Definitive Guide to Hiring in Mexico

Hiring in Mexico

Hiring employees compliantly in Mexico means doing it yourself or using an Employer of Record like Global Expansion. You should be careful using independent contractor agreements in Mexico so that you don’t run afoul of employment laws. To hire an employee compliantly and offer them mandatory benefits and compliant agreements, you can:

(a) Establish your own new legal entity, banking, accounting and payroll service in Mexico; or

(b) use an Employer of Record like Global Expansion who can handle all of the details for you.

Labor Laws in Mexico

Employee Probation Period

• Where the employment contract is to last for more than 180 days or for an indefinite period, the employer may put in place a probationary period of up to 30 days. 
• This period can be extended by up to 180 days for managerial, technical or professional positions.

Annual Leave in Mexico

• Employees in Mexico are entitled to the following annual leave: -
  • 6 days after the first full year of employment
  • 8 days' vacation after two years of service
  • 10 days' vacation after three years of service
  • 12 days' vacation after four years of service
• After the fourth year of service, an employee's vacation entitlement will increase by two days for every further four years of service

Holidays in Mexico

Maternity Leave Mexico

• Female employees have a right to maternity leave consisting of six weeks’ paid leave before the estimated due date, and six week’s paid leave after birth.
• Maternity leave is paid for by Social Security, not the employer.  The payment is capped at 25 times the minimum wage.

Paternity Leave Mexico

Sick Leave in Mexico

• Sick employees are paid 60% of their integrated salary (total salary + benefits) from the fourth day of illness by the IMSS (Mexican Social Security Institute).
• The maximum time limit regarding the amount of paid time off that an employee can take is 52 weeks (whether the illness or injury is work related or not).

Working Hours in Mexico

• The maximum daily duration of each work shift is as follows:-
  • Eight hours for a daytime work shift (48 hours per week)
  • Seven hours for a night-time work shift (42 hours per week)
  • Seven and a half hours for a combined work shift (45 hours per week)

Overtime in Mexico

• The first 9 hours of overtime are paid at a premium rate of 200% of the normal wage rate.
• If a worker has to work beyond 9 hours of extra work in a week, the employer has to pay 300% of the normal wage rate to the workers.
• Overtime can not exceed 9 hours in a week

Termination of Employment in Mexico

Employment agreements can be terminated for the following reasons:

• By mutual agreement (including resignation)
• Death of the employee
• Employee’s physical or mental incapacity or disability which makes working impossible
• For cause

• Where the parties reach an agreement to terminate the employment relationship through mutual consent, there is no requirement to file a notice of the termination with the Labor Board (although the parties can opt to execute an employment termination and release agreement and ratify it before the Labor Board).
• Where the employer terminates the employment relationship with just cause (as defined under the FLL), the employer must notify the employee of the termination and reasons for it (either directly to the employee or through the Labor Board by means of an employment termination notice).
• There is no obligation under the law for either employers or employees to notify the other party in advance of a dismissal or resignation. 
• Notice obligations for employees are not recognizable or enforceable under local law.
• Employees hired for an indefinite term who are dismissed without a just cause (as defined in the FLL) are entitled to claim reinstatement or the payment of mandatory severance

Notice Period in Mexico

• There is no obligation under the law for either employers or employees to notify the other party in advance of a dismissal or resignation. 
• Notice obligations for employees are not recognizable or enforceable under local law. 
• Only notice obligations for employers can be enforced if they have been agreed to; however, it is not common for employers in Mexico to agree to notify employees in advance of their employment termination.

Severance in Mexico

• Employees hired for an indefinite term who are dismissed without a just cause (as defined in the FLL) are entitled to claim reinstatement or the payment of mandatory severance comprised of the amounts described below (note that "daily total compensation" is equal to the employee's daily base salary, plus the daily proportion of any employment benefits ordinarily paid to the employee):
  • 90 days of daily total compensation.
  • 20 days of daily total compensation for each year of service that the employee has worked.
  • 12 days of daily base salary for each year of service that the employee has worked (for purposes of calculating this, employees' salary is capped at twice the amount of the daily minimum wage).
  • Any accrued salaries and benefits (including paid vacation, vacation premium, Christmas bonus and any other accrued benefit).

Mexico Salary and Wages

13th / 14th Month Salary in Mexico

• Yes (Mandatory)
• There is a statutory requirement to pay for the 13th month salary.
• This is called Aguinaldo and is paid in December and it equates to 15 days salary.

• The social security system in Mexico provides the following benefits:
  • Medical assistance in cases of illness, maternity care and accidents
  • Indemnities in cases of temporary disability 
  • Pensions for disability, old age and death
• Employer contributions for social security and other related contributions (e.g., housing and retirement) are mandatory, with rates ranging from 15% to 25%, depending on the salary structure of the group of employees.
• Employed individuals also are required to make social security contributions, with the amount based on the individual’s salary.
• Employee contributions to the Mexican Social Security Institute are withheld at source.

Immigration Mexico

• Foreign nationals entering Mexico are classified under the following immigration categories:
  • Visitor
  • Temporary resident
  • Permanent resident
• The visitor category has two subcategories, which are visitor without authorization to perform remunerated activities in Mexico and visitor with authorization to perform activities remunerated in Mexico.
• A visa for a visitor with authorization to perform activities remunerated in Mexico allows foreigners to stay in Mexico up to 180 days, with permission to be remunerated in Mexico for activities carried out in the country. 
• The application for this type of visa must be submitted through the National Immigration Institute (Instituto Nacional de Migración, or INM) in Mexico.
• The temporary resident category applies to foreigners who intend to stay in Mexico more than 180 days, but less than four years. If the activity that the person will perform will not be remunerated in Mexico, the application can be processed at a Mexican consulate or embassy. 
• Otherwise, it must be approved directly by the INM in Mexico. 
• After temporary resident status is granted, it is renewable for an additional three years.
• Temporary residents are eligible to apply for the same status for family members. 
• This application may be processed either at a consulate abroad or at the INM in Mexico.
• The permanent resident category applies to foreigners staying in Mexico for an indefinite time period. 
• Permanent residents may work and receive remuneration in Mexico. 
• Permanent residents are also eligible for family reunification status if they meet the requisites established in the applicable regulations and rules

Value Added Tax (VAT) in Mexico

• Mexico introduced a Value Added Tax regime in 1980. 
• Locally, it is known as Impuesto al valor agregado (IVA). 
• An 8% rate applies to taxpayers operating through establishments in the northern and southern border regions that meet certain requirements.
• Among other transactions, the reduced rate does not apply to the importation of goods, the transfer of immovable property, and the transfer of intangibles.

Mandatory Benefits in Mexico

• These are mandatory benefits as postulated by law
• These benefits include probationary period, annual leave, public holidays, sick leave, maternity leave, paternity leave, overtime pay, severance pay and 13^th month pay.
• Statutory benefits also include social security benefits

Payroll Accrual in Mexico

Country Accruals Additional Information

Description

Employee contributions to the Mexican Social Security Institute are withheld at source. The employer also makes contributions. Both contributions are calculated at varying rates and subject to various limits based on multiples of the UMA. The maximum annual contribution for employees is MXN 22,243. The employer’s maximum annual contribution is MXN 138,479. The employer limit could be higher, considering that the employer's portion includes the occupational risk premium, which varies depending on the activity of the employer. These maximum contributions apply to employees earning more than MXN 817,782 per year (or MXN 68,149 per month). Employee contributions to the Mexican Social Security Institute are withheld at source. The employer also makes contributions. Both contributions are calculated at varying rates and subject to various limits based on multiples of the UMA. The maximum annual contribution for employees is MXN 22,243. The employer’s maximum annual contribution is MXN 138,479. The employer limit could be higher, considering that the employer's portion includes the occupational risk premium, which varies depending on the activity of the employer. These maximum contributions apply to employees earning more than MXN 817,782 per year (or MXN 68,149 per month).

Payroll Accruals Additional Information

Accrued Benefits in Mexico

Why use Global Expansion to hire in Mexico

Establishing a branch office or subsidiary in Mexico can be time-consuming, expensive and complex. With such a robust labor market in place, one must pay great attention to detail when structuring employment because Mexico labor laws are complex.

The company also has a responsibility to comply with specific employment practices dictated by Mexico law to maintain its good standing as an equal opportunity employer.

Global Expansion makes it easy for you to expand into Mexico. We'll help you hire your candidate of choice, handle HR matters and payroll, and ensure that you comply with local laws without the burden of setting up a foreign branch office or subsidiary. In addition, you'll have complete control and direction over your employees.

We enable you to stay in control of everything. Our Mexico Global Professional Employer Organization (PEO) and Employer of Record (EOR) solution provides you with peace of mind to focus on running your company and the security to enter new markets.