Mexico is widely known for being heavily protectionist towards the employee when it comes to the country’s labour laws. Many foreign companies find that employment regulations in Mexico differ considerably to those in their country of origin. It is strongly advised to employ the legal services of a labour law specialist before hiring workers.
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Labor Law Mexico – What is Mexican Federal Labour Law?
All employment relationships entered into within the Mexican jurisdiction are governed by the Mexican Federal Labour Law (FLL) which was enacted in 1970 and updated with a new reform in 2012, and also subject to the Mexican Social Security Law, Safety and Hygiene Legislation, and finally the Mexican Constitution, dating back to 1917. Below are some key factors your company should consider when employing workers in Mexico.
Can Foreign Employees Be Hired?
Foreign Workers may only make up 10% of a company’s labour force in Mexico and the company must be formally registered to hire foreign employees and support the necessary working visa. The exception to this is that in relation to directors, general managers, and administrators, all hiring restrictions are removed, meaning that up to 100% of employees in this respect can be foreign.
What Are the Methods to Engage Employees?
Complying with Mexican labour and social security law can be quite complicated and because of this, many employers opt to engage employees through a local subsidiary or service agent. This can reduce the foreign company´s exposure and obligations which might lead to the company being taxed as a Permanent Entity (PE).
What Are the Obligations for Mexican Employers?
The employer obligations with regard to the employee include (but are not limited to) the following:
- Entering into a formal written employee agreement
- Complying with all legislation
- Paying salary weekly or bi-monthly
- Retaining and paying tax, social security, housing, and retirement contributions
- Granting all benefits required by the labour law
- Registering employees with the Mexican Social Security Institute IMSS within 5 days
- Providing proper tools and equipment
- Implementing proper health and safety protocols
How Does an Employment Agreement Function?
In Mexico, a contractual employment agreement between the employer and employee arises almost immediately upon the engagement of the employee. The burden of this responsibility for the establishment of a formal contract lies with the employer. This means that even if there is no written contract with your employee, the law will deem one to exist. A formal, registered agreement is not required for the employment contract to be enforceable. The fundamental point to remember is that the employee will have all rights in accordance with Mexican labour law irrespective of the (spoken or written) nature of the employment.
With this in mind, should a litigation case arise, the burden of proof will be on the employer to establish the working conditions that were in place. In the event of an employee termination, at any subsequent trial some of the key things any employer would need to prove are as follows:
- Date of employment
- Working hours
- Termination causes
- Dismissal procedure
- Holiday provision and pay
- Payment of premiums
- Payment of profit sharing
- Registration to and payment of the National Housing Fund
What Is the Role of Mexican Employee Unions?
Employee Unions play a significant role in workplaces in many companies in Mexico and any foreign employer should be aware of the regulations surrounding them. Unions have the right to form and affiliate employees and have the power to require an employer to sign a collective bargaining agreement. While foreign employees may join a union they cannot be part of any union executive committee.
Biz Latin Hub can assist you with hiring & PEO in Mexico
At Biz Latin Hub, we offer back office services and integrated market entry throughout Latin America and the Caribbean. With offices in over a dozen major cities in the region, we are incomparably well placed to support multi-jurisdiction market entries and cross border operations.
Contact us today and learn how we can support you in finding top talent or more generally doing business in Latin America and the Caribbean.