How To Hire And Pay Employees In Mexico

When considering international expansion, Mexico offers many benefits for businesses. The country has a reputation of being a popular destination for expats and international investors but has become even more attractive to businesses in more recent years. Mexico has benefitted from recent economic growth due to its trade openness and connections to the US. Its geographical location allows US organisations to gain significant cost savings and shipping time reduction.

Mexico is well known for its low labour costs, making the county extremely competitive by offering a high wage gap for its workers. The Mexican workforce is highly skilled across the engineering industry. The country produces over 130,000 graduates for the IT Industry and Software Development sector from its 120 universities.

Mexico has also done more to protect companies that choose to invest and start up in the country by signing the USMCA trade agreement.

Mexico has strict contractor regulations to prevent companies from avoiding new tax legislations. For example, in Mexico, a company is required to share 10% of its profits with its employees. It was previously common for organisations to hire contractors to perform core activities, essentially acting as employees without receiving employee contributions or benefits like profit sharing. Contractors can now only be used for specialised services like outsourcing HR, data processing, etc.

Labour laws are strict and it is a legal requirement that all employees are provided with health insurance subsidised by the government, as well as housing credits.

Setting up an entity in Mexico is extremely time consuming and requires expert knowledge to ensure compliance with the country‘s tax laws.

Full-time employees who have been employed for one year are entitled to 6 days annual leave. For each year of service this increases by an additional 2 days. It is common practice that many companies offer their employees more than the legal minimum annual leave. There are 8 public holidays.

January 1st: New Year's Day 
February 7th: Constitution Day 
March 14th: Benito Juarez Day 
May 1st: Labor Day 
September 16th: Independence Day
November 20th: Revolution Day 
December 25: Christmas Day

Probation periods in Mexico are valid for up to 30 days. This can be extended to up to 180 days for employees in managerial, technical, or professional positions.

The employee may unilaterally terminate the employment contract by providing notice in writing. There is no minimum notice period an employee must provide under law. However, it is common practice that a notice period will be included in the contract of employment.

If an employee has worked for a company for over 15 years, they are entitled to a seniority premium. This is usually equal to 12 days’ salary for each year worked. For an employer to dismiss an employee, a just cause is required in line with Mexican Labour Law, such as intoxication at work, threats or acts of violence, intentional damage to work property, harassment (including sexual harassment) against co-workers, revealing confidential information or secrets from the employer, more than three absences within 30 days without permission or just cause, or refusal to comply with health and safety procedure.

The employer must give written notice stating the conduct or behaviour as reason for dismissal, along with the date(s) this took place. Failure by the employer to provide notice will give the employee grounds to claim for dismissal that was not justified. The employee can then request reinstatement or compensation.

The compensation is generally three months' salary, payment of owed hours worked, 20 days’ salary for each year of service, and any vacation and Christmas bonus accrued at the time of dismissal. An employee must raise a case within 60 days of the alleged wrongful termination. Collective redundancies are only permitted in Mexico as a result of closure of the company or a reduction in job roles required. Other circumstances can include Acts of God, depletion of the product, bankruptcy, employers' death or disability, and non-profitability of the business.

Restrictive covenants are generally not provided for in Mexican law, although they are not expressly prohibited during an employment relationship. Restrictive covenants have become more common in Mexico as a means to protect the employer's confidential information and trade secrets, as well as ensuring the companies' right to loyal competition. Non-compete clauses and clauses relating to non-solicitation of employees and customers are all recognised and can be enforceable. Restrictive covenants are generally only enforceable during an employment relationship. Post-employment covenants are considered null and void under legislation.

A contract of employment (Contrato de Trabajo) can be agreed either in written or verbal form. However, it is always best practice for these to be provided in writing.

The contract should include employee personal details, employer details, probation period, contract length (if applicable), salary, workplace location, job title, start date, standard working hours, holiday entitlement, terms of notice and any other collective agreements (contrato colectivo).

These are two main types of contracts in Mexico. The first is a permanent contract for an undetermined time, where employment exceeds 180 days and a probation period may be included (Por tiempo indeterminado). The second is a fixed term/temporary contract for a specific work or time (Por tiempo determinado).

There are also seasonal contracts where an employee may not be required all week, month or year, and trial period contracts of 30-180 days, which either party may terminate at the end of the period with no obligation. Workers can also be recruited for initial training contracts, under which there will be a period for initial training where an employee will provide services under the direction of the employer, whilst the employee gains the skills or knowledge required. When the training or trial period finishes, the employment continues for an undetermined period.

Expectant mothers are entitled to 12 weeks’ maternity leave, to be taken six weeks before the expected due date and six weeks after the birth. There is also the option to request to transfer an extra four weeks of maternity leave to after the birth, so only two weeks are taken before the due date. This would need to be agreed by the employer in advance. The employer pays 60% of the employee’s salary during their maternity leave and the Mexican Social Security institute covers the remaining 40%. Fathers are entitled to five days’ paid paternity leave.

An employee is entitled to up to 52 weeks’ sick leave, for which a leave certificate must be submitted by either the IMSS or private doctor. An employee is entitled to 60% of their regular salary, increasing to 100% if the absence is due to a work-related illness or injury. The employer has the option to pay the difference of 40% so the employee receives their full salary. The employee will start receiving 60% of their salary after their fourth day of illness. Employees will need to have made at least four weeks of social security payments before the illness to be eligible for paid sick leave.

An employer is required to register employees with the Social Security Institute (Instituto Mexicano de Seguro Social) (IMSS) and pay contributions on behalf of the employee as well as making the relevant deductions from an employee’s salary. These payments will cover items such as sick leave, maternity, unemployment, medical services, and disability pensions.

Everyone who works in Mexico is enrolled in the public healthcare sector by their employer, whether they are a citizen or foreign worker. There are two main types of public health insurance in Mexico: the instituto de Salud para el Bienestar (INSABI) and the Instituto Mexicano del Seguro Social (IMSS).

The INSABI scheme is a health insurance program for the unemployed or those that cannot afford to enrol voluntarily. It offers health services and treatment free of charge.

The IMSS scheme is health insurance for employees working for private companies, applicable for both Mexican citizens and foreign employees. There is also the option for private healthcare, which many wealthy Mexicans and foreign employees choose. This gives access to private clinics and hospitals with better infrastructure, care options, and shorter waiting times. English is also more widely spoken in private clinics and hospitals.

People wishing to enter Mexico for less than six months will need to apply for a visitor visa with permission to engage in lucrative activities. This is only granted to people visiting for less than six months who will not be paid by a Mexican business. The applicant or the company must be able to prove the company is registered with the INM (constancia de inscripción de empleador). The company will also need to provide a letter with the applicant’s name, nationality, job description and duration, salary, and the address of the workplace, and must confirm financing of the applicant’s travel expenses. The applicant will need to apply at the Mexican Consulate in their country of residence.

This visa is for applicants wanting to stay in Mexico longer than six months, with permission to work. Firstly, an application will need to be made by the Mexican company at the Mexican Institute of Immigration. If this is approved, then the applicant will then need to apply at the Mexican Consulate in their country of residence. Once notified by the INM that the application has been successful, they have 15 days to visit the consulate to obtain the visa. Once in Mexico, the applicant will need to register with their local immigration office within 30 days to obtain their temporary residency card. The residency card is valid for up to four years, after which time the visa holder will need to apply for a permanent resident visa or leave the country.

The national minimum wage in Mexico (Salario Minimo) from January 2022 is 172.87 Mexican Peso (MXP) per day. The rate along the free zone of the north border (Zona Libre de la Frontera Norte or ZLFN) is 260.34 MXP per day.

The Mexican tax year runs from January to December. It is the employer’s responsibility to ensure taxes are paid from salaries before payments are made to the employees. The general personal income tax rates are listed below as guidance. Most Mexican states levy a low tax on salaries and other income earned by employees. This is payable by the employer, for example, Mexico City imposes a 3% payroll tax.

Salaries in Mexico are generally paid on a bi-weekly basis around the 15th and last working day of the month. Employees are also entitled to a vacation bonus which is equivalent to no less than 25% of their regular salary. Additionally, a Christmas bonus of at least 15 days’ salary is to be paid before 20th December.

Social security contributions in Mexico are the responsibility of the employer to deduct from an employee’s salary before payment. Both the employer and employee are subject to social security contributions. Below are approximate contribution rates for employers and employees, please note that these can vary.