The Mexican work force is young and tends to grow at a rate of more than one million employees per year. In general, companies have found that with proper training programs, the skills of Mexican workers can be upgraded and high quality work can be obtained. The young work force is amenable to new management techniques to which an older work force may be unable to adjust. The Mexican Federal Labor Law (LFT) regulates employee relationships in Mexico regardless of nationality or place of entry into the employment agreement.

1. Mandatory Employee Benefits

a) Profit Sharing: All employers must distribute among their employees an amount equal to 10% of the employer's pretax profit within 60 days after the employer is required to file its year-end income tax return. Fifty percent of this amount is to be distributed in proportion to the number of days worked by each employee during the year, and the remainder according to the wages of each employee.

b) Christmas Bonus: All employers must pay their employees a year-end bonus equal to at least fifteen day's wage, payable before December 20th of every year.

c) Paid Holidays: The Law states that nine legal paid holidays must be observed. An employee required to work on any of these holidays must be paid overtime at the rate of three times their normal wage.

d) Holiday Premium: After one year of uninterrupted activity, workers will enjoy an annual paid holiday period, which can in no case be less than six working days, and will grow by two working days each year, until it reaches twelve days. After the fourth year, this period will be extended by two days for each five years of service. During this period, workers will receive a 25% minimum vacation bonus above their normal wage.

e) Legal Holidays: The Federal Labor Law establishes the following obligatory holidays throughout the country: January 1, February 5, March 21, September 16, November 20, and December 25. December 1 is an obligatory holiday every six years for the inauguration of new administrations. Most business offices, banks and large stores observe religious holidays. This includes the Thursday and Friday of Easter weekend, November 1 and 2, and December 12. These and other holidays may be agreed upon in collective labor contracts.

f) Training: All employers are obligated by law to provide training for their employees. The employer must have a training program approved by the Ministry of Labor.

g) Employer Housing Contribution: The Law requires employers to pay an amount equal to 5% of each employee's wages to the Federal Workers Housing Fund INFONAVIT.

h) Minimum Wage: The LFTL establishes a minimum amount that must be paid to all employees in cash, without deductions or withholding, on a weekly basis. The National Minimum Wage Commission reassesses the minimum wage from time to time. The minimum wage varies for each of three economic regions into which the country is divided. A general minimum wage applies to all employees within each economic region, except those that fall within a series of specific job categories. The general minimum wage for the three regions as of January 1, 2003 is as follows:

  • Zone A (including Mexico City): $43.65 pesos per day
  • Zone B $41.85 pesos per day
  • Zone C $40.30 pesos per day

I) Maximum hours-Overtime pay: The maximum number of hours, which an employer may require his/her employees to work, without having to pay overtime, is 48 hours per week. The employer must pay the first nine hours of overtime at 200%, and overtime exceeding nine hours at 300% of the standard pay.

j) Health and Safety: The employer should provide a safe and sanitary environment for workers. A Mixed Commission for Health and Safety must be created to investigate the causes of illness and accidents and propose remedies.

k) Paid Maternity Leave: All employers must provide their female employees with a fully paid maternity leave of six weeks prior to the approximate delivery date and six weeks thereafter. After the twelve-week period, employers must offer such employees their former positions back, including any accrued rights there under such as accrued seniority and holiday pay.

l) Pension Funds or Sistema de Ahorro para el Retiro (SAR): The Retirement Savings System is a social security benefit additional to those established by the Law on Social Security. Employers are obliged to pay monthly contributions equivalent to 2% of the corresponding wage base. A ceiling is set at the equivalent of twenty-five times the general minimum wage for Mexico City. Contributions are deposited in individual accounts for each worker in financial institutions. These individual accounts have two sub accounts: the retirement insurance and the national housing fund.

m) Schedule: The law stipulates a maximum 48-hour workweek. Day shifts are eight hours long, while night shifts are seven hours long. However, the average workweek in almost all companies is between 40 and 45 hours.

n) Overtime: There is a possibility to extend working shifts, though never exceeding three hours daily or three days a week. In this case, overtime will be paid at 100% over the corresponding wage for a shift. If the overtime is over nine hours per week, workers will be paid two hundred percent over the corresponding wage for a given shift. Triple payment is also provided for work on the seven legal holidays.

2. Trade Unions

Government legislation allows any firm with more than 20 employees to unionize. Union contracts must be re-negotiated every two years. Although unions are given the right to strike during negotiations, strikes, slowdowns and other conflicts, strikes are relatively uncommon. Unions also have the right to strike in sympathy for other striking unions, leading to the possibility of wide spread general strikes. Government labor regulations now contain a provision that in the case of legal interpretation, the most favorable treatment of the employee will always take precedence.

3. Severance Payments

a) Occasion and Basis of Payment: Mexican employers may not freely dismiss employees without cause. Otherwise, the employer should make the following severance payments:

  • Three months of salary.
  • 20 days of salary for each year of services rendered (this amount does not apply under certain circumstances)
  • A seniority premium, equal to 12 days salary per year (subject to a salary limitation of up to twice the minimum wage);
  • Back salary from the date of the dismissal through to the date of payment; and
  • Accrued benefits.

An employee dismissed without 'just cause' has the option to be reinstated to his former job instead of receiving the severance payment, provided he is not an employee of ' trust' as described below in "Employees of 'Trust'".

b) Just Cause' for Dismissal The LFT lists the specific causes for which an employer may dismiss an employee. These causes include, for example, immoral conduct, repeated absenteeism, unauthorized disclosure of trade secrets and unreasonable refusal to follow directions.

c) Termination of Individual Labor Relationship The Law provides that a labor relationship may be terminated without either party being liable under certain circumstances, including:

  • Mutual agreement of the parties;
  • Death of the employee;
  • Under limited circumstances, the conclusion of a specific job; or
  • The physical or mental incapacity or disability of the employee.

d) Employees of 'Trust': The LFT creates a special category of employees for managers in general and other employees in positions of trust ('trabajadores de confianza'). If dismissed without 'just cause', an employee of trust will be entitled to severance pay, but she/he will not be entitled to reinstatement. Employees of trust may form unions, but they must be separated from those of other employees.

Determination of whether an employee is an employee of trust depends not on her/his title but on actual functions performed by the person. The Law defines functions of 'trust' generally as those of direction, inspection, surveillance and supervision and those that involve personal matters of the owner(s) of the company.

4. Employer's withholding obligations: social security and income tax (1997)

a) Social Security In accordance with the Social Security Law ("LSS"), all employers must register their employees in the Mexican Social Security Institute "IMSS". Such registration relieves the employer of any liability in connection with job-related illnesses or accidents and provides certain benefits to the employee and her/his dependents, including:

  • Medical and hospitalization insurance for any illness, accident or maternity;
  • Insurance for disability, old age, unemployment during old age and death, child care
  • and retirement 2%

Both the employer and the employee must make contributions to the IMSS. The employer is obliged to withhold from the employee's salary, the employee's portion of social security contributions (5.25%) and pay it along with the employer's own contribution to the IMSS (17.70%). In the case of employees who earn minimum wage, the employer must make the entire contribution to the IMSS.

b) Income Tax: The Income Tax Law (LISR) states that employers are responsible for withholding personal income taxes from their employee's salaries and pay the amount withheld to the Mexican tax authorities on a monthly basis. No income taxes are withheld from salaries of minimum wage employees.

c) Penalties: Any employer who fails to properly withhold and pay the IMSS the corresponding social security contributions or withhold and pay the federal tax authorities their employees' income taxes as required by law. The person who submit false information to the IMSS or to the tax authorities, or who otherwise fail to fulfill the employer's obligations under the LSS or the LISR, could be subject to a range of penalties. Penalties range from fines from 70% to 100% of the tax omission, for 'fiscal infractions'; to prison terms for 'fiscal crimes', aside from being obligated to pay the contributions or taxes due, plus interest, plus inflationary adjustment.