1. Mexico Employment Law Basics
With China risks increasing and decoupling from China accelerating, Mexico is poised to take on an even greater role in the ongoing global supply chain rearrangement. Companies that are relocating some or all of their production to Mexico need to be aware of what is legally required to hire local staff here in Mexico. This, the first of a series of posts on the topic in which we will explain the basics of Mexico’s employment laws and what you need to have Mexican and foreign staff working for you in Mexico.
This post lays out the basics of Mexican employment law related to hiring employees: what constitutes an employment relationship in Mexico, the types of employees you can hire, and the importance of having an appropriate Mexican employment contract with your Mexican employee. We also describe the basic provisions your Mexico employment agreement should contain.
2. Mexico’s labor environment
The first thing it is important to know about Mexico’s employment laws are that their main goal is to balance production factors (the economic unit that produces or distributes goods and services) with social justice. Consequently, employees are deemed to be in the same position as the employer and the rights of each bear the same weight, and if they do not, the law will support employees. Always.
3. Types of Mexico Employees
Mexico’s employment laws do not differentiate between blue-collar and white-collar employees. However, they do make some distinctions as to employee type, such as the following:
- Employees in positions of trust (empleados de confianza). These are employees who perform general management, inspection, supervision and oversight tasks. The nature of an employee’s tasks is what determines their category, not the employee’s job title or position.
- Employees (of any nationality) who render services outside of Mexico for a Mexican company.
- Specific categories of employees and employees in specific industries or sectors of the economy, like women, minors, farmers, miners, air/sea/land transportation crews, artists, those working in the tourism industry, doctors, and teachers.
4. The employer-employee relationship in Mexico
What constitutes an emoployment relationship in Mexico? Basically, any rendering of personal services to a person who gives instructions and secures services in exchange for payment is deemed to be in an employment relationship. This means that if you have local staff that follow what you say, you are their employer and you are required to give them all the employee benefits mandated under Mexican law. This is true even if no employment contract is signed and even if you pay them in cash.
Mexican law recognizes several types of employment relationships:
(i) for a specific task (obra determinada);
(ii) on a fixed term (por tiempo determinado);
(iii) seasonal (por temporada); and
(iv) for an indefinite term (por tiempo indeterminado).
In turn, the employer-employee relationship may be subject to a qualification period (prueba) or initial training (capacitación inicial).
As a general rule, the type of work to be performed by your Mexican employee determines the type of employment relationship you will have with them.
And bear in mind, absent an express agreement to the contrary, the employment relationship is understood to be for an indefinite term.
5. Basic/required terms in a Mexico employment agreement
Your employee’s working conditions must be set forth in an employment agreement if there are no applicable collective bargaining agreements. Mexican employment agreements should be executed in at least two copies, one for you and one for your Mexican employee. This employment contract must contain the following minimum requirements:
- Name, nationality, age, sex, marital status, Unique Population Registry Code (Clave Única de Registro de Población), Federal Taxpayer Registry and address of the employee and the employer.
- Type of labor relationship and whether the employee is subject to a qualification period.
- The specific service or services to be rendered by the employee, which shall be determined as precisely as possible.
- The place or places where the work is to be performed.
- The duration of the employee’s working day
- The form and amount of the salary.
- The day and place of payment of the salary.
- If/how the employer offers employee training.
- Other working conditions, such as rest days, holidays and others agreed upon by the employer and the Mexican employee.
- Designation of beneficiaries for payment of wages and benefits accrued and not collected upon the death of the employee.
Mexico, like most countries, has gotten very good at enforcing its labor and employment laws against foreign companies. Therefore, if you are going to be hiring individuals in Mexico to help your company there, it is essential you do so correctly, because not doing this will invariably cost you a lot more in the long term. And again, remember, that an empoloyment relationship in Mexico is not dependent on the existence of an employment contract, which is considered the employer’s obligation.
6. Working Hours
In Mexico, a working day is divided into the day shift (6:00 a.m. to 8:00 p.m.), the night shift (8:00 p.m. to 6:00 a.m.), and mixed shift (comprising part of the day and night shifts, the latter of which shall not exceed 3½ hours). An employer can agree with its employees on the duration of the working day within the shifts and divide the working hours freely. However, there are certain hourly parameters about which employers must be mindful, including the following:
- Employers are prohibited from having their employees exceed Mexico’s statutory working day maximums: eight hours for a day shift, seven hours for a night shift, and seven and a half hours for a mixed shift.
- Employees must be given a minimum thirty-minute break during their working day to eat/rest, and if the employee cannot leave the work premises during this break, their time spent on break is computed towards their working day/night.
7. Wages and Bonuses
Mexico’s Federal Labor Law prohibits withholding or reducing wages other than in very limited circumstances, such as payment of alimony, or fees to the Mexico National Workers Housing Fund. Payment of wages must be in Mexican currency, and not in the form of merchandise, vouchers, tokens or any other items meant to replace Mexican currency.
Mexico’s minimum wage is the lowest amount an employee must receive in cash for services rendered in a workday. Mexico’s National Minimum Wage Commission (Comisión Nacional de los Salarios Mínimos — an entity comprising employee, employer and government representatives), every year issues a resolution setting forth the minimum wages applicable to the two areas of Mexico divided for wage purposes: the Northern Border Free Zone or Zona Libre de la Frontera Norte, (the 25 km strip south of the US border), and the rest of the country. For 2022, MXN260.34 (USD$12.58) an hour is the minimum wage in the Northern Border Free Zone and MXN172.87 (USD$8.34) an hour is the minimum wage for the rest of the country.
This yearly resolution contains the general minimum wage (applicable to all employees in specific geographic areas regardless of their activity, profession, trade or job performed) and the professional minimum wage (applicable to all employees in specific activities, professions, trades or special jobs within one or more geographic areas). The increase in the minimum wage must each year be at least equal to the rate of inflation during the previous year.
Mexico has what is called Aguinaldo, but in English is more commonly referred to as the thirteenth month or Christmas Bonus. This is a required payment to employees equivalent to fifteen days salary per year of employee service with the employer. Those who have not completed a year of service must be paid the proportional part of the bonus. The Aguinaldo bonus must be paid to employees before December 20 each year. Other incentive programs, such as performance bonuses, are neither mandatory nor regulated by Mexican law, but these are typically included in employment agreements.
Mexican law provides that employers may extend their employees’ working days if and when unforeseen circumstances arise. These extensions must not exceed three hours per day and three times a week. Employees must be paid double their normal hourly salary for overtime, and if overtime exceeds nine hours in a week, employees must be paid triple their normal hourly salary.