In our guide on how to hire employees in Mexico, we provide a comprehensive overview of the major labor laws, legal requirements, and payroll processes in Mexico. This guide on employee benefits in Mexico goes into greater detail on statutory benefits and elective perks companies can offer.

Statutory benefits are benefits that companies are legally required to provide to employees. Businesses with employees in Mexico must offer all of these benefits to all full-time employees to avoid facing penalties and fines.

Because Mexico has robust requirements for statutory benefits, many companies choose not to provide any benefits beyond these, with a few notable exceptions. Statutory benefits in Mexico include:

Employers in Mexico must provide employees with a Christmas bonus, called Aguinaldo, in December of each year. This bonus amounts to at least 15 days’ worth of pay, though some employers provide 20 days’ pay to their employees. Employers must distribute the Christmas bonus in Mexico prior to December 20th so employees can use the funds for the holidays. Many companies choose to issue the bonus in the second week of December.

Full-time employees in Mexico are entitled to at least six days of paid time off after their first year of employment. Employees earn more paid time off every year on a schedule, hitting a cliff after five years.

Every five years after the fifth year: Two additional days of PTO

For example, an employee who works for a company in Mexico for 20 years must receive at least 20 days of PTO per year: 14 days after the first five years, two days after the 10th year, two more days after the 15th year, and two more days after the 20th year.

Paid time off in Mexico typically does not carry over from year to year. Employees who quit or are fired are entitled to a payout of their unused vacation time, though.

In addition to the time itself, employees in Mexico receive a bonus when they take PTO. This bonus, called Prima, must be at least 25% of the employee’s pay in addition to the employee’s regular salary. The employer can pay this bonus when the employee takes the leave or in a lump sum at the end of the year.

Every year, companies in Mexico must distribute a 10% share of their profits to their employees. The deadline to make these payments is in May. Executives, officers, and other high-ranking employees do not receive a share of the 10%.

Profit distributions are split into two equal parts:

The first distribution is split equally among all workers at the company. This distribution accounts for the number of days worked by each employee in the year and does not consider employee wages.

The second distribution is also split among workers but considers both days worked and wages earned during the year.

Newly created companies are exempt from sharing profits in their first year of operation.

Employers in Mexico pay social security on wages and deduct social security contributions from employee paychecks, much the same way companies in the U.S. operate. In Mexico, though, these contributions cover all basic healthcare, so employers do not have to offer their own healthcare plans.

Overtime pay is Mexico changes depending on whether the employee works the day shift, the night shift, or a shift that extends into both day and night. In Mexico, the night shift extends from 8 p.m. to 6 a.m.

Day shift employees who work more than eight hours on any day or 48 hours in a week receive 200% pay for the extra hours worked. The 200% overtime rate goes into effect after seven hours in one day or 42 hours in one week for night shift workers. Workers who work split shifts receive overtime pay beginning at 7.5 hours or 45 hours per week.

After the first nine hours of overtime pay, employees receive 300% pay for all subsequent overtime hours worked. Employees who work on Sunday receive a 25% bonus regardless of how many hours they work, and overtime rules go into effect after eight hours. Employers in Mexico must give employees at least one day off per week.

In our guide on how to terminate an employee in Mexico, we cover three different types of severance pay. Workers who quit on their own are entitled to small severance packages including proportional payments of the Christmas bonus and unused PTO. Employees fired with cause also receive 12 days’ worth of salary per year worked at the company. Employees fired without cause receive hefty severance packages beginning at a minimum of three months’ salary plus additional compensation.

Social security and public healthcare in Mexico cover maternity and paternity leave. Mothers receive six weeks before the due date and six weeks after the birth as paid leave. Fathers are guaranteed just five days of parental leave after the birth of a child. Employers are not required to provide more than that which is paid for by the state.

Mexico’s statutory benefits cover a broad range of needs, but employers looking to attract top talent should consider offering additional perks on top of the legal minimums.

Common elective benefits in Mexico include:

Many employers in Mexico choose to provide employees with food vouchers. Although not technically a statutory benefit, food vouchers are a common elective benefit in Mexico. Food vouchers can be used at a number of grocery and general goods stores.

Although Mexico’s government provides health insurance for everyone in the country, the services provided are often not up to the same standard as private options. By offering supplemental private health insurance, employers can improve their ability to attract top talent. Private health insurance in Mexico provides access to better clinics and shorter wait times than public insurance.

Companies do not have to find their own plans, though. Many employers choose to provide employees with stipends or supplemental pay, which employees can use to select their own private health plans. This is how Remote helps companies provide their employees in Mexico with excellent medical coverage.

Many companies choose to provide life insurance for employees. Life insurance policies in Mexico pay a predetermined amount of money to an employee’s family in the event that employee dies while the policy is active, regardless of whether the death occurs at work.

Companies can keep a small amount of employee pay in reserve every month to be placed into a company-owned savings account. The amount withheld can never exceed 13% of an employee’s monthly salary. The company contributes an amount equal to the employee’s contribution, then releases the full amount back to the employee once per year.

Productivity bonuses are common all over the world, and Mexico is no exception. Productivity bonuses in Mexico provide incentives to employees to achieve certain goals in exchange for bonuses, often structured by tiers. These bonuses are common for knowledge workers in Mexico.

In addition to food vouchers, some companies also offer gasoline vouchers or fixed cash amounts to help employees get to work. In some cases, companies operate their own transportation services to pick up employees in the morning and take them home at the end of the day. For employees with cars, free parking is a highly desirable perk, as parking in certain parts of cities can exceed a thousand pesos a month.

Employers in Mexico sometimes offer loans to employees at low rates. These loans can include personal loans, payroll loans, mortgage loans, and automobile loans. Companies choosing to offer these services must be careful to comply with the stringent payroll rules in Mexico.

High-level salespeople, executives, general managers, and other well-paid employees in Mexico sometimes receive company cars. These cars can generally be used for personal purposes as well as work purposes. Company cars are kept in the name of the business, so in the event the employee leaves, the company retains ownership of the vehicle.

Companies in Mexico may elect to provide employees with cell phones and service plans. These phones are owned by the company, and the bills for service go directly to the company.

As is the case with cell phones, employers in Mexico can offer to pay for internet service for their employees. This perk has become more common as more companies have switched to remote work. As with cell phones, the bill goes directly to the employer and is in the employer’s name.

Want to know more about employee benefits in Mexico?

Do you have questions about how to offer benefits to your employees in Mexico? Are you interested in offering a benefit not listed here? 

Remote can help. We own our own local legal entity in Mexico, which means we can provide your employees in Mexico with a first-class experience no matter where your business is headquartered. Reach out to us today to see how our Mexico payroll, benefits, taxes, and compliance solution can help your company grow.

Because Mexico has robust requirements for statutory benefits, many companies choose not to provide any benefits beyond these, with a few notable exceptions. This guide on employee benefits in Mexico goes into greater detail on statutory benefits and elective perks companies can offer.

Employee Benefits in Mexico: All You Need To Know

Benefits to offer employees in Mexico

When things don’t work out, how do you terminate an employee in Mexico?

In our guide on hiring employees in Mexico, we briefly covered employee terminations and severance pay in Mexico. Here, we will take a closer look at requirements for termination, types of contracts, and differences in severance packages.

Do you have to give advance notice to fire someone in Mexico?

Although Mexican labor laws generally favor workers, you do not have to give advance notice to terminate an employee in Mexico. For employees on indefinite contracts, you do have to provide a severance package, though. These packages can be substantial depending on the nature of the termination.

To terminate an employee on a definite or time-limited contract before the original term of the contract ends, you only need to consult the terms of the agreement. These contracts should have specific clauses that outline what to do in the event of an early termination. A decision by Mexico’s Supreme Court outlawed the practice of companies putting employees on multiple definite employment contracts to avoid paying benefits.

If the employee works for a union, your collective bargaining agreement may outline additional restrictions on terminations. Unions in Mexico have the power to act in an employee’s interest even without the cooperation of the employee. Never attempt to operate outside the scope of a collective bargaining agreement, even if the employee harbors no ill will about the termination.

Do you need cause to fire an employee in Mexico?

No. You do not need to point to a specific reason or event to fire an employee in Mexico, provided the employer and employee agree to part ways via mutual agreement. However, employers must tread carefully to avoid paying hefty fines or getting drawn into costly legal battles.

Employees in Mexico who dispute their termination have a right to a fast and transparent hearing. If you choose to fire an employee with cause, make sure you have plenty of documentation to back up that decision. The difference between firing with cause and firing without cause greatly affects severance packages. Poor performance is not an acceptable reason for dismissal in Mexico.

In most cases, termination with cause only occurs for employees who violate workplace policies, become incapacitated, or commit a crime. Companies closing down their operations may also terminate employees with cause. If you choose to fire an employee and claim to have cause, come prepared with consistently documented evidence the employee violated workplace rules.

Does Mexico allow probationary periods of employment?

Technically, Mexico does allow employers to use 30-day probationary periods to evaluate employees before bringing them on as full-time workers. Companies should not treat probationary periods as guaranteed legal immunity, however. The implementation of laws regarding probationary periods in Mexico remains uncertain. If you terminate an employment contract within the first 30 days, be prepared to provide documentation to help you case.

Any employee in Mexico who works for a company for a period lasting longer than one month is considered to be an indefinite employee in the eyes of the law, even without a formalized contract. Indefinite employees are entitled to benefits during employment and severance pay upon termination.

When do benefits end for terminated employees in Mexico?

Benefits for Mexican employees typically end at the time of their termination unless otherwise stated by an employment contract or severance agreement. Because the Mexican government provides healthcare to its citizens, employees do not lose all health coverage after being fired. Public coverage tends to be much poorer than private coverage, however, which is why employers often offer private health insurance to attract top talent in Mexico.

All employees below director level in Mexico are entitled to a share in the company’s profits, capped at 10% for all employees, and a Christmas bonus of at least 15 days’ salary. Employees who have worked long enough to be eligible for benefits receive a portion of benefits such as profit sharing and their Christmas bonus paid out proportionately at the time of dismissal.

When are employees entitled to severance pay in Mexico?

All employees on indefinite contracts (which covers most full-time employees in Mexico) are entitled to severance pay when they leave. This includes employees who quit on their own, employees who are fired without cause, and employees who are fired with cause. 

How much are severance packages in Mexico?

Severance packages in Mexico differ depending on whether an employee quits, is fired with cause, or is fired without cause.

Severance for employees who quit on their own

Employees who voluntarily leave their positions receive severance packages including:

A proportional amount of the Christmas bonus, based on days worked in the year

A proportional amount of paid vacation, based on vacation days earned

Other payments outlined in the employment contract including bonuses, food vouchers, savings fund contributions, and shares of company profits

Severance for employees fired with cause (Justified Dismissal)

Employees fired with cause typically receive larger severance packages than employees who quit on their own. For this reason, companies terminating employees with cause must be prepared to defend that cause to the Mexican government. These packages include:

12 work days’ worth of salary per year worked at the company

Severance for employees fired without cause (Unjustified Dismissal)

Employees fired without cause receive substantial severance pay in Mexico. These packages are typically offered to employees who leave via mutual agreement and include:

A seniority bonus of 12 work days’ pay per year worked beginning at 15 years of employment, capped at twice the average daily salary in the region

Any expired wages, with a limit of 12 months from the date of the notification of termination

An additional payment of 20 days’ salary per year worked in cases where employees appeal to the Mexican government for reinstatement but are refused by the company

Accrued vacation, proportional Christmas bonus, and proportional profit shares

Parting ways with an employee is never easy, especially under international laws. Remote makes it easy for businesses of all sizes to employ and manage workers in countries all over the world. Whether you’re ready to hire your first employee in Mexico or need assistance managing payroll, benefits, taxes, and compliance for your entire Mexico team, Remote’s employer of record solutions can help.

When things don’t work out, how do you terminate an employee in Mexico? In this article, we take a closer look at requirements for termination, types of contracts, and differences in severance packages.

How to terminate an employee in Mexico

In our guide on hiring employees in Mexico, we touched on how to pay remote workers in Mexico. Let’s take a closer look at the complexities of paying workers in Mexico and talk about how to ensure businesses stay compliant with Mexican labor laws.

Banking requirements in Mexico for employers

In 2017, changes to labor laws created new rules that require employers to pay all full-time employees who live in Mexico as if they were permanent Mexican citizens. Now, expats and citizens follow the same system of rules, simplifying things for the Mexican government while creating a few complications for foreign employers.

Employers of workers in Mexico must now pay their workers in Mexican pesos through government-approved Mexican banks. Employees can convert their payments after the fact, but they cannot receive their salaries in American dollars or any other currencies.

Employers typically set up accounts for employees, but these accounts are specifically for payroll receipt. These payroll bank accounts receive deposits from employers, which employees can spend by using a bank-provided debit card. While payroll bank accounts do allow employees access to their money, they do not provide a full range of banking services, so employees should still open their own bank accounts for personal use.

Companies must be diligent to ensure workers in Mexico receive a consistent salary. Remote offers full-service employer of record services in Mexico for a flat fee, guaranteeing compliance with all local employment laws while providing a consistently exceptional experience (and consistent payment amounts) for remote workers in the country.

Until 2017, employers only had to pay social obligations and taxes on wages for workers in Mexico. Now that employers must keep employees’ net pay in Mexico (via the requirement to use Mexican banks), employers are responsible for the full range of payroll deductions and contributions. These deductions include social security, taxes, and other benefits explained further in our guide to hiring in Mexico.

These changes prevent employers from processing payroll outside of Mexico for employees who work in the country. Employers who are used to splitting payroll between two countries cannot do so in Mexico. When processing payroll in Mexico, all deductions from employees’ paychecks occur in Mexico and are subject to Mexican payroll obligations.

Failure to abide by these rules could result in fines, penalties, or a ban from doing business in the country.

Can foreign businesses pay employees in Mexico directly?

Companies outside Mexico can only pay workers in Mexico directly if those workers are independent contractors. Full-time employees in Mexico must be employed by a local legal entity and must have an appropriate Mexican work permit to work in the country. Companies should not attempt to pay employees in Mexico as contractors, because the Mexican government takes worker misclassification claims seriously.

Businesses can choose to open their own legal entities in Mexico by going through the appropriate government channels and hiring their own lawyers, payroll providers, and benefits administrators. Most companies, however, choose to work with an employer of record, like Remote.

As an employer of record, Remote manages payroll, benefits, taxes, and compliance for businesses with employees in Mexico and other countries around the world. We keep companies compliant with all applicable labor laws while providing a first-class experience for remote employees.

How to get approval to pay employees in Mexico

Businesses cannot simply pay employees, withhold social contributions, and report taxes in Mexico on their own. Companies with Mexican employees must also submit pay stubs to the Servicio de Administración Tributaria (SAT), Mexico’s internal revenue service, for approval.

Only after the SAT receives and approves an employee’s pay stub can an employer forward the pay stub to the employee. The SAT verifies that the amount the employer is supposed to pay the employee matches the amount actually paid. This process, in combination with the government’s approval process for payroll-approved banks, is designed to protect employees from fraud.

Remote handles this process automatically for all Remote customers.

Mexico is home to a talented pool of workers for businesses in all sorts of industries. From tech to finance and from healthcare to consumer goods, companies looking to expand to Mexico will find plenty of talent on the other end.

Remote empowers businesses to all sizes to employ and pay top global talent. With our robust employer of record solution, we offer the strongest guarantee of compliance along with the best employee experience for your team members in Mexico. Reach out today to learn how we can help your global business grow.

To employ and pay workers in Mexico, companies must either establish a local legal entity within the country or work with an employer of record.

How do foreign businesses pay remote workers in Mexico?

What are the banking requirements in Mexico for employers?

How to Hire & Pay Remote Workers in Mexico

How to pay remote workers in Mexico

Labor laws in Mexico include a variety of differences not found in other countries around the world. Employers looking to hire employees in Mexico should take time to familiarize themselves with the unique requirements of Mexican labor laws.

Labor laws in Mexico have changed substantially over the last few years. Some of these laws changed because of new rules defined by the USMCA, the trade agreement that replaced NAFTA for Mexico, Canada, and the United States.

In 2019, Mexico enacted new rules to combat discrimination and unfair labor practices in the workplace. These rules require companies with employees in Mexico to collaborate with their workforces to create internal policies to help prevent issues of discrimination, intimidtation, sexual harassment, and other problems, including the employment of children.

Many of the changes in Mexican labor laws have made life easier for employers. For example, where companies used to be subject to regular inspections for compliance, many companies can now self-report their compliance through a government website, which then informs them of any breaches and provides timelines for corrective action. Self-reporting in this way is voluntary, but employers who self-report and are found to be in compliance receive certificates confirming their good standing.

Of course, self-reporting inaccurate information can lead to additional inspections, fines, legal penalties, and other problems, so employers should not misuse the convenience.

Labor union laws in Mexico require unions to provide represented workers with direct input during labor negotiations. This means unions cannot agree on new collective bargaining agreements without the approval of the workers being represented.

To prevent fracturing of worker representation, Mexican law generally prevents employers from entering into more than one agreement with more than one union. Should a company or workforce necessitate additional representation, government processes exist to determine which union, if any, will represent the workers.

All collective bargaining agreements in Mexico must be approved by the majority of workers before being accepted and filed with the appropriate agencies. Agreements do not go into effect until this process has been completed.

Legal strikes in Mexico require workers to submit proof that they are represented by an appropriate union. Courts in Mexico act as mediators, and legal strikes cannot begin until the union and employer have attempted to reconcile their differences before a judicial entity.

To terminate an employee in Mexico, the employer must first consider the nature of the employment contract.

Indefinite contracts, which cover most Mexican jobs, entitle workers to severance pay. Definite contracts are rarer and define a specific length of time or scope of work to be completed. Employers do not have to pay severance outside of the agreed terms of compensation at the end of a definite contract.

Any employee who works for at least one month for an employer without a definite contract is assumed to be an indefinite employee, but employees with even less time can also be considered workers on indefinite contracts in certain cases. Companies should not depend on probationary periods for protection when hiring in Mexico.

Workers terminated on indefinite contracts leave companies in three ways: voluntary resignation, termination with cause, and termination without cause. These three types of termination all provide severance benefits to workers, increasing in amount depending on the nature of the separation.

Employers are not required to give advance notice for termination in Mexico.

Companies with Mexican employees must either work with an employer of record, such as Remote, or establish their own local legal entities within the country. Because establishing an entity can take several months and cost several thousand dollars, most employers find it more affordable to work with an employer of record. Remote handles payroll, benefits, taxes, and compliance for employers in Mexico for a low flat rate.

According to Mexican law, employers of workers in Mexico cannot pay workers in dollars or at non-approved banks. All workers must be paid in Mexican pesos through banks approved by the government. 

Paystubs or payslips in Mexico require approval by the Servicio de Administración Tributaria, or SAT, the revenue service of the Mexican government. Payslips must be approved by the SAT before employers can provide workers with copies.

Contractors in Mexico operate much the same as contractors in other parts of the world. Employers may not require specific work hours or oversee work performed by contractors outside the delivery of the requested services.

Labor reforms in Mexico have increased the penalties for misclassification of workers in the last 10 years. Exclusivity deals, including non-compete clauses, can indicate an employment relationship to Mexican authorities and entitle contractors to benefits as if they were employees. Companies attempting to use contractors in Mexico without understanding the rules for doing so may run into permanent establishment risk, which can carry heavy penalties. Outside of short-term contracts, employers should seek to employ workers as full-time employees through an employer of record or local legal entity whenever possible.

Labor laws in Mexico have changed substantially in recent years. Employers who have hired workers in Mexico before may find that their old policies no longer apply. Those looking to hire their first workers in Mexico must take care to abide by all applicable laws.

With Remote as your employer of record, companies of all sizes can hire employees in Mexico with confidence. We handle payroll, statutory and premium benefits, tax reporting, and legal compliance, so you can focus on growing your global business. Contact us today to learn more about our Mexico employer of record solution.

What are labor laws like in Mexico?

Do you need to hire an employee in Mexico or send a current employee to live in Mexico? How do you make that transition easier while keeping your business compliant with all applicable laws?

Open a legal entity in Mexico or partner with an employer of record.

Collect your new hire's information: employment status, location, etc.

Create systems to comply with Mexican labor and payroll laws.

Design a comprehensive Mexico-specific benefits package.

Open the necessary Mexican bank accounts.

Understand your obligations under Mexican tax law.

Get familiar with employee rights related to severance, termination, and voluntary separation.

Write and sign a compliant employment agreement with your chosen candidate.

As an employer of record, Remote can help you employ workers in Mexico legally and completely without requiring you to establish a local legal entity in the country. Our employer of record service saves companies thousands of dollars in setup fees, guarantees compliance with all local labor laws, protects your investments, and provides a first-class experience for your employees in Mexico.

Maintaining compliance across international borders can be tricky. Mexico in particular has a few unusual rules that can catch inexperienced employers by surprise. To stay compliant with Mexican laws while providing the best possible experience for your employees, start with this helpful guide.

Related: What are labor laws like in Mexico?

Labor laws in Mexico generally favor employees more than they do in the United States. Certain types of benefits, requirements for termination, and methods of dispute resolution present a different balance of power than employers in the U.S. may be used to. 

That is not to say that labor laws in Mexico are unfriendly to employers. Mexico plays host to several thriving industries, and the global democratization of talent has opened doors for many people within the country to compete for remote positions. Employers who look to Mexico to source talent or who send their own talent to find Mexico will generally find the situation to be a fair one.

Mexican law restricts the hours employers can ask employees to work before overtime rates apply: no more than eight hours per day, no more than 48 hours per week. Workers with night shifts begin earning overtime after seven hours in a day or 42 hours in a week, while workers whose shifts cover both day and night start earning overtime after 7.5 hours and 45 hours.

Workers are guaranteed at least one day off per week. Overtime rates in Mexico are set at 200% of pay for the first nine hours worked after 48 hours in a week and for the first three hours worked after the first eight hours in a day. After an employee works 57 hours in a week or 11 hours in a day, all hours worked after that point are paid at 300% of the normal pay rate.

All work contracts in Mexico are assumed to be indefinite arrangements (entitling workers to benefits) unless a contract exists specifying otherwise. Employers who wish to set a specific timeline for an employment contract must do so in writing before the employment begins. If an employee begins working before a contract goes into effect, the employee’s term may be treated as indefinite by default.

To guarantee compliance with labor laws, companies in Mexico must register with the Mexican government’s online compliance tool. Using this tool, employers can report the status of their compliance in three distinct areas and receive feedback on any required improvements and timelines for changes. Every company using the system receives a compliance rating of 0 to 100. Employers can also use the system to receive certifications and recognitions in Mexican labor law compliance and standards.

What are unions and labor organizations like in Mexico?

Mexico and the U.S. (along with Canada) formerly operated under the rules of NAFTA. That agreement ended when the USMCA went into effect in July 2020.

Under the USMCA, labor organizations in Mexico can bring complaints against companies, while the former rules forced the same organizations to lodge their complaints with the government. This change could potentially expose employers in Mexico to new risks if they do not prepare accordingly. Other changes went into effect as well, including a new Rapid Response Labor Mechanism to investigate potential employment problems quickly and efficiently.

Mexico also enacted internal labor law reforms within the last few years — some because of internal politics, others to comply with outside pressures. These forces helped create a shift in the relationships between businesses and employees throughout Mexico. Today, labor organizations in Mexico are more powerful than they were in the past and have a healthy amount of political support. Unions also have the power to act on behalf of a worker even when that worker does not wish for the union to act.

How do foreign companies pay workers in Mexico?

Related: How to pay remote workers in Mexico

To employ and pay workers in Mexico, companies must either establish a local legal entity within the country or work with an employer of record, such as Remote. An employer of record takes on the duties of payroll, benefits, taxes, and local compliance, protecting businesses from the consequences of operating illegally in a foreign country. Learn more about employers of record by visiting our educational resource center on the subject.

Mexican laws mandate that all employers of workers in Mexico pay employees in pesos at accounts with Mexican banks. Acceptable banks are designated by the government, so companies must be careful not to choose the wrong one. The Mexican tax administration service (known as SAT) must approve pay stubs before employers can provide employees with official documentation of their pay.

What kind of work permits do workers need in Mexico?

Any person who wishes to work in Mexico must acquire a visa to do so, regardless of country of origin. Consulates can provide visa services, as can the National Institute of Immigration.

Mexico offers a variety of different visas. Most employees working in Mexico who are not Mexican citizens must get a permanent resident visa. Foreign citizens who wish to live in Mexico but do not expect to stay permanently can get a temporary resident visa if they plan to stay in Mexico for more than 180 days in a year.

Mexico also offers tourist visas, which are good for up to 180 days. However, people visiting Mexico on a tourist visa are not allowed to perform any work in the country. Visitors cannot convert tourist visas to work visas.

Employees have 30 days after entering the country to secure the visa they need. To receive the appropriate visa, the employer must apply at the Mexican Institute of Immigration. If all goes well with that process, the employee can then apply for the appropriate visa at a consulate or at the National Institute of Immigration.

Which benefits do companies provide to workers in Mexico?

Related: Benefits to offer employees in Mexico

In Mexico, workers are entitled to several statutory benefits with a few unusual additions. Because the law mandates a robust catalogue of benefits for all workers, many companies do not offer much more than the minimum.

Companies in Mexico are required by law to distribute 10% of taxable profits to workers in a profit-sharing model. This profit-sharing distribution must be delivered in May each year. Profits considered “taxable” are determined by Meican tax law. Distributions are divided into two parts: first, an equal distribution for all workers based on number of days worked, and second, a distribution made in proportion to the amount of wages earned that year.

New companies are exempt for the first year they are established in Mexico. Director-level employees and above do not receive shares.

Christmas Bonus (Aguinaldo, 13th Month Pay) in Mexico

Employers must also provide a yearly bonus to employees of at least 15 days’ worth of salary, although most companies provide at least four weeks’ worth. This bonus, called “Aguinaldo,” is usually considered a Christmas bonus and is paid out in mid-December.

Differences in benefits by seniority in Mexico

Managers and other senior-level employees enjoy substantially better benefits than contributor-level employees. These employees receive many types of bonuses and extra compensation that others do not, as is common in other countries, including the U.S. It is not uncommon for high-ranking employees in Mexico to take multiple hours for lunch breaks, for example, while lower-level employees take the standard one hour.

After an employee works for an employer for one full year, that employee is entitled to a minimum of six days paid time off. Employees earn extra days of federally guaranteed PTO depending on the number of years they have worked with the same company. Foreign companies hiring workers in Mexico and companies with more senior-level employees usually offer more PTO than the minimum.

Employers may grant sick days in addition to PTO, but they are not required to, as Mexico’s social security programs pay for sick leave in most cases. Employees rendered incapable of working can provide medical documentation to receive 60% of their salaries. If they are suffering from an illness they received directly because of their work environment, they can receive the full amount of their salary in sick pay.

Parental leave in Mexico is different for fathers and mothers. Mothers receive six weeks before and six weeks after childbirth as paid leave. Fathers only receive a guaranteed five days of parental leave after the birth of the child. Employers are not responsible for these payments, however — Mexico’s social security program picks up the tab.

Public health insurance in Mexico has considerable gaps. Many employers attract top talent by offering additional health coverage for employees and their families. Private insurance remains uncommon in Mexico but tends to provide access to better coverage, facilities, and forms of treatment. Some employers purchase healthcare plans for employees outright, while others provide stipends to let employees pick their own plans.

Though not required by law, employers frequently provide food vouchers to employees in Mexico. These vouchers are good for food and other basic essentials at a variety of stores, allowing employees to keep their paychecks for purposes outside groceries.

Depending on whether employees must travel for work, some companies offer compensation to help employees pay for gas or public transportation. For senior employees, companies often provide company vehicles. Senior employees sometimes opt to purchase their company vehicles at special pricing if they desire.

Companies can retain a monthly percentage of their employees’ salaries to put into a savings fund while contributing an equal percentage. These savings funds cannot exceed 13% of a worker’s pay. Workers usually receive their full distributions of these funds in a one-time annual payment.

Any worker who works in Mexico for more than half of the year (183 days) is personally responsible for registering with the proper authorities and making the appropriate tax payments. This only applies to people working for non-resident employers, though. Those working for resident employers are responsible for taxes even if they live in Mexico less than half the year.

Failure to comply with this requirement can result in fines. The tax year in Mexico is the same as the calendar year, January 1st to December 31st.

Workers in Mexico must file taxes by April 30th. Unlike the U.S., Mexico does not allow extensions. Workers must submit payment for tax balances at the same time they file. In certain cases for non-residents and residents employed by companies outside the country, workers must file taxes every month on the 17th. Employers are required to provide workers with Form 37, the standard annual tax document, by the last week in February.

Interestingly, couples in Mexico cannot file joint returns. In many cases, however, couples can choose to report all income under the name of the spouse with the higher income, although there are exceptions and caveats to this rule (and doing so usually does not result in tax savings). Anyone unfamiliar with local tax laws should consult their employer of record, employing business, or a local tax professional.

Mexico follows a progressive tax system similar to the one in the U.S. Rates range from under 2% to 35% depending on income. People who are living in Mexico on a work visa who do not have a permanent residence within the country pay rates ranging from 15% to 30%. U.S. citizens in Mexico must remember to file their U.S. taxes as well, even if they do not earn any income in the U.S. for the year.

How do you terminate an employee in Mexico?

Related: How to terminate an employee in Mexico

If things don’t work out, you can fire an employee in Mexico with or without cause. Any person who works for a company in Mexico for at least one month is presumed to be an indefinite employee of that company in the eyes of the law unless otherwise stated in an employment contract. Once that deadline passes, the company must provide a severance package.

Employees with longer employment relationships earn larger mandated severance packages. Depending on the nature of the departure (voluntary resignation by the employee, termination with cause, or termination without cause), the size of the mandatory severance package changes.

Disputes regarding termination go through the expected channels and often involve union representation and government agencies. Employees who want to protest their termination have a right to a speedy and transparent process, so businesses should be prepared with documentation for their reasoning behind any termination. As difficult as firing an employee in Mexico can be, however, employers are not required to give advance notice for terminations.

Employers are allowed to use one-month probationary periods to evaluate employees, but these periods do not always protect employers in full. Companies should avoid relying too heavily on probationary periods to avoid becoming entangled in costly lawsuits.

Severance packages in Mexico change based on the length of time the employee worked for the company and the nature of the departure.

Employees who voluntarily resign are still entitled to severance packages in Mexico, although these severance packages are smaller than those received by employees who are fired with or without cause. When an employee resigns, the employer must pay for any days worked but not paid in the month; a proportional part of the employee’s Christmas bonus; a proportional part of vacation time, valued at the employee’s salary rate; and parts of other benefits outlined in the employment agreement, including bonuses and profit-sharing.

When a company terminates an employee with cause, the company must pay everything that would be paid to an employee who voluntarily resigns. In addition, the employing company must pay the terminated employee 12 days’ worth of salary per year worked at the company.

Employees terminated without cause receive substantial compensation. Employers must pay at least three months’ salary to start. On top of that, employees fired without cause receive a seniority bonus, 12 days’ pay per year worked after the employee has worked for 15 or more years, capped at double the daily salary of the area. Employees terminated without cause may also receive expired wages, 20 days of salary per year worked in certain cases, and proportional parts of other benefits.

How much do social security and other payroll taxes cost in Mexico?

Employers must register with the IMSS, which handles social security administration in Mexico, within five days of hiring a new employee in the country. Employers are required to withhold a certain percentage of salary for social programs.

Employees typically see a little less than 3% of their pay withheld for social obligations. Employers pay substantially more, usually between 15-31% of the employee’s salary. This amount can change based on the company’s “risk status” as defined by the Mexican government.

Contributions are capped at 25 UMAs, a standard of monetary measurement used by Mexican authorities. In 2020, the monthly UMA was set to $2,641.15 Mexican pesos. 

What is the difference between contractors and employees in Mexico?

When employing workers in Mexico, businesses have two choices: treat them as employees or treat them as contractors. This choice remains relevant regardless of whether the worker has lived in Mexico since birth or only moved there recently. This is true in countries all over the world, not just in Mexico.

In the last 10 years, Mexico has introduced new penalties to crack down on employers who attempt to skirt the laws regarding employee classification. Rather than treat all employees as contractors and hope for the best, companies should take care to go through proper channels or risk getting involved in costly legal trouble.

Foreign businesses are legally permitted to work with Mexican contractors. Companies who wish to use contractors should ask those contractors to register with local tax authorities as such. Further, companies with Mexican contractors must be careful about exclusivity deals, non-competes, explicit instructions on how and when to work, and other factors that could indicate an “employment relationship” to Mexican authorities. These agreements can also come into play when considering permanent establishment risk.

Regarding taxes, independent contractors in Mexico are responsible for their own. Companies pay independent contractors as vendors for a service, relinquishing control over the worker in exchange for freedom from certain responsibilities. Again, though, employers must be careful to avoid misclassification, which can lead to substantial financial penalties and legal headaches.

Whether you want to work with independent contractors, hire a single employee, or onboard an entire team in Mexico, Remote is here to help. We empower businesses of all sizes to work with talent all over the world. Our unique employer of record solution allows us to create the best experience for employees in Mexico while providing the highest standards of compliance and protection for international employers. Contact us today to learn more.

Mexico in particular has a few unusual rules that can catch inexperienced employers by surprise.

When employing workers in Mexico, businesses have two choices: treat them as employees or treat them as contractors.Foreign businesses are legally permitted to work with Mexican contractors.  Companies who wish to use contractors should ask those contractors to register with local tax authorities avoid exclusivity deals, non-competes, explicit instructions on how and when to work, and other factors that could indicate an “employment relationship” to Mexican authorities. 

What is the difference between contractors and employees in Mexco?

Mexico

Benefits to offer employees in Mexico

How to terminate an employee in Mexico

How to pay remote workers in Mexico

What are labor laws like in Mexico?

Guide on hiring employees in Mexico

Written by • Preston Wickersham