Hiring employees is an important milestone for any business, and expanding operations to a new country brings exciting opportunities and challenges. As you set your sights on expanding your business and hiring employees in Mexico, it’s imperative to unravel the country’s intricate labor landscape.
Just like the colorful threads of a traditional Mexican serape, the country's labor laws weave together to create a unique fabric that shapes employer-employee relationships. To ensure compliance as well as employee productivity and success, it’s crucial to have a comprehensive understanding of these key factors.
What follows are 12 important things you need to know when hiring in Mexico. From employment contracts to employee rights and everything in between, this guide will give you a better understanding of Mexico’s employment practices and how to ensure that you’re meeting your legal obligations.
Labor Laws
When navigating Mexican labor law, it’s important to first differentiate between labor and employment laws. Employment laws address the different aspects of a one-to-one relationship between an employee and an employer, ensuring fair and just treatment within the workplace. These aspects include:
- Working conditions
- Working hours and overtime pay
- Minimum wage and bonuses
- Paid holiday
- Social security rights
- Parental leave
- Workplace safety
Labor laws, on the other hand, extend employment laws to worker unions, ensuring that workers' collective rights are preserved. Mexico’s constitution establishes labor and employment laws in the country, chief among them the Federal Labor Law (Ley Federal del Trabajo).
The Federal Labor Law sets out the fundamental rights and obligations of both employers and employees, including the procedures and requirements for employment contracts, terminations, severance pay, and dispute resolution mechanisms. The law also requires that employers comply with regulations regarding equal pay, non-discrimination, and protection against workplace harassment.
Types of Employment Contracts
In Mexico, every employer-employee relationship is subject to the principle of ‘job security.’ In other words, there’s no employment-at-will in Mexico and an employee can’t be laid off without cause. As a result, employers are required to have a written agreement with each employee that clearly states the terms of the agreement.
The main types of employment contracts in Mexico are:
- Permanent or indefinite contracts: These are the most common employment contract type in the country and they align well with the ‘job security’ principle. Under this contract, employees get indefinite employment until both parties agree to terminate the agreement or one party breaches the contract.
- Temporary or definite contracts: Definite contracts are used for fixed-term employment with a predetermined end date or in cases where an employee temporarily replaces another worker.
- Seasonal contracts: These apply to fixed work that occurs only at a specific time of the year, for example, during holiday events.
- Probationary contracts: These are used to assess an employee's suitability for a permanent position during a limited trial period. The law stipulates the maximum duration for probationary contracts and has protections to prevent their abuse.
In general, every employment contract should include all the details of the agreement, including the employee’s personal information, the nature and duration of employment (as well as any training or trial period duration), a detailed job description, the work schedule, the amount of time off, and the salary and benefits.
Employment contracts with labor unions must include a written Collective Bargaining Agreement (CBA) outlining all the terms of the agreement
Minimum Wage
Employers in Mexico are required to adhere to the national minimum wage, which varies according to the geographic zones defined by the government. As of January 1, 2023, the minimum wage in Mexico is:
- General: 207.44 pesos per day
- Northern Border Free Zone: 312.41 pesos per day
Employers should review and adjust employee wages accordingly to ensure compliance with the requirements. Failure to comply with Mexico's minimum wage laws can result in the following penalties:
- Back pay: Employers may have to pay employees back pay for any wages that were not paid at the minimum wage rate.
- Fines: Employers may be fined by the government.
- Criminal charges: In some cases, employers may face criminal charges for noncompliance.
Social Security
Employers must register their employees with the Mexican Institute of Social Security (IMSS), a government agency in charge of administering Mexico’s social security programs. Registration gives employees access to healthcare services, retirement benefits, disability coverage, and maternity/paternity leave benefits, all of which can help to attract and retain top talent.
After registration, employers should contribute a percentage of employees' salaries to the IMSS fund to finance these social security programs. The contribution rate is 13.5% of the employee's salary.
Here are some tips for accurately calculating and remitting IMSS contributions:
- Use the IMSS website to calculate the required contribution rate
- Ensure that all employees are correctly classified
- Ensure that all wages are correctly reported
- Remit contributions on time
Taxes and Contributions
According to Mexican labor law, employers are responsible for withholding and remitting employee income taxes to the Mexican Tax Administration Service (SAT).
The amount of income tax withheld by employers from employees' salaries is determined by the employee's income and filing status. Employers can use the SAT website to determine how much income tax they have to withhold.
Employers must also contribute to other mandatory employer contributions, such as the IMSS, National Housing Fund (INFONAVIT), and Retirement Savings System (SAR). The contribution rates for these vary depending on the employee's salary and the type of contribution. Again, employers can use the SAT to calculate the amount of contributions they have to make.
The SAT can impose penalties on employers who fail to withhold and remit employee income taxes or contribute to the IMSS, INFONAVIT, or SAR. To avoid these penalties, it’s essential to:
- Register with the SAT
- Obtain a taxpayer identification number (TIN) for the company
- Withhold and remit employee income taxes on time
- Contribute to the IMSS, INFONAVIT, and SAR on time
- Maintain accurate records of all tax and contribution payments
Working Hours
Mexican labor law generally mandates an 8-hour workday and a weekly maximum of 48 hours with one full day of rest per week. Any additional hours worked are considered overtime, which should be paid at a higher rate than regular hours.
For the first nine hours of overtime worked in a week, the Mexican Federal Labor Law (FLL) sets the standard overtime rate at 100% of the employee's regular hourly rate. Overtime hours worked in excess of nine hours per week are paid at 200% of the employee's regular hourly rate.
However, the overtime rules have some exceptions. For example, employees covered by a collective bargaining agreement may be paid differently for overtime than those set by the FLL.
It's also important to note that certain industries or specific job roles may have different working hour regulations. For example, the healthcare industry is exempt from the 48-hour workweek rule. Since healthcare is considered an essential service, employees are often required to work long hours. Additionally, employees who work shift work may be required to work longer hours than those with a regular 9-to-5 schedule.
On the other hand, overtime is prohibited for individuals below the age of 16, as well as pregnant or nursing mothers, when such work poses a risk to the mother or child’s life.
Vacation and Benefits
Mexico has stringent employee benefit requirements that all employers should follow. Mexican employees are entitled to paid annual leave, which is calculated based on the employee's length of service. In addition, employers must give employees paid time off on designated public holidays. The number of paid holidays varies by year, but there are typically 8-10 each year.
Employers are also required to provide a variety of other benefits to employees, such as an annual bonus (aguinaldo), parental leave, and profit-sharing based on the company's profitability.
Employee Rights and Protections
Employees in Mexico have a number of rights and protections, including:
- The right to a safe and healthy work environment: Employers have to provide employees with a workplace that is free from hazards that could cause injury or illness, as well as the necessary safety equipment and training.
- The right to be free from discrimination and harassment: Mexican law prohibits discriminating or harassing employees based on their race, gender, age, disability, religion, or sexual orientation. This means that employers are prohibited from discriminating against employees in hiring, firing, promotion, or any other aspect of employment. Plus, they are prohibited from harassing employees in any form, whether verbally, emotionally, or physically.
- The right to fair treatment: Employers should pay their employees' wages on time and in full, as well as provide them with the benefits to which they are entitled. Moreover, employers are not allowed to retaliate against employees who exercise their rights, such as filing a complaint with labor authorities.
- The right to join a labor union: Employees have the right to join a labor union and participate in collective bargaining, which is the process of negotiating with employers over wages, benefits, and working conditions. Employees who join a union also have the right to strike without losing their employment.
By understanding and respecting the rights of employees, employers in Mexico can help to create a positive and productive work environment.
Collective Bargaining
In industries where labor unions are present, employers may need to engage in collective bargaining processes to negotiate employment conditions, wages, and other labor-related issues.
Employers must understand their collective bargaining rights and obligations, including the duty to bargain in good faith. It’s also good to remember that collective bargaining agreements reached between employers and unions can establish additional employment conditions above and beyond the legal minimums.
Maternity Leave
Maternity leave in Mexico gives female employees a period of rest and job security before and after childbirth. Expectant mothers are entitled to 12 weeks (84 calendar days) of maternity leave, which is divided into prenatal and postnatal periods.
- The prenatal period, also known as "prepartum" leave, starts six weeks before the expected due date.
- The postnatal period, also known as "postpartum" leave, lasts six weeks after childbirth.
During maternity leave, employees are entitled to receive their regular salary, which is covered by the IMSS or the employer, depending on the social security scheme in place.
Employees must be registered with the IMSS and have made sufficient contributions to be eligible for maternity leave benefits from the IMSS. Employers are expected to provide leave benefits to employees who are not enrolled in the IMSS or who have not contributed enough. The benefit is typically equal to the employee's regular salary.
To apply for maternity leave, employees have to submit a medical certificate from their doctor to their employer. The application is then submitted to the IMSS by the employer.
Upon completing their maternity leave, employees are entitled to return to their same job. They also have the right to take breastfeeding breaks.
Paternity Leave
Male employees are entitled to a five-day paternity leave. The leave can be taken continuously or intermittently within 30 calendar days from the date of childbirth.
During paternity leave, employees have the right to receive their regular salary, which is covered by the IMSS or the employer, depending on the social security scheme in place.
To ensure that an employee receives benefits, the employer must submit the employee's paternity leave application to the IMSS. Employers are also required to provide leave benefits to employees who are not enrolled with the IMSS.
Digital Nomad Visa
Mexico’s temporary resident visa is designed for individuals who wish to stay in Mexico for more than 180 days but less than four years. To obtain a temporary resident visa, applicants are expected to meet specific requirements, which may include:
- Proof of financial solvency: This can be demonstrated through bank statements, investment accounts, or other financial documents.
- A clean criminal record: Applicants have to provide a police clearance from their home country.
- A valid passport: The passport must be valid for at least six months after the intended date of entry into Mexico.
The visa can be used for a variety of purposes, including employment, education, volunteering, and retirement. Nonetheless, both employers and employees must consult with legal professionals or labor experts who are familiar with Mexican labor laws to ensure compliance with the specific requirements and regulations applicable to the visa.
Hiring Employees in Mexico The Simple and Compliant Way
Hiring employees in Mexico can be a complex and time-consuming process. However, it’s important to understand the hiring practices of this vibrant country if you wish to expand there. By doing so, you can ensure that you are compliant with local laws and regulations.
The simplest way to hire employees in Mexico while remaining compliant is to use an employer of record (EOR). An EOR like Remofirst can hire, manage, and take care of employees on your behalf, so you don’t have to worry about the finer details of running a distributed workforce.
Remofirst will take care of everything from global payroll to benefits management, workforce management, and keeping up with Mexico’s diverse legal space. This will save you time and money while ensuring compliance with Mexican labor laws.
If you are considering expanding your business to Mexico, check out Remofirst’s Mexico country guide to find out how the platform can help you unlock the full potential of your global team.
