Mexico Employee Compensation & Benefits
Capital
Mexico City
Official Language
Spanish
Currency
Mexican peso
Payroll cycle
Bi-monthly
Quick facts about Mexico
Located at the southern end of North America, Mexico is one of the most important economic partners to the United States and Canada. Mexico’s rich history and its ever growing economy has turned the country into an appealing destination for digital nomads. The country’s strong university system also makes Mexico one of the best places to recruit developers, marketers, and other knowledge workers.
In Mexico, compensation & benefits packages are created by a series of mandatory and optional benefits. To hire and retain the best talent, employers in Mexico should plan to provide additional benefits and perks, such as private health insurance, additional PTO, travel funds, and even an internet stipend for employees working from home.
Anti-Discrimination laws
In 2012, Mexico passed extensive discriminatory laws to both protect employees from discriminatory hiring practices, including unequal salaries based on gender, age and religion.
Per the 2012 laws, employers must adhere to the guidelines outlined by anti-discrimination compliance programs.
Understanding compensation and benefits packages in Mexico
In Mexico, global businesses that employ full-time workers are required to offer certain benefits, including registration with the Social Security department, a Christmas bonus known as Aguinaldo, and a specific amount of paid vacation days based on years of service. These are all legal rights that employees must have in Mexico.
Social security and health care registration
Mexican employers are required to register their employees with the Social Security institute (IMSS) upon hiring. Employee’s social security is withheld from their salary, and the employer must pay into social security alongside the employee. The rate paid into social security by employee and employer varies and is based upon minimum wage.
Once registered with the Social Security institute, employees automatically receive basic medical benefits from the government. This covers routine checkups, maternity care, disability, and injury. However, many companies are now offering employees private health insurance to stay competitive.
Unlike the United States, the IMSS pays for maternity leave.
Profit sharing
Profit sharing is also another perk that employees are legally entitled to when working in Mexico. Employees are entitled to 10% of the profits generated during the year for any company with profits over 300,000 MXN. Employers are not required to pay profit sharing during their first year of business.
Permanent workers, subcontractors and temporary workers with over 60 days of employment are entitled to profit sharing payments. Employers must pay this 10% profit sharing no later than 60 days after the company the tax deadline.
Christmas bonus/Aguinaldo
On or before the 20th of December, workers must be paid a Christmas bonus, also known as Aguinaldo. The amount is worth 15 days of the employee’s base salary for one year.
Vacation and vacation bonus
In November 2022, the Mexican Senate passed a bill, known as Vacaciones Dignas, which increases the minimum number of vacation days workers receive after 1 continuous year of service.
To qualify for vacation days, employees must have been employed by a company continuously for at least 1 year. For example, workers who have been employed continuously for 1 year will now receive 12 vacation days, as opposed to 6.
For the first 5 years of employment, the number of vacation days increases by 2 for each year of continuous service. So employees with 2 years of service will receive 14 vacations, and so on.
Prima
Employees garner a 25% vacation premium on top of their normal salary. This benefit is known as Prima.
Weekly rest day/Sunday bonus
By law, employees are allowed 1 day of rest after working 6 days in 1 work week. If an employee works their rest day, they receive a Sunday Bonus of 25% of their salary on top of their normal pay.
Maternity and paternity leave
Women are entitled to 12 weeks of maternity leave. Men, on the other hand, can take 5 days of paid rest after the child is born.
Women who are breastfeeding have an allowance of 2 extra breaks per day to feed the child, or pump, or a reduction of 1 hour of their workday for up to 6 months after having a child.
Understanding recommended and elective benefits in Mexico
Offering the bare minimum in terms of benefits and compensation will keep your company compliant, but it might not be the best approach for retaining and recruiting the best talent.
To keep your employees happy and healthy, consider adding benefits such as food vouchers and private health insurance to keep your team motivated.
Food vouchers and paid lunch
Many companies in Mexico offer food vouchers that employees can use in grocery stores or restaurants. Other businesses offer catered lunch or on-site cafeterias, though this option takes more planning from the business.
Employer sponsored supplemental health insurance
By law, employees are only required to register with the IMSS so that they have basic healthcare. However, employers can also offer supplemental or private health insurance, especially for dental and vision.
Supplemental health insurance bolsters existing coverage by offering better hospital infrastructure, shorter wait times for appointments, and better care options.
Life insurance
Some employers opt to provide employees with life insurance in the event that something occurs to the employee. It’s pretty common for employers to pay all or part of the premium.
Savings Fund
Many companies also set up a Savings Funds plan, which deducts contributions directly from the employee’s paycheck for retirement benefits. Employees can contribute up to 13% of their monthly gross pay. Yearly contributions are capped at 1.3 UMA. Employers will match what you contribute, up to 1.3 UMA.
Productivity bonuses
Employees can receive productivity bonuses when they meet or exceed specific goals, such as completing a number of sales. Productivity bonuses are usually tiered.
Transportation bonuses/stipends
Many companies offer transportation stipends to help cover expenses such as bus passes, metro passes, gas, parking fees, taxis, and even car payments. These resources are supposed to help employees use public transportation in large cities and even rural areas.
For employees who are in high enough positions in a company, employers can also offer a company car.
Loans
Some employers also offer loans to employees at lower rates than those offered by the large banks. These loans tend to be personal, payroll or automotive.
Other benefits in Mexico
Cell phone
Some companies offer cell phones to employees. Usually, the company is billed directly based on the services needed by the employees.
Internet service/stipend
With many companies switching to remote work, more employers have started to offer employee stipends for the internet.
Benefits for terminated employees
Mexico has strict laws in place to ensure that terminated employees maintain some of their benefits after they leave their current company. Severance pay is required for terminated employees. However, the amount of severance offered varies based on the contract agreement of the employee. Independent contracts are not entitled to severance pay.
Severance for voluntary resignation for employees with 15+ years of service
Voluntary resignation for employees with over 15 years of service to a company have the option of voluntary resigning with severance pay. These employees are paid 12 days per year for their service to the company for every year.
Severance for Indefinite Contract Employees
If an indefinite contract employee voluntarily resigns or is fired without cause, the employer must pay all the fringe benefits, including vacations, Prima, and their Christmas bonus.
However, if an employee is terminated without a cause, the severance payout is a bit more complicated. Those terminated without cause are entitled to the following severance:
Three months of the employee’s daily aggregated salary as Constitutional Indemnification
Twenty days of the employee’s daily aggregated salary for each year of services
Seniority premium
Fringe benefits, including vacations, vacation premium, and Christmas bonus
Definite Employee Contract Employees severance
Like Indefinite contract employees, definite contract employees that voluntarily resign or who are terminated for cause must also receive fringe benefits such as their vacation benefits and Christmas bonus.
Definite contract employees terminated without cause are entitled to the following severance:
50% of wages paid if contract duration lasted for less than a year OR six months of wages for the first year and twenty days of the employee’s daily aggregated salary for each following year if contract duration last for more than a year
Fringe benefits, including vacations, vacation premium, and Christmas bonus
Trial Period Employee severance
Finally, severance pay is also an option for trial period employees. For a voluntary resignation or a termination with cause, employers again must pay all of the fringe pay, vacation, and Christmas bonus.
Trial period employees who are terminated without cause in Mexico are entitled to the following severance:
50% of wages paid if contract duration lasted for less than a year OR six months of wages for the first year and twenty days of the employee’s daily aggregated salary for each following year if contract duration last for more than a year
Fringe benefits, including vacations, vacation premium, and Christmas bonus
Outsourcing benefits in Mexico: Is it legal?
In 2021, Mexico passed a labor reform bill that made it difficult for companies based outside of Mexico to outsource benefits and payroll using a PEO or EOR service.
Businesses looking to establish a presence in Mexico should plan to open a subsidiary or entity.
Why Companies Partner with Via
Many companies based in Mexico want to hire talent in different countries, but aren’t exactly sure how to go about onboarding and paying employees across borders compliantly. Maybe you want to hire a software engineer based in Colombia, or a designer living in Canada.
With Via, we help you hire, onboard, and pay remote employees across the world. As your employer-of-record abroad, we take care of the local HR logistics, such as payroll, benefits, taxes, and obtaining work permits. Maintaining compliance is our responsibility. You simply focus on building your team and running your business.
