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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
  2. Probation Periods

    Probationary periods are allowed for any employment relationships that are indefinite in term, and are expected to last for more than 180 days. The probation is used to verify that the employee meets the requirements and holds the knowledge needed to perform the work of the position.

    The duration of the probationary period may be up to 30 days, and may be extended for up to 180 days for employees in managerial, technical or directorial positions.

  3. Termination Procedures

    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

    Termination by Employer

    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 by Employee

    The employee may terminate the employment contract for just cause for certain types of employer behavior, including:

    • Misleading terms for the job position
    • Lack of honesty
    • Reducing the employee’s pay
    • Directing violence, threats or harassments towards the employee
    • Allowing serious danger to the employee

    Notice Periods

    There are no statutory notice periods for employment contracts in Mexico. The employer is required to notify the employee in writing of the date and cause of dismissal, or must notify the relevant Conciliation and Arbitration Board no later than five days after the date of termination. Termination by employee must terminate the contract within 30 days of the “just cause” events, and may be entitled to statutory bonuses and severance payments as if they were dismissed without just cause.

    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.

    Compensation

    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
  4. Statutory Leave

    Annual Leave

    Employees are not compelled to work on mandatory holidays, although may choose to work on these dates and are entitled to three times the normal rate of pay.

    The annual holiday leave afforded by Mexican employees are relatively scarce in terms of minimum mandatory rights of the FLL. Paid vacation is based on employee seniority, and begins at 6 paid weekdays per year for workers who have been employed for one year. Paid vacation days per year increases by two for every additional year of employment. After the fifth year of employment, vacation entitlement increases by two working days for every five years of service.

    Some companies may offer more generous leave entitlements, such as personal days in addition to annual leave for issues such as family or personal emergencies.

    Parental Leave

    A pregnant employee is entitled to six weeks of maternity leave prior to the date of birth and six weeks for maternity leave after the birth of the child. The FLL allows four of the six weeks of the maternity leave prior to birth be transferred to the leave after birth. A female employee is also entitled to rest periods for lactation for the first 6 months of the child’s birth.

    The Mexican Social Security Institute (IMSS) pays for the employee’s registered salary during maternity leave, capped at 25 times the minimum daily wage. The employer pays for the difference for any salary in excess of this cap.

    A male employee is entitled to a leave of absence of five full paid days for the birth or adoption of a child.

    Sick 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.

  5. Pensions and Benefits

    Employees in Mexico are covered by the Social Security Law, administered by the Mexican Institute of Social Security (IMSS) who is responsible for administering social security insurance benefits and the collection of contributions. Both the employer and employee is required to contribute to social security, although the employer makes much larger contributions and has the responsibility of withholding the employee’s contribution.

    Most companies in Mexico provide their employees with a personal pension plan, where the employee may contribute a certain amount of their salary to the pension plan while the company and Mexican government must pay additional contributions.  The employer typically pays 2% of the weekly salary into the employee’s individual account in a general retirement program, payable to the IMSS.

    The pension products are administered by all Mexican banks, which invest the social security contributions into approved stocks and investment funds. Alternatively, employees may enter into a private insurance scheme with the employer as part of the employment package, which may be preferred over the Mexican Social Security System as it covers a wider variety of more expensive treatments.

    The rates for social security payments that apply to the employee’s consolidated income can be found here.

    All workers employed in Mexico must be registered with and contribute to the following institutions that deal with different social security insurance benefits:

    • Mexican Institute of Social Security (IMSS): Provides medical services, child day care, accident and sickness compensation, pregnancy benefits and disability pensions.
    • National Workers’ Housing Fund Institute (INFONAVIT): Provides subsidized housing to employees as well as loan
    • Retirement Savings Program (SAR): Provides employees with retirement benefits when they reach 65 years of age.
  6. Work Hours

    Statutory requirements for working hours depend on the time which the employee engages with work. The normal working week in Mexico is six days. The following maximum weekly hours are:

    • Day shifts: Eight hours per day, maximum of 48 hours per week.
    • Night shifts: Seven hours per night, maximum of 42 hours per week.
    • Mixed shifts: Seven and a half hours per day, maximum of 45 hours per week.

    Overtime

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

    Employees who work in excess of the above statutory limits are considered working overtime. For the first nine hours of overtime worked per week, they are entitled to double their regular wages. Any subsequent hours worked by the employee are given three times the regular wages.

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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