Mexico

Mexico is a country in North America bordered by the United States, Guatemala, and Belize. It has the world's 15th-largest economy by GDP and ranks 5th in the world for natural biodiversity. Mexico’s large economy and population, cultural influence, and steady democratization make Mexico an ideal place to hire remote workers, including workers who are digital nomads.

Types of Contracts

In Mexico, the following contract types are available:

• Fixed-term contracts
• Indefinite contracts

Working Hours

A standard working week in Mexico is 48 hours long, made up of 6 days of 8 hours and 1 rest day.

The Federal Labour Law establishes the following types of working hours:

• Daytime: Between 6:00 AM to 8:00 PM
• Nightly: Between 8:00 PM to 6:00 AM
• Mixed: when the shift is arranged with daytime and nightly working hours. The night period must be less than 3.5 hours.
• The maximum working hours shall be 8 hours during the day, 7 hours at night, and 7.5 hours when it is mixed.

Overtime

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. The overtime is not limited and those hours will be paid at +100% of the hourly rate.

Sunday Work

Employees are also entitled to a 25% premium on their standard salary when they work on a Sunday, according to Mexican labor laws. If the work on Sunday is in excess of 48 hours for that week, then the employee is paid a 200% bonus on their Sunday wages (125% of normal hourly wages x 3).

Minimum Wage

In 2024, the general minimum wage in Mexico is MXN 248.93 per day, while in the Northern Border Free Zone it is MXN 374.89 per day.

Probation Period

It is not mandatory to include a probation period in the employment contract. However, an employer can opt for a trial period of up to 180 days.

During the probationary period, a company can terminate employment if the employee has demonstrably poor performance or does not have the knowledge required to execute the job properly at the end of the test contract, or that contract can be terminated.

13th and 14th Month Salaries

In Mexico, there are a few mandatory bonuses that employers must offer:

• Christmas bonus: it should be paid before December 20th each year and be equivalent to at least 15 days of salary.  This benefit is prorated and accrued reflecting the actual time worked in the corresponding years.
• Vacation bonus: the employee should receive a vacation bonus equivalent to 25% of their base salary.
• Seniority bonus: if an employee served more than 15 years, they are entitled to 12 days of pay for every year worked.

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Taxes & Local Employment Costs

Employer Taxes & Contributions

The Mexican Social Security Institute (Instituto Mexicano del Seguro Social or IMSS) oversees social security in Mexico. Contributions to social security are required from both workers and companies, with the company responsible for withholding and remitting these contributions to the IMSS.

Mandatory Regime Coverage Includes:

• Occupational Risk
• Illness and Maternity
• Disability and Death
• Retirement and Current Working Elders
• Day Care and Social Services

Retirement Savings (SAR): Managed by the National Commission for the Savings Scheme for Retirement (Comisión Nacional del Sistema de Ahorro para el Retiro or CONSAR), SAR is funded entirely by employers, amounting to 2% of covered pay for each employee.

INFONAVIT: Employers in Mexico must contribute 5% of their employees' salaries to housing, creating an account in each worker's INFONAVIT portal. This account allows employees to track their housing funds and apply for credit when desired.

State Fee: Payroll tax in Mexico is levied at the state level, ranging from 1% to 3% of salaries, and is withheld by the employer.

Non-Deductible Benefit: As of 2024, non-deductible benefits are the portion of employee benefits that employers are required to pay to the government. This is per the ISR law, where Art. 28, stipulates that only a portion of income paid to workers is deductible (either 53% or 47%). The non-deductible benefit is calculated by multiplying the total exempt income by 57% and applying 30% tax, payable when filing the company's annual declaration.

Annual Leave

In Mexico, employees are entitled to a certain number of days of paid vacation leave based on their length of service with their employer. Employees are entitled to 12 days of paid annual vacation in the 1st year of service. The number of vacation days increases by 2 days each subsequent year of service, up to 20 days in year 5. After the 6th year of service, the number of vacation days increases by 2 days every 5 years of service.

• 0-1 years of service = 12 days
• 1-2 years of service = 14 days
• 2-3 years of service = 16 days
• 3-4 years of service = 18 days
• 4-5 years of service = 20 days
• 5-10 years of service = 22 days
• 10+ years of service = 24 days

The holiday leave is accrued during the first year which goes from the start date of the contract and the last year. The holiday leave is accrued during the first year which goes from the start date of the contract and last year.

Vacation days may not be paid out under any circumstance except when the employee is discharged (prorated amounts will be considered).

Vacation Premium

Although the vacation premium is a different benefit from vacation days, these two benefits are directly related. The vacation premium is equivalent to 25% of an employee’s base salary corresponding to the vacation period - on top of the daily salary per vacation paid day.

Carrying Over and selling Annual Leave

Typically, an employee is not able to carry over unused vacation into the following reference year. Thus, if the employee does not go on holiday, he will lost it. In addition, vacations must never be compensated with any remuneration, i.e. the employer must grant to the employee the total amount of days off they have accumulated.

Sick Leave

Employees who are unable to work due to a non-work-related injury or illness and have made contributions to the social security system for the 4 weeks preceding the onset of the condition are entitled to paid sick leave through the Social Security Institute.

Employees are only eligible for their total rate of pay for the initial 3 days of illness or injury. After this, they are to be compensated at 60% of their typical pay rate.  This benefit, amounting to 60% of the employee's regular wage, commences from the 4th day of illness and lasts for up to 52 weeks, with the possibility of extension for an additional 52 weeks on an unpaid basis.

There are different types of disability benefits available:

• Total temporary disability (TTD)
• Partial permanent disability (PPD)
• Permanent total disability (PTD): In this case, the worker is entitled to a maximum of 52 weeks of paid leave based on medical evaluation.

Under federal law, employers with employees filing valid workers' compensation claims in Mexico must ensure access to medical care, physical therapy, rehabilitation, and hospitalization if necessary. They are also obligated to provide orthopedic devices and prosthetics for employees who have lost limbs or other body parts in workplace accidents. It's crucial to note that employers must pay injured or ill employees 100% of their total temporary disability benefits for a period of up to 3 months from the date they were approved to receive workers' compensation in Mexico.

Maternity Leave

An employee can take 6 weeks of maternity leave before giving birth and an additional 6 weeks of leave after their child is born, for a total of 12 weeks of paid maternity leave. If the employee chooses, they can adjust their maternity leave benefits so that their leave time begins 4 weeks before giving birth and extends 8 weeks after their child is born.

During leave, the employee receives 100% of their salary paid by the social security institute (IMSS).

Additional Maternity Leave

If the mother has a difficult labor or delivery, the child is unwell and must stay in the hospital, or the child is born with a disability, employees are eligible for an additional 2 weeks of maternity leave or more, depending on the situation. When extended maternity leave is granted, the employee is only entitled to 50% of their total salary for the extended period, and this period cannot last for more than 60 days.

Many employers are not required to pay maternity leave because employees can use IMSS benefits. However, for employees to be eligible to use these benefits, they will need to have been contributing to the social security fund for a minimum of 30 weeks within the year leading up to the beginning of their leave time.

Paternity Leave

Employers in Mexico should grant working fathers 5 working days of paternity leave with pay for the birth of their children.

Public Holidays

The following public holidays are observed in Mexico:

• New Year’s Holiday - January 1
• Constitution Day - February 5
• Benito Juarez Day - March 18
• Labor Day - May 1
• Independence Day - September 16
• Revolution Day - November 8
• Christmas Day - November 25

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Benefits

While not mandatory, many employers choose to provide additional benefits to their employees. These may include:

• Life Insurance: Coverage that provides financial protection to the employee's beneficiaries in case of death.
• Major Medical Insurance: Comprehensive health coverage that may extend to the employee's family, including spouse and children.
• Minor Medical Insurance: Coverage for minor medical expenses, excluding major injuries or treatments.
• Work from Home Allowance: An allowance provided to employees who work remotely, typically ranging around 1,000 MXN gross per month. There's no fixed minimum or maximum amount for this allowance.
• Grocery Coupons: Vouchers or coupons provided to employees for purchasing groceries, usually capped at 7% of the employee's salary.‍
• Profit share: is a mandatory benefit paid to employees in May every year and that have more then 3 months with the employer. The amount varies based on the employer’s profit.

These additional benefits complement the minimum benefits required by law and contribute to a more attractive employment package.

Process

Justified Grounds for Termination

Article 53 of the Labor Law outlines the following causes for termination of the employment relationship:

1. Mutual Consent: Termination by mutual agreement between the employer and the employee.
2. Death of the Employee: Termination occurs upon the death of the employee.
3. Expiration of Work or Contract Term: Termination due to the completion of the work, expiration of the contract term, or the full investment of capital, as outlined in Articles 36, 37, and 38.
4. Physical or Mental Incapacity: Termination due to the physical or mental incapacity of the worker, rendering them unable to perform their duties.
5. Cases Under Article 434: Termination based on reasons specified in Article 434.

Failure by the employer to verify the cause of termination results in termination without cause. In such cases, the worker has the right to either reinstatement or compensation. The employer may opt for compensation by providing:

• Three months of salary.
• 20 days of salary per year of service.
• Payment of overdue wages, if applicable.
• Accrued vacation and Christmas bonuses up to the time of dismissal.

Note: Employers should carefully consider these provisions when terminating an employment relationship in Mexico to ensure compliance with labor laws and mitigate the risk of legal disputes. It is advisable to seek legal counsel to navigate termination processes effectively and uphold the rights of both parties involved.

Grounds for Termination Due to Gross Misconduct

1. Deception of Employer: The worker materially deceives their employer, such as through fraudulent expenditures or inventory manipulation.
2. Lack of Integrity or Honesty: The worker exhibits a lack of integrity or honesty, engages in acts of violence, makes threats, or delivers insults, whether during or outside of working hours.
3. Property Damage: The worker intentionally causes property damage during their work duties.
4. Immoral Acts or Harassment: The worker commits immoral acts or engages in harassment, including sexual harassment, towards their coworkers.
5. Disclosure of Confidential Information: The worker reveals company secrets or confidential information without authorization.
6. Excessive Absences: The worker accumulates more than three absences within thirty days without obtaining permission from the employer or providing a justifiable reason.
7. Intoxication at Work: The worker arrives at the work site in a state of intoxication, impairing their ability to perform their duties safely and effectively.

Employers should adhere to these guidelines when considering termination with just cause in Mexico. It is essential to ensure that any termination decisions are made per labor laws and established company policies. Seeking legal advice can provide further clarification and guidance throughout the termination process.

Notice Period

There is no statutory notice period in Mexico, but Mexican law states that in many circumstances the employer has to provide notice in writing explaining the reasons for dismissal within 30 days of being aware about the misconduct.

Severance Pay

In Mexico, terminating an employee without reasonable cause requires severance. The severance payment should comprise three times the regular monthly salary figure plus for those employees with more than 15 years’ service an additional 20 days’ pay for every year of service thereafter.

It is mandatory to pay out a 13th-month salary bonus in Mexico called the “aguinaldo”. It’s paid out in December of each year and equals 15 working days of wages, plus an allowance.