For anyone interested in company formation in Mexico or who is already doing business in this North American country, understanding and studiously adhering to local employment law will give you a greater guarantee of success while maintaining the good standing of your company in the eyes of authorities.
Employment Law in Mexico:
In this map, we can see some of the key cities in Mexico. Employment law in Mexico is overseen by the Secretariat of Labor and Social Welfare, and while many aspects of Mexican employment regulations are similar to those seen in other countries in Latin America, there are also some particularities that must be understood.
A basic guide to employment law in Mexico is provided below, including sections on standard working hours, types of contracts commonly used by investors, information regarding terminations and severance, details of leave allowances, and guidance on salary-based contributions and deductions that the employer must oversee.
If you would like to find out more about how we can assist you in doing business, learning more about Mexico labor laws, and/or including and implementing employment law in Mexico, contact us today.
Employment law in Mexico: statutory working hours
Under employment law in Mexico, a standard working week is 48 hours long, made up of six days of eight hours and one rest day. In the event that an employee works for more than 48 hours in a week, they are entitled to additional and proportionate pay for the extra hours worked. Employees are also entitled to a 25% premium on their standard salary when they work on a Sunday, according to Mexican labor laws. Note that in Mexico, there are generally eight national holidays that fall on weekdays each calendar year, as well as one regional holiday.
Common contracts under employment law in Mexico
There are three main types of contract allowed under employment law in Mexico that investors tend to use;
– Indefinite-period contracts are the most widely-used contracts and only end based on mutual agreement between the employer and employee, or when one of the parties has the right to act unilaterally. That right includes an employee’s resignation from their role or an instance of employee misconduct that warrants dismissal by the employer.
– Definite-period contracts can only be used either when the nature of the task warrants it, such as for a particular project, or when replacing another worker on a temporary basis, such as for maternity leave or to cover another type of extended absence.
– Seasonal contract may only be provided for fixed work of a limited nature that only occurs during a specific period of the year, such as a tourist season or harvest.Â
Employment Law in Mexico: The country is an attractive destiny for nearshoring in Latin America
Working Hours
The working day is the time during which the worker is at the disposal of the employer to perform his or her work. The Federal Labour Law establishes the following types of working hours:
– Daytime: Between 6:00 AM to 20:00 PM
– Nightly: Between 20:00 PM to 6:00 AM
– Mixed: it’s when the shift is arranged with daytime and nightly working hours. The night period must be less than three and a half hours.
– The maximum working hours shall be: eight hours during the day, seven hours at night, and seven and a half hours when it is mixed.
Legal benefits established in Federal Labour law
Under employment law, there are statutory benefits that are mandatory for employees to receive:
– Christmas bonus: it would be paid before December 20th each year and shall be equivalent to 15 days of salary.
– Vacation bonus: The employee shall receive a vacation bonus equivalent to 25% of their base salary.
– Sunday bonus: If the employee works on Sundays, shall receive 25% of the daily base salary.
– Senority bonus: if an employee served more than 15 years, they are entitled to 12 days of pay for every year worked.
The employer can give to the employees more benefits, these ones are de minimums. No employee can renounce to these law benefits, they are protected by the constitution and its employer`s obligation to provide them on time.
Termination and severance
Under employment law in Mexico, there is no minimum notice period that employees must provide when they resign, meaning that an employee can resign with immediate effect without penalty. However, it is common for a notice period to be written into the employment contract. When an employee leaves voluntarily, they are entitled to receive a proportional part of their law benefits depending on the number of days worked. If an employer decides to dismiss an employee without just cause, the employee is entitled to compensation that includes:
– Payment for all hours worked
– Three additional months of salary
– 20 days of pay for every year worked
– Seniority subsidy where applicable
– Payment for outstanding vacations
– A proportion of their annual bonus based on how much of the year they have worked
In the event of dismissal with just cause, such as a crime being committed against the company or persistent absence, the employer must provide the employee with written notice in which a clear referral is made to the conduct warranting the dismissal, as well as the date or dates upon which it occurred.
Vacations, leave, and other absences under Mexican law
Employment law in Mexico lays out that employees are entitled to an annual vacation period established by Article 76 of the Federal Labour Law and as described on the following chart:
– Full time Regular Tenure
– Vacation Days Annual Accrual
– Once the employee has completed the first year of work 12 days
– After his/her 3-year anniversary 16 days
– After his/her 6-year anniversary 20 days
From the sixth year onwards, the leave period shall be increased by two days for every five years of service.
Maternity and paternity leave:
– New mothers are granted a total of 12 weeks of maternity leave, which begins six weeks prior to a due date documented by a medical professional. In the event of adoption, a new mother is granted six weeks of maternity leave from the day of the adoption.
– For new fathers, five days of paternity leave are granted, including in the case of adoption.
– Sick leave: In case of non-occupational illness or injury, an insured employee is entitled to all necessary medical care from the onset of the illness, as well as financial compensation when their illness or injury prevents them from working. This compensation will be paid by the social security fund at a rate of 60% of their normal salary, starting from the fourth day of their absence and extended for up to 52 weeks.
Bereavement leave:
Under employment law in Mexico, there is no statutory right to leave in the case of bereavement, and any such allowance must be agreed with the employer in the event it is not laid out in the terms of the employment contract.
Market overview in Mexico, important to know more about Employment Law in Mexico.
Employment law in Mexico: statutory contributions
Employee deductions:
Income tax is deducted progressively, at a rate that ranges from 1.92% to 35% based on monthly earnings. That top band applies to anyone earning 3,898,140 Mexican pesos per year (approximately USD 191,226). Additionally, employees have 1.025% of their salary deducted for social security contributions and a further 1.75% deducted for pension contributions.
Employer contributions:
According to employment law in Mexico, employers must make a contribution to the social security fund equivalent to 26% of an employee’s salary, while a contribution equal to 5.150% must be made to the pension fund. An additional contribution equal to 5% of an employee’s salary is also made to the National Housing Fund.
Profit sharing: Mexican employment law includes a provision for profit sharing, known as PTU. That requires companies to share 10% of their net annual profits with most employees (see the list of who is eligible in our guide to PTU in Mexico), with 5% of the payment distributed evenly among all eligible employees based on the number of days worked during the financial year, while the second 5% is distributed to employees in proportion to the salary they earned during that period. Mexico labor laws enforce these statutory contributions intensely.
Frequently Asked Questions about Labor Laws in Mexico
In our experience, these are the common questions and doubtful points of our Clients.
1. What are the labor laws in Mexico?
Employees in Mexico are protected by various labor laws that cover areas such as working hours, minimum wage, holidays, vacation entitlement, severance, and more. It is important for employers to familiarize themselves with these laws to ensure compliance and protect the rights of their employees.
