The Secretary of the Puerto Rico Department of Labor and Human Resources ("PR DOL") has issued a new regulation, effective October 18, 2017, to administer Puerto Rico's Christmas Bonus Law, Act. No. 148 of June 30, 1969. The new regulation, which supersedes all prior regulations on the subject, includes guidance on implementation of the Christmas Bonus Law, as amended by the Labor Transformation and Flexibility Act, Act No. 4 of January 26, 2017 ("LTFA").
What the Christmas Bonus Law and its Regulation Require
The Christmas Bonus Law requires employers in the private sector to pay eligible employees a statutory bonus provided certain requirements are met.
The regulation applies to all employers in the private sector that employ one or more employees between October 1 and September 30 of the subsequent calendar year (the "coverage period").
Excluded from the definition of "employees" eligible for the bonus are (a) those employed in agricultural activities, domestic service, in family homes, or by charitable institutions; (b) officials and employees of Puerto Rico's government and each of its three branches, departments, agencies, instrumentalities, public corporations, and municipal governments; or (c) U.S. federal employees.
Employees hired before January 26, 2017, the effective date of the LTFA, must work a minimum of 700 hours, while dock workers must work a minimum of 100 hours, in order to qualify for payment of the Christmas Bonus. Employees hired on or after January 26, 2017, must work at least 1,350 hours to qualify.
Hours worked include only those hours that are actually and effectively worked during the coverage period for the same employer, even if the services have been rendered in different businesses, industries, or involve the employer's other activities. The regulation does not provide guidance on what constitutes "other activities," but they likely include tasks an employer assigns employees, even if such activities are not part of the employer's ordinary course of business, such as disaster recovery efforts.
Employees hired before January 26, 2017
Any employer with 16 or more employees within the coverage period must provide employees a bonus equivalent to 6% of their total salary earned (up to $10,000) within the coverage period. Therefore, the maximum bonus would be $600. An employer with 15 employees or fewer during the coverage period must provide a bonus equal to 3% of the total salary earned (up to $10,000) by the employee during the coverage period. The bonus for these smaller employers would therefore be capped at $300 per employee.
Employees hired on or after January 26, 2017
Any employer with 21 or more employees for more than 26 weeks within the coverage period must pay each employee a bonus equivalent to 2% of the total salary earned, up to a maximum bonus of $600. Employers with 20 employees or fewer must pay each an employee a bonus equal to 2% of the total salary earned, up to a maximum of $300.1
Furthermore, for employees in their first year of employment, the required bonus is 50% of their calculated bonus amount. Thus, someone hired after January 26, 2017 whose bonus calculation amounts to $600 would receive $300 for their first year of employment.
What counts as "salary"?
The regulation defines "salary" as wages, payment, and any other form of monetary compensation, excluding disability compensation, unemployment insurance, tips received that exceed the amount used to comply with the payment of the legal minimum wage, and service charges.
Timing of Payment
As a general matter, employers must pay the Christmas Bonus between November 15 and December 15 of each year. There is a two-tiered penalty for failure to pay the Christmas Bonus within that timeframe. If the bonus is paid within the first six months from the date it should have been paid, the employer has to pay a penalty of half the bonus amount, in addition to the full bonus owed. If the bonus is paid more than six months from the date it should have been paid, the penalty is an amount equal to the Christmas Bonus.
Other additional voluntary compensation credited towards the Christmas Bonus amount
Notwithstanding the above, the regulation allows for employers to credit towards the Christmas Bonus any voluntary and additional compensation previously paid to the employee during the coverage period. In order to take advantage of this provision, the employer must notify the employee: (1) in writing; (2) in clear and conspicuous language; and (3) within a period of five business days of the disbursement, of its intention to credit that additional compensation to the payment of the Christmas Bonus. The employer may notify the employee in person, by regular or certified mail, or by electronic means. Notably, a written agreement between the employer and the employee and a notification to the PR DOL are no longer required for this payment to be made outside of the November 15 – December 15 timeframe.
The regulation also provides that the additional voluntary compensation that may be credited towards the Christmas Bonus cannot have been negotiated between the employer and the employee as a salary condition. Thus, the additional voluntary compensation must be in addition, as the definition of "Bonus" provides, to "any other salary or benefit of any kind to which the employee is entitled." Therefore, to the extent any negotiated or promised compensation/bonuses are not "voluntary" and not in "addition" to any amount to which employees are entitled as part of their salary, those bonuses/compensation cannot be credited towards the Christmas Bonus amount.
Eligible employees who cease working for the employer prior to the payment period
Employers have the duty to advise employees who qualify for the Christmas Bonus and who terminate their employment before the bonus will be paid, the date and manner in which they will receive the bonus.
In the event the employee is not available to receive the payment on the legal or agreed-upon date, or it is impossible to deliver the payment per the agreed-upon terms, employers must deposit the bonus with the PR DOL's Bureau of Labor Standards no later than 15 days from the deadline on which the payment of the bonus should have been made. Failure to make the deposit during this period will trigger the penalties discussed above.
Christmas Bonus Exemption and Other Employer Responsibilities
- Employers must maintain records, including financial statements, accounting books, payroll lists and hours worked, profit and loss statements, and balance sheets of their operations in Puerto Rico. Further, if requested, the employer must submit these records to the Secretary of the PR DOL.
- The total amount paid to employees in compliance with the Christmas Bonus Law must not exceed 15% of the employer's net annual profits from the period from September 30 of the previous year to September 30 of the year in which the bonus is paid. The regulation provides that net annual profits are those derived exclusively from the operations of the employer in Puerto Rico.
- Employers must notify the Secretary of the PR DOL no later than November 30 of each year if they will not pay the bonus in full or in part because they did not earn the necessary profits or if net annual profits are insufficient to cover the entire bonus without exceeding the 15% limit. However, if the employer's fiscal year does not end on September 30, the employer can provide income and profit/loss statements corresponding to its fiscal year.
- In addition, the employer must include interim financial statements that cover the economic activity until September 30 of the year to which the bonus corresponds. If such a statement is not submitted, the employer will be obligated to pay the bonus in full.
- If the bonus exceeds 15% of the employer's net annual profits, the PR DOL may notify the employer that it must proportionally apportion 15% of its net annual profits to its employees.
- Although not legally required to do so, employers may, at their discretion, pay the bonus in full even if the bonus payments exceed 15% of the company's annual net earnings.
Collective Bargaining Agreements
The regulation specifically addresses situations when a collective bargaining agreement (CBA) is in place. If the CBA provides for the payment of a smaller bonus amount than that required by law, the employer must pay the difference between the stipulated amount and the amount established by law.
Also, if a CBA is in place, the employer may negotiate directly with the union for the total or partial exemption of the Christmas Bonus payment without the need to notify or obtain a determination from the PR DOL about the exemption.
1. The net result of these changes is that individuals who earn less than $30,000 will receive a lower bonus amount. For example, for individuals earning $30,000 or more a year, the bonus calculation under both sections will result in the same Christmas Bonus amount ($600 or $300, depending on employer size). The calculations differ for lower-paid workers. An employee working 25 hours per week for $8 an hour would have a yearly salary of $10,400. If he were hired prior to January 26, 2017, his bonus would be 6% of the first $10,000, or $600. If that person, however, was hired after January 26, 2017, his bonus will now be 2% of his salary, or $208.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.