Employing personnel in Mexico

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Employing personnel in Mexico

Index

  • Laws that regulate labor relationships
  • Tax and Labor Authorities
  • Labor contracts
  • Payroll
  • Disability insurance
  • Workday and holidays
  • Immigration process
  • Employee terminations 

General Highlights

Year 2020
Country Mexico
Capital Mexico City
Num. Of states / Provinces 32 states
Principal cities Mexico City, Guadalajara, Monterrey
Language Spanish and 67 indigenous languages
Local currency Mexican Peso (MXN)
Major religion Catholic
Date Format DD-MM-YYYY
Thousands separator format 999,999,999.99
Country code +52 1
Time zone Pacific Standard Time – PST (UTC -8) Tijuana
Mountain Standard Time – MST (UTC -7) Hermosillo
Central Standard Time – CST (UTC -6) Mexico City
Eastern Standard Time – EST (UTC -5) Cancun
Population 135,250,000
Border countries North: United States of America, South: Belize and Guatemala
Surface area 1,960,189 Km2 (Due to its territorial extension, Mexico occupies the fourteenth place worldwide.)
Fiscal year January 1st – December 31st
VAT % 16%
Minimum wage $185.56 Mexican Pesos per day in the North Border-Free Zone
$123.22 Mexican Pesos per day in the rest of the Country
Tax Payer Identification Number RFC by its acronym in Spanish “Registro Federal de
Contribuyentes”, translated to English Federal Taxpayer Registration
Current president Andrés Manuel López Obrador

What you need to know about employing personal in Mexico

1. Laws that regulate labor relationships

Laws Brief Description Link
Political Constitution of the United Mexican States (Constitución Política de los Estados Unidos Mexicanos – CPEUM) The supreme law that governs the economic, social, and political life in Mexico. https://www.coneval.org.mx/Evaluacion/NME/Documents/CPEUM.pdf
Federal Labor Law
(Ley Federal del Trabajo – LFT)
The supreme labor law in Mexico. Only the Constitution is above it, in which the right to work was enshrined in its article 123, which states: “Everyone has the right to a decent and socially useful work […]” http://www.diputados.gob.mx/LeyesBiblio/pdf/125_020719.pdf
Income Tax Law
(Ley de Impuestos sobre la Renta – LISR)
The tax with the greatest impact on
companies and employees is the ISR. The tax is on profit obtained by carrying out a professional activity and the income from said activity. Their tax is calculated on an annual basis, and monthly contributions have to be made towards the stipulated amount.
http://www.diputados.gob.mx/LeyesBiblio/pdf/LISR_091219.pdf
Social Security Law
(Ley del Seguro Social – LSS)
The purpose of the Social Security Law is to guarantee the right to health, medical assistance, protection of livelihood, and social services necessary for individual and collective well-being, as well as the granting of a pension.  

2. Key Tax and Labor Authorities

Laws Brief Description
Secretary of Finance and Public Credit (SHCP) The department responsible for proposing and controlling the Federal Government’s economic policy regarding the financial, fiscal, expenditure, income and public debt sector. Also, it is responsible for raising taxes from businesses and individuals, and distributing said funds throughout the government.
Mexican Social Security Institute (IMSS) An institution of the federal government that provides benefits and social welfare programs to people outside of the workforce by age or disability, for employers, and for currently employed persons. Combines public health and economic welfare programs under one agency.
Institute of the National Housing Fund for Workers (INFONAVIT) An agency that provides direct contributions towards the purchase of home, matching funds paid by a given worker as a deduction from their paycheck, while employers also make a contribution. It manages the resources of the National Housing Office, which is funded by employer contributions. Participation in this program is completely optional for the employee, but mandatory for employers (in such case as the employee has chosen to participate).
National Commission of the Retirement Savings System (CONSAR) An administrative body of the Ministry of Finance and Public Credit whose fundamental task is to regulate the Retirement Savings System, consisting of individual-owned accounts. Essentially a national pension system. Contribution to this fund is mandatory.
Institute of the National Fund for Workers’ Consumption (INFONACOT) A financial institution of the Mexican government created to enables the purchase of home improvements, furniture, etc. through subsidized low-interest loans eventually paid back via withholding from the worker’s paycheck.

Hiring Employees in Mexico

3. Labor Contracts

Individual employment contracts is one by virtue of which a person is obliged to give another a valuable labor or service in exchange for a salary. The lack of the document does not deprive the worker of the rights derived from relevant labor standards.

The hiring of children under 15 years of age is illegal. Those who are under 18 must have concluded the equivalent of a middle school education. People under 18 cannot work in a situation where their health, security, or morality can be at risk. The minimum age to provide any work in Mexico is 15. Those over 15 and under 16 need authorization from their parents or guardians. People over 18 can work without authorization from anyone else.

  • Type of contracts The labor relations may be for a specific task or period of time, seasonal or indefinite, and, where appropriate, may be subject to testing or initial training. Unless stated otherwise, the relationship will be assumed to be for an indeterminate period.

 Contract for an undetermined time Article 39, LFT It is considered an indeterminate work relationships when an agreement exceeds 180 days. In their case, a trial period may be established, which may not exceed 30 days, with the sole purpose of verifying that the worker meets the requirements and knowledge necessary to achieve the work requested. It is important to clarify that the probationary period may be extended up to 180 days, only in the case of management, managerial positions and other persons exercising management or administration functions.
Contract for specific work or time Article 37, LFT A fixed-term contract can only be stipulated when required by the nature of the work to be provided or when it is intended to temporarily replace another worker.
Recruitment for initial training Article 39 B, LFT The law considers that there is period for initial training when a worker is obliged to provide subordinate services under the direction and command of the employer, while the worker acquires the knowledge or skills necessary for the activity for which they are going to be hired. When the trial or initial training period is over and the employment relationship continues, it is considered for an indeterminate period.
Trial Period Contract  Article 39 A, LFT In the case of trial periods that will be 30 and up to 180 days, for administrative, technical, or specialization work, at the end of their period, if the employer may decided to terminate the employee at no obligation to them.
Contract for work relationship by season  Article 39 F, LFT A seasonal contract may be used when the activities do not require the provision of services all week, month or year. It should be clear that workers who provide services under their modality have the same rights and obligations as workers for an indefinite period, in proportion to the time worked in each period. To avoid abuses in the use of these new figures, the contracts must be established in a written agreement and the trial and training periods will be determined.

  • Basic Requirements
    The information that the contract must contain is established in Article 25 of the Federal Labor Law:
    • Name, nationality, age, sex, marital status, Unique Population Registration Code, Federal Taxpayers Registry and address of the worker and employer
    • If the employment relationship is for work or time determined by season, initial training or for an indefinite period and, if applicable, if it is subject to a trial period
    • The service or services that must be provided
    • The place or places where work should be provided
    • The form and amount of the salary
    • Other working conditions, such as days of rest, vacations and other that agree the worker and the employer

4. Payroll

The payroll is one of the most important documents within a company, since there is a control of all the withholdings, at or about legal minimums, of the salary of the employees. From their operation, the final amount that a worker will receive and the amount that the company will invest in a given period is obtained.

  • Legal Benefits in Mexico

Work benefits are additional benefits provided through a worker as a condition of their labor relationship. The benefits are established in a contractual relationship and will be independent of salary, they may consist of an economic, cultural, or medical nature.

The law establishes mandatory benefits that every employer must grant to their employees, the others will be agreed by mutual agreement in the individual work contract.

Minimum Wage Their amount in theory, would have to cover fundamental expenses to provide the employee with a decent life.
Salary Article 5, 82 and 101, LFT The compensation that an employer is obliged to pay its workers for the work they have done during a set period. Regular employees have to be paid biweekly Manual laborers need to be paid weekly No salary can be less than the minimum The salary in cash must be paid precisely in legal currency Pay must be equal for the same work, regardless of sex or nationality
Vacations Article 76, LFT Workers who have more than one year of service are entitled to enjoy an annual period of paid vacation: 
Years of Service Days of Vacations
1 – 4 6 Days
2 8 Days
3 10 Days
4 12 Days
5 – 9 14 Days
10 – 14 16 Days
Etc Etc
Vacation Bonus Article 79 and  80, LFT Workers will be entitled to a bonus of no less than 25% of their regular salary they would have earned during the vacation period. If the employment relationship ends before the year of service is completed, the worker will be entitled to a remuneration proportionate to the time of services rendered.
Christmas Bonus Article 87, LFT The workers will be entitled to an annual bonus that must be paid before the twentieth day of December, equivalent to, at least fifteen days of salary. If terminated before the day in which the bonus is due, the employee is entitled to the proportion of the bonus accrued up to that point in the year. (Ex. If fired in August, they are entitled to 8 months’ contributions to the Bonus)
Social Security Article 15, 38, 56 and 58, LSS Social security will provide the employee with medical, surgical, pharmaceutical, and hospital services. The mandatory regime includes the insurance for: Occupational risk Illness and maternity Disability and death Retirement and currently working elders Day care and social services
Superior Benefits ** Additional benefits in excess of the legal minimum Examples of work benefits are: Food service  Transport service Private health insurance Meal vouchers Gas vouchers Savings funds Productivity bonus

  • Employer Contributions or Labor Cost

The employer contributions turn out to be those sums of money that the employer will be obliged to contribute to the state for having employees. They are not recoverable for the employer.

Social Security The employer is obliged to register the worker with the Social Security Institute, and pay the corresponding contribution. These payments assure employees have access to various forms of state support in the event of injury, unemployment, or other circumstances.
State Tax Each state of the federation has a tax on salaries for personal work, which varies by state. On average the state tax is 3% of the total income of the worker.
Federal Tax A fee that employers must cover for any transaction that corresponds to an employment relationship. Failure to comply may result in fines or penalties.

5. Types of Disabilities

In the Federal Labor Law it is established in Article 473 that occupational hazards are accidents and diseases to which the workers is exposed in the course of performing their duties. Employers must pay the corresponding compensation, depending on whether said injury resulted in death or simply temporary or permanent inability to work. Their responsibility will still exist even if the employee was hired through an intermediary.

A work accident is any organic injury or functional disturbance that can be shown immediately or later on, or can cause death or grievous during the activities of the employee’s work. This includes accidents that may occur when the worker moves directly from their home to the place of work or vice versa.

Occupational disease is any pathological state derived from the continued performance of work in a hazardous environment that has exposed them to a contagion, carcinogenic, or otherwise harmful environmental factor.

Disabilities caused by occupational hazards will generate compensation, which must be paid directly to the worker, in cases of mental disability the payment must be made to the person or persons in whose care it is left, and in the case of death of the worker it will be paid to their beneficiaries.

Types of disability Brief Description
Temporary disability: Loss of faculties or aptitudes that partially or totally precludes a person from performing their work for some time.
Permanent partial disability: The decrease of the faculties or aptitudes of a person to work at full capacity.
Total permanent disability: The loss of faculties or aptitudes of a person that makes it impossible to perform any job for the rest of their lifetime.
Other Type: Maternity Leave A working mother enjoys the following rights during and after her pregnancy: During work they will not have to do activities that require considerable effort or that can be of any risk for her health or that of the baby They will have a leave of 6 weeks before delivery and 6 weeks after, with full remuneration according to their salary, without fear of termination In case of adoption of an infant, they will enjoy a six-week break with pay, after the day they receive him/her They will have the right to return to their current job position, with no penalties to seniority

6. Workday and holidays

According to Article 58, LFT, the “workday” is the time during which the worker is available to the employer to lend their work.

The worker and the employer will set the duration of the workday, without exceeding the legal maximum of 8 hours per day or 48 hours per week.

For every six days of work the employee must enjoy at least one rest day.

During the continuous work day the worker will be granted at least one half hour break.

The work day may be extended due to extraordinary circumstances, never exceeding three hours a day or three times in a week, (Essentially “overtime”: Maximum 9 per week)

Type of Work Day Working hours per Day Extra Hours Sundays  
Day shift 8 hours 100% over their hourly salary (double) If the employee is working on Sunday (but still under 48 hours a week), they are owed a 25% bonus over their normal hourly wages. 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)  
Night Shift 7 hours  
Mixed Shift 7 ½  hours  

According to the Article 715 of the Federal Labor Law (LFT), business days are all days of the year except Saturdays and Sundays, mandatory rest, and holidays indicated by the working days calendar and those in which the labor authorities indicated that the work is suspended (for natural disasters, etc.)

Mandatory Rest Days Holiday Name
January 1st New Year’s Day
1st Monday February Day of the Constitution
3rd Monday March  Benito Juarez’s Birthday
May 1st Labor Day
September 16th Independence Day
3rd Monday November Day of the Mexican Revolution
December 1st (Presidential Election year) Presidential Election (every 6 years)
December 25th Christmas

7. Immigration Process

To obtain a work permit it is necessary to have a formal offer letter and employment contract in Mexico before arriving in Mexico to begin said work.

The employer in Mexico must make the petition directly to the National Institute of Migration (INM) in Mexico.

Subsequently, one must start the process of “Temporary residence visa, of a visitor with permission to perform paid activities” requested from the National Migration Institute for employment offer. 

If the resolution is favorable, a visa authorization will be given to the employer.

Once the hiring company has received their authorization with their unique registration number for their process (NUT number), the employee will have to schedule an appointment to conduct an interview at a consulate at any country outside of Mexican territory.

On the day of the consular appointment the (prospective) employee must present:

  • A visa application with all fields filled legibly. The signature must be the same as the passport.
  • Copy of the initial authorization by INM.
  • Original and copy of the valid passport.
  • Original and copy of the offer of employment
  • A color photograph with a white background, with the face visible and without glasses, measuring 32 millimeters x 26 millimeters or 39 millimeters x 31 millimeters.

NOTE:

Once the procedure is authorized, the visa will be delivered on the same day during business hours, otherwise, the INM representative has 10 business days to give you an answer on your visa, in accordance with the guidelines of  Immigration Laws.

The visa does not guarantee admission to national territory. The admission to Mexico is subject to the approval of the immigration authorities and may denied in the case of criminal convictions, etc.

8. Employee Termination

The worker or employer may terminate the employment relationship at any time, with just cause:

  • The worker has deceived their employer in a material way (expenditures, inventory, etc.)
  • The worker presents, a lack of integrity, a lack of honesty, acts of violence, threats, or insults, whether during or outside of working hours
  • The worker, intentionally, causes property damage during the performance of work
  • The worker commits immoral acts or harassment and or sexual harassments against their coworkers
  • The worker reveals secrets or confidential information from the company
  • More than three absences in a period of thirty days, without the employer’s permission or just cause
  • The worker arrives at the work site in a state of intoxication

An employer who dismisses a worker must give written notice clearly stating the conduct or behavior that motivate the decision and the date or dates during which they were committed.

The lack of notice to the worker or the relevant government authorities will provide the employee with grounds to successfully claim that the dismissal was unjustified.

Labor termination settlement

If the employer does not verify the cause of the termination it is considered a termination without cause. The worker will then have the right to be reinstated in its job position or to be compensated.

The employer will be exempt from the obligation to reinstate the worker, by paying the compensation:

  1. Three months of salary
  2. 20 days of salary per each year of service
  3. Payment of overdue wages, if applicable
  4. Vacation and Christmas bonuses accrued by the time of dismissal.

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