likely to leave.  This, in turn, minimizes recruiting and training costs. However, critics worry that these forced payments will put a financial strain on failing businesses.  The result of which can potentially lead to layoffs and/or closures. To mitigate this risk, firms are able to make aguinaldo payments to their employees in installments as long as the total payment is not deferred.

Pros

  • Economic stimulus – Results in spending that can stimulate the economy
  • Morale stimulus – Increases employee loyalty

Cons

  • Marginal companies – Mandated payments can put financial pressure on some marginal companies
  • Marginal employees – Many workers remain ineligible due to their employment status

Aguinaldo Meaning – Example

For example, consider someone who has been employed with the same company for 10 years and their annual salary is $120,000 pesos. By law, their employer must pay them an aguinaldo or bonus of $5,000 pesos. Here’s how it’s calculated:

  • $120,000 pesos ÷ 12 months ÷ 2 = The equivalent pay of 15 days.

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 pay on or before Dec. 20th. However, in some situations, large corporations may give employees an entire 30 days of salary.  This amounts to 13 months of compensation every year. This is why the aguinaldo is often known as the thirteenth salary. Some employees, particularly those in higher-level jobs, may be able to negotiate greater incentives with their employers.

Aguinaldo Meaning & Frequently Asked Questions

If  You Work From Home are You Eligible for an Aguinaldo?

If you work from home for an employer, you should be qualified for aguinaldo in Mexico. The biggest exception is for freelancers.  These are individuals who are self-employed and not on a company’s regular payroll. Freelancers do not qualify for an aguinaldo bonus in this scenario.

Are There Reduced Aguinaldo Payments?

The exact payout is determined completely by income. This means that lower-wage workers will receive a reduced aguinaldo.

What Happens to the Aguinaldo if a Worker Dies?

If an eligible employee dies during the year, their aguinaldo payout is distributed to their specified beneficiaries.

Up Next: What is Asset Finance?

Asset FinanceAsset finance lets a company use its existing assets like inventory or accounts receivable as collateral to secure short-term loan financing. The use of a company’s balance sheet assets, such as short-term investments, inventories, and accounts receivable, to borrow money or obtain a loan is referred to as asset financing. The corporation borrowing the cash is required to provide the lender with a security interest in the assets.

Businesses generally employ asset finance to borrow against assets that they already possess. Accounts receivable, inventory, machinery, and even buildings and warehouses can be used to secure a loan. These loans are generally utilized for short-term financial needs.  For example, to pay employee wages or to acquire raw materials needed to manufacture the items supplied. As a result, rather than acquiring a new asset, the firm is utilizing its existing assets to compensate for a working cash flow shortage. However, if the corporation defaults, the lender can still seize assets and sell them to repay the loan amount.

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