Puerto Rico Christmas Bonus
Establishing your new Act 20 business in Puerto Rico often means adapting to new labor laws that you may not have dealt with in the States. One such law is the mandatory Christmas Bonus, which was enacted in 1969 and requires all employers to pay a bonus to their employees between December 1 and December 15 of each year.
Who does this apply to?
- Companies with employees working in Puerto Rico not including agricultural activities, in domestic service or in private residences, or in charitable institutions.
- Employees who have worked 700 hours or more throughout the year (which is from Oct 1 of previous calendar year through September 30th of the current calendar year)
- Companies that are fiscally solvent (see more about getting exemption below)
How to calculate the bonuses
Your outsourced payroll company, such as CifrasPR# and Kevane Grant Thornton, can help with the details of paying the Christmas Bonus to all employees. Although there is no limit to how much you can give there are minimums to meet the requirements of the law:
- Companies with 15 employees or less: 3% of their salary, up to $300
- Companies with 16 employees or more: 6% of their salary, up to $600
You may opt to pay your employees a higher bonus at your discretion but should note that it will be taxed. If you follow the $300/$600 maximum, the bonus does not get taxed. For a Christmas bonus between $600 and $1,500, the employer must withhold a 7% tax from the bonus. If the Christmas bonus is higher than $1,500 then withholding tax correlates to the employee’s salary for the year.
If you recently established your company in Puerto Rico or have yet to generate significant revenue you are able to request an exemption from the Department of Labor. More specifically, your business qualifies for the exemption if it has not generated profits or the profits are not sufficient to cover the total amount of the bonus without exceeding 15% of the net annual profits.
To request an exemption on all or part of your Christmas bonuses you must submit a written notification to the Secretary of Labor and Human Resources before November 30th of the current year. This request must include your balance sheet and a P&L statement for the previous 12-month period that have been duly certified by a CPA.
Find a reliable Payroll Services company.