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Employment in Mexico

Employment in Mexico is regulated by the Federal Labor Law (FLL), which outlines the appropriate rights and obligations of both employees and employers. The labor laws pursue a “stability principle” which seeks to find balance between the employee and employer. There is greater emphasis on the employee, emphasizing on permanency and continuity of the employment relationship. Additionally, the Federal Social Security Law along with the FLL governs the primary issues of employment in Mexico.

Labor unions in Mexico also pay an important role as they serve to protect the common employment rights for the employees they represent. There are large labor unions that exist in Mexico, where collective labor contracts are typically signed with the employer’s representatives and are reviewed every two years.

  1. Contracts

    Individual contracts

    Under Mexican Labor Law, an individual employment contract (Contrato de Trabajo) allows an individual to engage in subordinated personnel services for an employer in exchange for a salary.  The contract covers the obligations that bind both the employee and the employer for the duration of the employment relationship. The employment contract may be verbal or written, and while there is no prejudice against the employee if there is no signed agreement, a written one is highly advised for issues arising in litigation.

    The following information must be included in Mexican employment contracts:

    • Information of the employee (Nationality, gender, age, marital status)
    • Term of the employment
    • Services rendered by employee
    • Location where the services will take place
    • Salary amount, terms and payment dates
    • Training references
    • Holiday entitlement
    • Other working conditions
    • Any collective agreement information

    There are several forms of individual contracts:

    • Specific project contract: The contract exists for the purpose of completing a certain project for a limited-time service.
    • Specified term contract (Por tiempo determinado): The contract exists only for the term specified, and is only valid under certain circumstances, such as the nature of the work requires it, when the purpose is to temporarily replace another employee, or other cases specified in the Labor Law.
    • Indefinite term contract (Por tiempo indeterminado): The contract is set for any continuous projects requiring an uncertain period of time, or may be used for non-continuous arrangements such as periodic or seasonal activities which recur throughout the year.
    • Trial period contract: The contract is used to verify that the employee meets the qualifications for the position of interest. The trial period may not exceed 30 days, but can be extended up to 180 days for those applying for management or director positions.
    • Initial training contract: The contract is used for employees who wish to train or acquire skills under the guidance of the employer to carry out the activities that will be required of them. The maximum term of the labor relationship is three months, extending up to six months for employees in management, director or specialized technical positions.

    Collective Labor Contracts

    Collective bargaining agreements (CBAs) may be entered into by the employee, which typical entails the agreement made by one or more labor unions and one or more employers/employers’ unions to establish the conditions where work will be carried out. The contract entered into by the labor unions and employers’ unions will establish the compulsory terms for the relevant industry or state.

    The CBAs outline terms and conditions of employments, such as benefits, compensation, work shifts, training and positions. These terms will be valid if they comply with the minimum mandatory rights granted by the FLL, they do not contradict such laws and is filed before the Labor Court.

    Foreign Employees

    There are certain conditions for employers which must be noted when entering into employment contracts with foreign workers:

    • 90% of the entity’s employees must be Mexican nationals
    • All employees in positions that require highly technical skills must be Mexican nationals, unless the position requires very specific know-how that can only be obtained by foreigners, who may only work temporarily
    • All in-house doctors must be Mexican nationals

Employee Entitlements

Information Explanation
Working on Sundays ?

Employees who work on Sundays are entitled to a bonus 25% of their regular daily wages.

Medical Leave ?

Under the FLL and Social Security Law of 1997 (SSL) the employee is entitled to time of due to sickness. For temporary incapacity, the employee is entitled to 52 weeks of leave, extendable up to another 52 weeks. For permanent partial incapacity and permanent total incapacity, the employee is entitled to permanent leave and receives payment from the IMSS, where the amount is established according to the FLL.

All cases of illness or injury must be accompanied by a certificate from the IMSS, where granting of sick leave and entitlement granted depends on the type of illness, the degree of incapacity and the judgement of the IMSS.

Employment Termination

Information Explanation
Severance / Redundancy Pay ?

If the employee’s contract is terminated without just cause, the employee is entitled to a severance payment as compensation from the employer, consisting of:

  • Three months’ full pay including bonuses, premiums and commission
  • 20 days’ full pay per year of service with the employer
  • “Seniority bonus” of 12 days’ pay
Termination of Employment ?

Employment agreements may be terminated through several methods, including:

  • Mutual agreement
  • Death of the employee
  • Incapacity of the employee to continue work
  • With cause termination
  • Termination upon end of project or fixed-term contract

Mexican legislation requires that for the employer to terminate the employment contract, a “just cause” (causa justificada) must be provided for any behavior of an employee that may warrant termination. Employees with more than 20 years of service with one employer may only be terminated if the just cause is particularly serious and renders the employment relationship impossible to continue. Some examples of “just cause” termination reasons include:

  • Use of false documentation to secure employment
  • Lack of honesty or demonstrating violence, threats or injury towards another employee
  • Acts of harassment or sexual harassment
  • Intentional damage of employers’ property
  • Negligence that causes damage to property
  • Immoral acts in the workplace
  • Disclosure of trade secrets or confidential information

Termination due to Collective Redundancies

Collective redundancies occur when the workplace ceases to operate or permanently closes a department or area of business. The employer must notify the relevant Conciliation and Arbitration Board and must obtain prior authorization to enact the collective redundancies.

Outsourcing Employment Through a GEO Employer of Record Service

Compliance with local employment requirements is just one of the issues foreign companies face when employing staff in Mexico. For companies which intend to employ their staff directly through their incorporated Mexico entity, professional legal advice is recommended. Shield GEO provides an alternative path for companies to outsource the employment of their staff in Mexico.

As a Global Employer Organization (GEO), Shield GEO acts as the Employer of Record and ensures the employment is compliant with host country regulations regarding employment. In addition Shield GEO will handle payroll processing, tax and immigration. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into Mexico.

The Shield GEO solution is an attractive alternative where

the company is looking to employ staff quickly

the company doesn’t have an appropriately incorporated entity in Mexico

the company wants to work within a defined budget

the company wants to limit its initial commitment in Mexico

the company needs help with tax, employment, immigration and payroll compliance in Mexico

Shield GEO can contract directly with the company to employ and payroll their staff in Mexico. Shield GEO supplies local employment contracts for the staff which ensure that local statutory requirements are met covering issues such as termination, probation periods, leave entitlements and statutory benefits.  Shield GEO is able to advise companies how to cover local employment regulations whilst still providing consistent global employment policies. Understand more about outsourced employment through Shield GEO.

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