Employment law in Mexico: a Guide

For anyone interested in company formation or who is already doing business in this North American country, understanding and studiously adhering to employment law in Mexico 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 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, some particularities must be understood, such as the PTU profit sharing system.

A basic guide to employment law in Mexico is provided below. If you would like to find out more about how we can assist you in doing business, contact us today. We are experts in the region and have offices all over Latin America and the Caribbean. Our array of back-office services can help you at all stages of your business life cycle.

3 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;

1. 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.
   
2. 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 temporarily, such as for maternity leave or to cover another type of extended absence.
   
3. Seasonal contracts 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. 

What are the working hours in Mexico?

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.

If 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.

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 Labor 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: 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 by employment law in Mexico

Under employment law, there are statutory benefits that are mandatory for employees to receive:

• Christmas bonus: Must 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.
• Seniority 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 the employees more benefits, these are the minimums.

No employee can renounce these legal benefits, they are protected by the constitution and it is the employer’s obligation to provide them on time.

Termination and severance in Mexico

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 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 is 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.

What does employment law in Mexico say about absences?

Employment law in Mexico lays out that employees are entitled to an annual vacation period established by Article 76 of the Federal Labor Law and as described on the following chart:

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 injured 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. This is promised by Mexico’s labor laws.
  
• 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.

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 MXN$3,898,140 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.
  
  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 MXN$3,898,140 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 contribute to the social security fund equivalent to 26% of an employee’s salary, while a contribution equal to 5.15% 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 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. Mexican labor laws enforce these statutory contributions strictly.

FAQs about employment law in Mexico

In our experience, these are the most common questions our clients ask.

Biz Latin Hub can assist you with employment law in Mexico

At Biz Latin Hub, we provide integrated packages of back-office services that are tailored to every need. 

Our portfolio includes accounting & taxation, company formation, due diligence, legal services, and hiring & PEO, and we are active in 16 markets around Latin America and the Caribbean, making us ideal partners for supporting multi-jurisdiction market entry and cross-border operations.

Our experience and understanding of the markets where we operate means that working with us comes with the guarantee of compliance with all local regulations, be that employment law in Mexico or any other legal code related to investment. 

Contact us today  to find out more about how we can support you doing business in Mexico.

Or learn more about our team and expert authors.