El Salvador: New mandatory annual bonus for lower-paid employees

Employer action code: Act

Beginning in 2027, private-sector employers must pay an annual bonus in January, equal to half a month’s salary, to all employees earning up to $1,500 (in U.S. dollars) per month. For public-sector employers, payment of the bonus became mandatory in 2026. The new bonus entitlement is in addition to the mandatory Christmas bonus.

Key details

• The new annual bonus, equal to 50% of gross monthly pay, will be payable between January 15 and 25, to all workers earning up to the monthly $1,500 threshold who have at least one year of service with their current employer as of the preceding December 12. Those with shorter service (no minimum amount) will be entitled to a pro rata bonus based on actual period of service
• Employees who are involuntarily terminated from their jobs, with or without just cause, before January 25 of a given year, will be entitled to receive a pro rata bonus based on actual service accrued up to the date of separation from employment
• For employees, the bonus will be exempt from income tax and social security contributions and excluded from the calculation of other statutory payments or benefits (e.g., the 13th month bonus and severance). For employers, bonus payments will be exempt from social security contributions and deductible for income tax purposes

Employer implications

Employers should review their salary budgets for 2027 and update payroll systems to incorporate the additional annual bonus as a new recurring employment cost for eligible employees. The eligibility threshold may also require a review of pay structures and salary ranges to assess internal reward design implications, including potential impacts on employees who do not qualify for the bonus.