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Employee Social Security
Employees are entitled to Social Security, the bulk of which is paid by the employer based on employee’s weekly wage. The employee pays a little, which is retained weekly by employer. Payment to this program through ISR is every month (bi-monthly for INFONAVIT). Most employers would retain an accountant to determine amounts and process. This does not apply to a maid or gardener for example who works for you a few hours a week. It does apply to large employers, anyone with a registered business and those who employ a person full time and that employee works for no one else and therefor created an employee / employer relationship.
Social Security is comprised of 3 components: IMSS health care, senior’s pension (AFORE) and INFONAVIT. Many employees for fear of loosing their job will not insist on being placed on SS. Nor do they understand the ramifications of not having contributions made to Social Security. Some simply ask for a slightly higher wage not thinking of long-term implications. Employers, at times, try to avoid SS altogether or, they under report their employee wage to save a small amount of money.
IMSS is government healthcare supported by employer contributions and a relatively small number of individuals including some expats who pay for the coverage. For employees it provides full health coverage including medical clinics, hospitals, medications and dental. One can not substitute Seguro Popular for IMSS.
Pension (AFORE) as name implies is similar to US Social Security or Canadian CPP and is based on contributions related to an employee’s wage and years of employment. Compared to foreign standards it is not a lot of pension income but certainly important for retired seniors.
INFONAVIT was started in 1972. It provides homes to Mexicans who otherwise could not qualify for financing nor save for a down payment. The interest is extremely low. The amount one qualifies for is based on their wage and duration of employment reported by employer. After time, a person qualifies for assistance. Example based on actual case, an employee works for a small organization making 1200 pesos a week. After a very few years she bought an INFONAVIT in August 2015. The home is 280,000 pesos. She contributed 1500 pesos to the purchase price and the rest from INFONAVIT. Her payment is 1497 pesos per month to pay off the home. All closing costs were paid by same program. The homes are basic and may start at ~500 sq ft on one floor. Some are up to double that size with a second floor. In more expensive areas and with bigger homes, prices go up accordingly but seldom go beyond 700,000 pesos. The person can also buy land or any home from their INFONAVIT credits. If one does not qualify for the full amount they may borrow from the pension noted above or qualify for a bank loan for a portion. The housing loan payment is deducted from the employee’s wage.
An employee making for example 1000 pesos a week would cost the employer approx. 800 pesos a month for this coverage. It is important employees are provided Social Security and to be based on full wage. The ramifications are huge.
It is very important to have employee contracts. Some time you may need to be able to defend when employee commenced employment, wage rate, hours of work, days worked, duties, issue of visitors and keys, etc. And, should there be an employee performance issue a contract will protect you. Your contract will include your employee will sign receipt of all payments / wages and the reason for the sum paid. Mexican government labor boards where employees can file disputes are usually very pro employee. Settlements of tens of thousands of pesos are not uncommon. At time of termination, a signed document outlining the payment and reasons are critical.
I have more than 15 years of HR experience as well as my husband who has many years in HR in both Ontario and New Mexico at a very senior level. I prepare employment contracts and termination letters for clients all over Mexico.
Calculation of Pay in Mexico including termination pay, Aguinaldo, vacation pay, over time, Sunday bonus, minimum daily pay, etc.
Vacation, Holiday, Sunday Pay
Vacation must be paid in cash, either before the vacation or before the end of the year if no vacation has been taken.
The vacation pay must equal required number of vacation days of salary plus an additional 25% of the amount (vacation premium)..
To calculate the amount, divide the number of days worked during the past year by 365. Multiply that figure by number of vacation days times 1.25 to determine the amount of the vacation pay due.
Example: If you have an employee working for one year who works one day a week making 200 pesos: 52 / 365 x 6 x 1.25 x 200 = 214 pesos = vacation
Year 1 -- 6 days Year 2 - 8 days Year 3 - 10 days Year 4 - 12 days Year 5 - 14 days Year 10 - 16 days Year 15 - 18 days
For every year the employee continues to work for the employer, he/she will receive an additional 2 working days. After four years, the employees vacation period will increase only 2 working days for every additional five years he/she works for the employer.. In the formula above replace the “6” with the appropriate number of days.
Holiday Pay: If an employee is required to work on one of the Official Government holidays, they receive regular payment for the day plus double time for hours worked.
Jan 1 New Year’s Day
First Monday of February* Constitution Day
Third Monday of March* Benito Juárez’ Birthday
May 1 Labor Day
Sep 16 Independence Day
Third Monday of November* Revolution Day
Dec 25 Christmas Day
*These 3 days are established by the Mexican law and may be changed to tie in with a weekend.
Sunday Pay: If an employee is required to work on a Sunday, pay + 25% is required. If that employee has worked the other six days of the week, the employee is entitled to overtime pay as well as the 25% premium.
Aguinaldo (Christmas Payment)
Aguinaldo is considered a regular part of an employee’s wages. It is not a bonus and is required by law to be paid to all full time employees and it is optional for part-time staff. Payment is to be made before December 20th although many pay a week or more earlier. The Aguinaldo amount to be paid is what an employee would earn over a 15-day period which is half of a typical month.
The law is Se define en el artículo 87 de la mencionada ley which states: Los trabajadores tendrán derecho a un aguinaldo anual que deberá pagarse antes del día veinte de diciembre, equivalente a quince días de salario, por lo menos. Los que no hayan cumplido el año de servicios, independientemente de que se encuentren laborando o no en la fecha de liquidación del aguinaldo, tendrán derecho a que se les pague la parte proporcional del mismo, conforme al tiempo que hubieren trabajado, cualquiera que fuere éste.
And translation is: Workers will be entitled to an annual bonus that must be paid before the twentieth day of December, equivalent to fifteen days of salary, at least. Those who have not completed the year of services, regardless of whether they are working or not on the date of liquidation of the bonus, will be entitled to be paid the proportional part thereof, according to the time they have worked, whatever this may be.
The easiest calculation is to establish what is one month's pay for an employee. Then divide by "2" which is half a month and payment due. Or, use a multiplier of 2.14. For example if employee is paid 1000 pesos per week the amount to be paid is: 1000 x 2.14 = 2140 pesos. if employee worked only part of the year, pro-rate this payment.Cash only as no other form of “payment” is acceptable including: not days off; not gifts; not in-lieu-of. You may calculate here:
Payment of Wages
Pay is normally cash on the last work day of the week but with the employee's prior consent, an employer may pay wages by check, direct deposit, transfers, or through any other electronic means.
The working week must not exceed:
48 hours for day shifts 42 hours for night shifts 45 hours for mixed shifts
The working week consists of six working days. However, the daily or weekly distribution of hours can be agreed so that employees have all, or part of, Saturday and Sunday as regular days off.
Employees required to work on Sundays (as a regular work day) as noted above are entitled to an additional bonus amounting to an extra 25% of their usual daily wages.
An employee can only be required to work overtime in exceptional circumstances.
Employees are paid:
Double their usual wages for the first nine hours of overtime per week.
Three times their usual wages for each subsequent hour of overtime per week.
Employees are entitled to at least one full day of rest after six days of work. If employees agree to work on their day off, they receive triple their wages for that day. In addition, employees are entitled to a rest break of at least 30 minutes during a working day. If the rest break given to an employee is less than 30 minutes long or the employee is not entitled to leave the work facilities to rest, then that rest break must be determined as time actually worked and remunerated. As noted below under maternity right, a special rule applies regarding working mothers, who must have two additional daily breaks of 30 minutes each when breastfeeding.
Employees must obtain a certificate from the IMSS in the case of illness or injury (FLL and Social Security Law of 1997). Of course they are to be provided IMSS by employer.
Once a certificate has been obtained from the IMSS the entitlement to sick leave varies, depending on the type of illness and degree of incapacity. The IMSS decides whether sick leave is to be granted, as well as the amount to be paid to employees during the illness or injury. The IMSS pays this amount directly to the employees.
Pregnant and nursing women must not: work night shifts in industrial plants that have a hazardous work environment; work after 10.00 pm in commercial or service establishments; work overtime; carry out any work that could endanger their health or that of their child. This includes work involving the use of considerable force (for example, lifting or pushing) and standing for long periods of time.
Pregnant employees are entitled to six weeks' statutory maternity leave before and six weeks after giving birth. During maternity leave, the IMSS pays the employee's registered salary. If the employee's salary is above the cap registered salary (25 times the minimum daily wage), then the employer pays the difference between that amount and the employee's total wage. Pregnant employees, subject to prior medical approval and authorisation from the employer and IMSS, may transfer up to 4 weeks of the six weeks, which are supposed to be enjoyed prior to the childbirth, to the moment after the birth.
During the nursing period, the new mother is entitled to two additional 30-minute rest periods every day to feed the child, in an adequate and hygienic place set aside by the employer. This provision is available to the mother for up to 6 months following the birth.
When returning from maternity leave, the employee is entitled to be reinstated, provided that not more than one year has passed since the date of childbirth.
Fathers are entitled to five days paternity leave in the event of child’s birth.
There are no rights for employees in cases of surrogacy in Mexico.
Female employees that adopt a child are entitled to take adoption leave of six weeks when they take placement of a child.
Fathers' that adopt a child are entitled to five days leave when they take placement of a child.
There are no parental rights for employees in Mexico.
Termination pay amounts I can calculate for employees. Mexican labor laws are pro worker. This is why employment contracts are so important identifying hours and days of work, duties, expectations, etc. And when violations of the contract they are noted in writing, presented to employee and signed.
Employees who voluntarily resign their jobs, as well as those who are justifiably dismissed with cause, are only entitled to accrued benefits up to date of termination. When an employee is terminated when work is time specified, employment such as a specific building project, or just cause, that is well documented, then no severance is required.
Therefore, there is the need for an employment contract specifying hours and days of work, duties, etc. Unless termination is voluntary or justified as per list below, termination pay includes 3-month’s salary plus 20 days for each year worked plus prorated vacation and Christmas pay. Employees with 15 or more years of seniority who are dismissed with or without just cause, or who resign, are also entitled to a seniority premium equivalent to 12 days' salary for each year of service. However, the seniority premium cannot exceed two times the minimum daily wage.To calculate daily wage divide total weekly pay by 7 (even if employee works 6 or less days per week). Example: a person works only 1 day a week making 300 pesos. The wage used in the calculator would be 300/7 = 43 pesos. If that person works 3 days a week making 300 pesos a day that is 900 / 7 = 129 pesos per day for the calculator. And the wage at time of termination is used to calculate all payouts even if the person in previous years made less or worked less hours. Here is the link for calculating termination pay (FINIQUITO). Please, do not include the 12 days payout unless a person has 15 years of employment.
Termination pay must be paid at the time of termination or regular salary shall continue until the termination is paid in full. If the compensation is not paid when the employee is dismissed (e.g. when there is a labor lawsuit), then the employer is to pay all salaries that would have been earned during the period in which this delay took place (assuming that the employee won the labor lawsuit), up though the date of the payment. If the employee quits voluntarily, termination pay is not required.
Grounds for Dismissal
Employees in Mexico can only be dismissed if there is a cause for the dismissal (Article 47, FLL). Causes for dismissal include:
Use of false documentation to secure employment (this cause applies only within the first 30 days of services).
Dishonest or violent behaviour on the job.
Dishonest or violent behaviour against co-workers that disrupts work discipline.
Threatening, insulting, or abusing the employer or his or her family, unless provoked or acting in self-defence.
Intentionally damaging the employer's property.
Negligently causing serious damage to the employer's property.
Carelessly threatening the workplace safety.
Immoral behaviour in the workplace.
Disclosure of trade secrets or confidential information.
More than three unjustified absences in a 30-day period.
Disobeying the employer without justification.
Failure to follow safety procedures.
Reporting to work under the influence of alcohol or non-prescription drugs.
Prison sentence that makes it impossible for the employee to render the services he or she was supposed to render.
The commission of any other acts of similar severity.
Notice of dismissal must be delivered to the employee at the moment of dismissal setting out the precise causes by which the employee is being terminated.
Procedural Requirements for Dismissal
Under the Federal Labour Law, the employer must give the employee notice in writing of the ground for dismissal, or the Labour Board must issue a termination notice, which must comply with specific requirements (for example, it must include a detailed description of the facts, dates, time and manner in which the employee incurred the ground for dismissal). If the notice is presented directly to the employee, two witnesses must be present.
The employer must dismiss the employee within 30 days from the date of the employee's misconduct or from the date the employer became aware of it.
If the employee refuses to accept the notice of dismissal, the employer has five days to file it with the Labour Board. Failure to follow this procedure will presume a wrongful dismissal, and the employee will be entitled to full severance payments.
Reduction in Work Conditions to the Detriment of Employee
The terms and conditions of employment cannot be modified to the detriment of employees including reduction in hours. Unilateral changes that are detrimental to employees can trigger constructive termination of the employment agreement, which requires payment of the full legal severance pay.
Any agreement that causes material damage to the employee's total compensation will be deemed null and void, as employment rights and acquired benefits cannot be waived. Any change that leads to a material damage will be null, even where the employee expressly consented to it.
Trial and Training Periods
Trial periods and initial training periods allows employers time to evaluate if a new employee can perform the requisite job functions. Employers may also opt for an Initial Training Period, which allows the employer to train the employee on skills necessary for the job. In both cases, the type of "new hire method" must be written into the employment agreement.
The trial period may only last up to 30 days for most employees, but for management-level and high-level executives, an extension may be granted up to 180 days in total. The Initial Training Period has a maximum term of three months, with high-level general administrative functions or functions requiring special professional knowledge qualifying for an extension of up to six months in total. Please note that these terms cannot be combined. The advantage of these new hire methods is that once the trial or training period has expired, if the employee is not able to perform the skills for the job, the employer may terminate the employee without having to pay severance.
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