What the incentive bonus is and why it exists
The incentive bonus is an economic benefit paid on top of the ordinary wage, mandatory for every private-sector employer in Guatemala regardless of company size, industry or type of contract (indefinite, fixed-term, full-time, part-time, salaried or by individual contract). It is paid monthly, and the legislator deliberately defined its legal nature: it is not salary.
The original purpose of the law — back in 1989 — was to raise workers' net take-home pay without inflating every benefit tied to salary. Rather than raising the minimum wage and automatically pushing up severance, Bono 14, Aguinaldo, vacation and IGSS contributions all at once, Congress created a parallel figure: a productivity bonus that reaches the worker's pocket but does not inflate the calculation base for statutory benefits or social security contributions.
Key point: the incentive bonus is not a gift and it is not a voluntary employer perk. It is a legal obligation since 1989. And its non-salary nature does not depend on what the contract calls it — it depends on the payment actually being made separately from the ordinary wage and being reflected that way across every labor, accounting and social-security document.
Legal basis: from Decreto 78-89 to Decreto 37-2001
Two Acts of Congress govern this figure:
- Decreto 78-89 — Ley de Bonificación-Incentivo para los Trabajadores del Sector Privado (Incentive Bonus Law for Private-Sector Workers). This is the parent law. It established the general employer obligation to pay a bonus on top of wages, as a productivity incentive and expressly non-salary in nature.
- Decreto 37-2001 — Reform to Decreto 78-89. It set the current monthly minimum at Q250.00 per worker. That is the floor in force today in Guatemala.
Alongside these, the incentive bonus interacts with the other statutes that define the calculation base for the remaining benefits:
- Decreto 1441 — Código de Trabajo (Labor Code): Article 82 sets the formula for severance pay based on the "ordinary wage earned."
- Decreto 42-92 — Ley de Bonificación Anual (annual bonus a.k.a. Bono 14): the annual benefit is computed on the "ordinary wage earned during the year."
- Decreto 76-78 — Ley Reguladora de la Prestación del Aguinaldo (Christmas bonus / Aguinaldo Law): uses the same reference to the ordinary wage.
- Decreto 295 — Ley Orgánica del IGSS (Organic Law of the Guatemalan Social Security Institute) and its regulations on enrollment and contributions: define which components of pay are subject to employer and worker contributions.
- Constitución Política, Art. 106: enshrines the non-waivability of labor rights and the prohibition against reducing them by agreement — the constitutional foundation of the non-regressivity principle applied to wages.
Read together, these texts produce the rule that governs today: the incentive bonus is additional to the wage, mandatory, at least Q250, and excluded from the calculation base of almost every other benefit — provided it is documented correctly.
The amount: Q250 is a floor, not a ceiling
Since Decreto 37-2001 took effect, every private-sector employer must pay at least Q250 per month in incentive bonus to each worker. This minimum admits no exception by company size, region, industry or type of contract.
That said, the minimum is only a floor. Nothing prevents employer and worker from agreeing to a higher amount: Q300, Q500, Q1,000 or any figure they settle on. In practice, we see this at:
- Companies that want to improve the worker's net take-home pay without pushing up every benefit and IGSS contribution.
- Companies with variable-compensation plans tied to productivity, where the non-salary portion is structured as an expanded incentive bonus.
- Companies that negotiate a total compensation package with the worker — part fixed wage, part bonus.
Watch out for a common abuse: agreeing to an artificially low ordinary wage and a disproportionately high incentive bonus in order to cut labor cost. When that disproportion is obvious and the labor judge concludes that wage is actually being paid in disguise, reclassification is virtually guaranteed. The incentive bonus needs a rational link to productivity or performance — it cannot be a mere vehicle for nominal engineering.
Why it does NOT enter severance, Bono 14 or Aguinaldo
This is the heart of the article — and the most expensive mistake we see SMEs make. The reason the incentive bonus does not enter the base for the other benefits is straightforward: by express provision of Decreto 78-89 itself, it does not have salary nature. And the statutes governing the other benefits refer to the ordinary wage, not to total income.
The table below summarizes the most important exclusions:
The practical impact is enormous. For an employer with 50 workers, every Q250 of properly documented incentive bonus keeps all of those bases from inflating and saves tens of thousands of quetzales a year in total labor cost — legally, inside the framework the legislator itself designed.
How to document it properly: contract, payroll, pay stub and accounting
Here is the key. The incentive bonus only keeps its non-salary nature if it is paid on a separate, visible, consistent basis across every piece of labor documentation. A single weak link — the contract that does not mention it, the pay stub that lumps it into salary, the accounting entry that books it as wages — can be enough for a judge or inspector to reclassify it. These are the six checkpoints we review in every documentary audit:
1. Individual employment contract
It should include a specific clause, separate from the one that sets the ordinary wage, worded along these lines:
"In addition to the agreed ordinary wage, the employer shall pay the worker an incentive bonus pursuant to Decreto 78-89 of the Congress of the Republic, as amended by Decreto 37-2001, in the amount of Q___ per month, which, by express statutory provision, shall not constitute salary for any legal purpose and therefore shall not form part of the calculation base for severance pay, Christmas bonus (Aguinaldo), annual bonus (Bono 14), vacation or IGSS contributions."
When the clause exists at that level of clarity, the employer has a document signed by the worker acknowledging the non-salary nature from the start of the relationship.
2. Payroll register
The incentive bonus must appear on a separate line from the ordinary wage, with an explicit concept ("Incentive Bonus Dec. 78-89"). Never lumped into the base wage. Never hidden under another line item.
3. Pay stub / receipt
This is the document the worker sees and signs every pay period. It is where employers most often slip. The pay stub should show:
- Ordinary wage for the period (its own line).
- Incentive Bonus Dec. 78-89 (its own line, not rolled up with the wage).
- Other earnings (overtime, commissions, etc.) broken out separately.
- Statutory deductions (IGSS calculated on the ordinary wage, not on the bonus).
4. IGSS payroll report
The amount reportable to IGSS is the ordinary wage. The incentive bonus is not included in the base on which the employer and worker contributions are calculated. Reporting it to IGSS by mistake would inflate the contributions, and over time it makes it harder to defend the bonus as non-contributory if IGSS ever audits.
5. Accounting books and records
In the accounting, the incentive bonus must be posted to a separate ledger account from wages and salaries. The typical entry is "Incentive Bonus Expense" or "Incentive Bonus Dec. 78-89," separate from "Wages and Salaries." Once the accountant books it inside wages, there is a documentary problem the external auditor, the tax authority (SAT) or a labor expert can use against you.
6. Reports to MINTRAB and the Labor Inspectorate (IGT)
In any report, response to a request or payroll exhibition before the Ministry of Labor (MINTRAB) or the Labor Inspectorate (IGT), the incentive bonus should always be presented as a separate line item. When an inspector sees that the employer treats it consistently across every channel, the risk of a reclassification recommendation drops dramatically.
Real risk: when IGT or a judge reclassifies it as wage
This is the scenario to prevent. When the Labor Inspectorate (IGT) or the labor judge in an ordinary suit concludes that what the employer called "incentive bonus" was in fact disguised ordinary wage, the sanction has several layers:
- Retroactive benefits back-pay. Severance, Bono 14, Aguinaldo and vacation are recomputed on the expanded base — not just for the period claimed, but for the entire limitations period of the employment relationship. It can reach several years.
- Labor fines under the Labor Code's sanction regime (as reformed by Decreto 7-2017). The fine amount depends on the number of workers affected and how long the breach lasted.
- IGSS adjustments. If the "reclassified" wage was higher, IGSS can claim back employer and worker contributions, with surcharges.
- Income tax (ISR) adjustments for the worker, with potential exposure for the employer as the withholding agent.
- Reputational effect with the current workforce, who tend to hear about the ruling and file similar claims.
These are the typical patterns that lead to reclassification — we have seen all of them in audits:
- The employer paid "salary + bonus" as a single amount without breaking it out. All the judge has to do is read the pay stub.
- The individual contract makes no mention of the incentive bonus, or lumps it into the wage clause without citing Decreto 78-89.
- The ordinary wage was increased in disguise as a bonus raise. For example, going from "Q4,000 + Q250" to "Q4,000 + Q900" the same month the base wage was frozen while the market moved up.
- The bonus was paid irregularly — some months yes, others no — suggesting it is not a stable benefit tied to the position but a discretionary payment (and therefore, in the broad sense, wage).
- The accounting booked the bonus inside "wages and salaries" and the IGSS payroll report coded it as contributory.
Numerical example: the practical difference over one year
Take a worker with an ordinary wage of Q4,000 and an incentive bonus of Q250:
For a single worker at Q4,000, the documented annual saving is around Q800. Multiply that by 50 workers at a mid-sized SME and the saving approaches Q40,000 a year — all legitimate, because that is how the legislator designed it. The reverse is also true: if the documentation fails and the payment is reclassified, those same Q40,000 become retroactive debt.
Common cases we see at SMEs
- "We never put it in the contract because we always paid it." Custom is not enough. If the worker files a claim, the signed document controls — and if the document does not mention it, the judge leans in the claimant's favor.
- "We pay Q4,250 in a single check." That single-line pay stub is the best argument for the judge who wants to reclassify. Immediate recommendation: two separate lines, even if the net is the same.
- "We raised the bonus from Q250 to Q800 because the minimum wage went up." If the increase is not tied to productivity and has no economic rationale, it is at risk of being reclassified. The prudent path is to raise the ordinary wage accordingly and keep the incentive bonus at its logical magnitude.
- "The accountant booked it inside wages." Fix it immediately. Reclassify the ledger account and align it with payroll, pay stub and contract.
- "For the part-time worker we only pay Q125." Correct, if the pro-ration is properly calculated and documented.
- "During vacation month we did not pay it." Incorrect. During the vacation period the worker is entitled to full monthly income, including the incentive bonus.
- "During IGSS medical leave we suspended everything." Practical rule: the employer covers only the initial days under the Labor Code; once IGSS takes over the subsidy, the employer payment (including the bonus) is adjusted. Case-by-case review is prudent here.
Frequently asked questions
Can I pay less than Q250 of incentive bonus?
No. Since Decreto 37-2001 the monthly minimum is Q250 per private-sector worker, with no exception for company size or type of contract.
Can I pay more, and how much?
Yes, with no statutory ceiling. But careful: if the agreed amount disguises a wage increase, a judge or inspector can reclassify it as ordinary wage.
Does the incentive bonus count toward Bono 14?
No. Decreto 42-92 computes Bono 14 on the ordinary wage earned; the incentive bonus is excluded because it has no salary nature.
What about the Christmas bonus (Aguinaldo)?
Same answer. Decreto 76-78 applies the same rule: ordinary-wage base, incentive bonus excluded.
And for severance pay?
Same again. Article 82 of the Labor Code (Decreto 1441) uses the ordinary wage as the base — not total income.
Are IGSS contributions paid on the incentive bonus?
No. Neither the employer contribution (10.67%) nor the worker contribution (4.83%) is calculated on the incentive bonus. It is not reported as contributory on the IGSS payroll.
What happens if I did not document it correctly on payroll?
The judge or the Labor Inspectorate (IGT) can reclassify it as ordinary wage, with a retroactive recomputation of benefits, labor fines, IGSS adjustments and possible income-tax (ISR) adjustments. It can be fixed going forward and paired with a mitigation plan.
Does it apply to hourly or part-time workers?
Yes, on a proportional basis to time worked, using the Q250 monthly baseline (or the higher amount agreed).