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 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, 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.
Note that in Mexico, there are generally nine 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.
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 payment for any hours completed, and if they have served more than 15 years with the company, they are also entitled to a seniority subsidy. That subsidy is usually equal to 12 days of pay for every year worked.
In the event that 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 six paid time off (PTO) days per year once they have completed one full year of service with the company, which will be extended by two days for every additional year worked until the fifth year. After the fifth year, an employee will receive two additional days of PTO for every subsequent 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.
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.
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
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.
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.
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.
Biz Latin Hub can assist you doing business 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.
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