What are Employee Benefits?
Employee benefits are the additional benefits or perks that a company offers to its employees. The company policies and the industry standards define if these added benefits have to be offered to the employees in a monetary or a non-monetary form.
Several countries have laws that ensure that employees have access to supplementary benefits, such as health insurance, minimum wage, maternity leaves, and social security contributions. Certain benefits vary by company; however, the country guarantees several perks to the working people.
Employee incentives benefit both firms and employees. Employers can keep their team content by offering competitive benefits in the sector and hence significantly reducing the turnover rate. On the other hand, employees feel valued when employers encourage their professional development. These benefits display the gratification of employers and ensure that the employees are satisfied when they go to work and take up their roles and responsibilities.
Suppose you are planning to set up or incorporate a business in Mexico. In that case, you must understand the employee benefits in Mexico and how they are structured and offered to the employees. Once employers know the basics, you will be able to draft a sound employment benefits program for all your employees.
This guide covers everything you need about Mexico’s compensation and benefits policy.
Compensation Laws in Mexico
The prevailing compensation and benefits policy in Mexico depends on the labor laws the Government of Mexico sets. These laws keep all the aspects of employee benefits in Mexico in check. Employers must design an employee benefits program that adheres to the Mexico Labour Laws.
Before we get into the labor laws that drive the compensation and benefits policy, let’s understand the different types of employment contracts that are offered for different kinds of employees in Mexico:
Contracts of determinate duration:
- These contracts are also known as fixed-term contracts. Here, the employer and employee mutually decide on a time duration for which the employment is valid.
- The employee will be expected to perform or deliver their share of duties and work in that stipulated period. However, Article 37 of the Mexican Labour Law states that the employer can only issue fixed-term contracts if they specify the nature of work on the employment contract.
- The fixed-term contracts can also be issued to employees if hired temporarily until the company finds a permanent resource for the position.
Contracts of indeterminate duration:
- These contracts are also known as indefinite contracts as they do not come with an end date.
- Employees hired under indefinite contracts are first put into 180 days (minimum 30 days) of probationary period. Once the employee is deemed fit, they are retained by the company full-time.
- These contracts are generally issued to employees hired for permanent roles in the company. The agreement is terminated only if the organization firs an employee or if the employee resigns of his will by submitting a formal resignation letter.
- In Mexico, the type of work given under these contracts is undetermined, and they can take any direction based on the organization’s needs.
Trial period contracts:
- Mexico has a provision for trial period contracts. These trial periods, also known as probationary periods, vary from 30 days to 180 days, depending upon the roles.
- These are also called training labor contracts. According to Article 39-A, employers must provide training to employees who have no prior experience. This will assist them in acquiring and offering personal subordinate services to the company.
- Once the training period ends, and if the employee is considered fit for the organization, the contract gets converted to an indeterminate agreement.
- There can be indefinite contracts for seasonal work in Mexico. Under these contracts, the employees hired to perform the seasonal work are treated the same as permanent employees. Seasonal work is discontinuous, and the seasonal labor contract will define the duration of the work period.
Employment contracts in Mexico
Before 2012, verbal contracts were legal in Mexico, and thousands of companies issued oral agreements to their employees. However, this system had flaws, and the Federal Labour Law of Mexico was amended. According to the new amends, the company must issue written employment contracts to their employees. The company or the employer can issue any of the employment contracts listed above based on the nature of the employment.
The labor laws define the compensation structure in Mexico, and these laws have to be adhered to when the contracts are drafted. Some of these guidelines are:
- Minimum wage: The employees are entitled to a minimum salary of MXN 172.87 per day. This is the country average, and it tends to get higher in the states closer to the Northern Border Zone. The rate for 2022 for the Northern Border Zone was raised to MXN 260.34 per work day.
- Fixed working hours: The employees of Mexico are required to work for 48 hours every week. This translates to 8 hours every day for six days a week. However, the employees must work within the 14-hour flexible window that starts at 6 am and ends at 8 pm. There are restrictions placed on the maximum number of working hours by the Federal Labour Law. A day-shift employee cannot work more than 48 hours a week, whereas a night-shift employee’s working hours should not exceed 42. An employee working a combination shift can only work up to 45 hours weekly.
- Leaves: When recruited in Mexico, employees can take multiple leaves, including annual, sick, and holiday leave. Female employees are also entitled to paid maternity leave. Paternity leave is also available to male employees whose partners are expecting a child.
- Overtime: Irrespective of their category of work, all employees are entitled to overtime in Mexico if they work beyond their regular working hours. They are paid at their standard wage rate for the first 9 hours of overtime, and beyond that, they are paid double their regular wage rate.
- Social security contributions: The employees in Mexico have to contribute towards their sickness and maternity insurance, UMAs, and disability and life insurance.
- Termination: If the employee is terminated without any justified reason, employers are bound to pay 90 days’ wages. Additionally, 20 days pay, irrespective of the years of service, and a seniority bonus of 12 days pay for each year of service capped at twice the rate of legal minimum wage.
Under the Federal Labour Laws of Mexico, all employees are to be treated fairly and equally by their employer, and the employers cannot distinguish their employees based on their nature of work. Differences between the employment contracts are limited to the varying durations of employment.
How to Design an Employee Benefits Program for Employees in Mexico?
Employers may find it challenging to create an employee benefits plan in line with the Federal Labour Laws of Mexico. The efficiency of the employee benefits program is essential in establishing the total cost of compensation.
Understanding employee demands and difficulties they may face at work is essential if you want to create a successful employee benefits program. However, your employees’ welfare cannot be your only concern. Additionally, you’ll need to know your spending limits and the money you can set up for a benefits program.
You need to take the following steps to draft the most suitable compensation package in Mexico:
Step 1: Establish your goals
Establishing specific objectives is the first stage in creating a benefits program. This will offer you a general idea of the company’s aims and how you may address the needs of your employees while keeping them in line with those goals. When determining benefit objectives, you must consider employer size, industry type, business location, and collective bargaining agreement.
While some firms focus on broad benefits objectives, others incorporate the goals into their total compensation strategy. Because they are not static, the benefits objectives should be reviewed and adjusted to suit the current employer strategy and labor expectations.
Now that you have started drafting an employee benefits program adhering to the employee compensation policy in Mexico, you need to define a clear budget that you want to set aside to implement the benefits program successfully.
Once you have a budget, you can note down the benefits that will be instrumental to your company and your employees. You can also conduct surveys to know employees’ needs. Listed below are objectives that might give you some direction in drafting an employee benefits program:
- Luring new hires and keeping hold of existing ones
- Maintaining the funds allotted and providing special perks
- Increasing employee-value premise
- Looking to the needs of employees
- Observing all labor regulations imposed by the federal and state governments
Step 2: Keep a tab on the industry standards
Before defining an employee benefits program for your staff, employers must do extensive research to comprehend the current industry norms and what other businesses are offering. You can conduct market research by conducting personal interviews and creating simplified questionnaires to get insight.
Employers can also conduct internal assessments to determine the best benefits based on employees’ needs and wants. The internal survey can inform you of the types of employee compensation and benefits Mexican employees desire, enabling you to meet their demands and recruit talent better than your competitors. If there is a benefit plan, knowing how frequently employees utilize it and how it benefits them will make the designing of the employees’ benefits program easier. Also, the companies will save some resources by not investing in benefits and plans that do not offer any value to the employees.
Once you have the data, you can create a compensation plan that caters to the requirements of both current and potential employees. Employers can use the gathered information to identify industry norms’ differences and close gaps.
Step 3: Devise a flexible compensation package
Once you get the required data, you can start structuring the framework for workers’ compensation in Mexico. Employers need to analyze the results and prioritize the benefits.
Depending on the goals, employers can create a benefits package addressing the various needs of the employees. While ensuring that each employee has access to the appropriate benefits, a cost-effective pay plan would also reduce the number of benefits that go unused. Keep the offered benefits under budget and gradually alter them with time as it will lead to stable growth of the company’s finances.
Step 4: Communicate the plan
Open communication is essential to a comprehensive compensation plan. Employers should have all current and new employees evaluate the policy’s structure and elements and provide feedback. To actively involve the staff in the planning process, they must consider the feasible recommendations and maintain open lines of contact with them. Their employees’ trust, loyalty, and respect will all rise due to this straightforward strategy.
Step 5: Periodic assessment of the benefit and compensation program
Businesses operate in a dynamic environment leading to frequent changes in business and the economy. This frequent change can impact the benefit program. To determine if the benefits package is practical and suitable for various circumstances, you must conduct a periodic evaluation. To ensure the plan is error-free, you must evaluate the program’s components before putting it into practice. You can establish precise measurements to determine whether the benefits package is effective for the employees and, if necessary, take corrective action.
Types of Guaranteed Benefits in Mexico
Several employee benefits in Mexico are offered to the employees. Some of these benefits include:
- In Mexico, the employees are entitled to a minimum wage under the Federal Labour Laws. The minimum wage in Mexico stands at MXN 172.87 per work day.
- It tends to get higher in some states, like those closer to the Northern Border Zone. The rate is around MXN 260.34 per work day.
- The employer and employee can mutually decide the working hours in Mexico. The employees can work for a maximum of 48 hours a week.
- As per federal law, you cannot opt-out of any working hour regulations set up by the Government.
- The employees can work for 8 hours between 6 am to 8 pm. This 14-hour flexible window applies to almost all employees.
- A day shift staff member cannot be asked to work more than 48 hours a week, while a night shift employee cannot work more than 42 hours a week.
- Employees in mixed shifts cannot work more than 45 hours a week.
- Employees who work beyond the maximum working hours are entitled to an overtime payment from their employer.
- The employees are entitled to pay at their regular wage rate if they extend their working hours up to 9 hours.
- Beyond 9 hours, the employees are entitled to a double wage rate compared to their standard hourly pay rate.
Paid time off:
- All employees in Mexico can avail at least six days off once they complete their first year of service. The paid time off tends to increase with every year of employment.
- The number of leaves is credited as per the following schedule:
- One year of service: 6 paid leaves
- Two years: 8 paid leaves
- Three years: 10 days
- Four years: 12 days
- Five years: 14 days
- After every fifth-service year: 2 additional days
However, the employees must utilize all their paid leaves in the same year as they cannot take it forward. Employees who resign or terminate get compensation for their unused paid time off.
- The employees in Mexico can take up to 4 fully paid sick leaves during the year.
- Beyond four days, the employees are entitled to sick leaves where they are paid a 60% of their regular wage rate (up to 52 weeks). However, the Mexican Social Insurance Institute verifies such illness or injury at the employees’ end.
Maternity and Paternity leaves:
- Social security and public healthcare cover maternity and paternity leave in Mexico.
- Expecting mothers can take 12 weeks of maternity leave. A leave of six weeks before their due date and six weeks after the baby is born.
- After the child’s birth, fathers are entitled to a five-day paid parental leave.
Paid time off bonus:
- Employees in Mexico are encouraged to take paid time off and receive a bonus when they take paid time off during the year.
- This bonus is called Prima in Mexico.
- The employees are entitled to at least 25% of their regular salary if they take the leave.
- The employer can choose whether to pay the amount every time the employee takes a paid leave or a lump sum once the financial year ends.
Social Security and healthcare:
- The employers pay social security on behalf of the employees, which is deducted from the employee’s salary.
- These contributions aim at covering the basic healthcare costs, etc.
- Both employees and employers contribute health coverage to the Instituto Mexicano del Seguro Social (IMSS).
Employee Benefits for Expatriates
Like most countries, Mexico also offers a benefits program to attract the ex-pats working there. They are entitled to the pre-decided set of leaves and benefits like health coverage, meal vouchers, etc. Some other advantages might include:
- Relocation expenses
- Transport costs
- Accommodation expenses
How are Employee Benefits Taxed in Mexico?
Mexico follows a progressive income tax system wherein the tax rate in Mexico is directly dependent on the level of income. It can go up to 35% at the salary level of MXN 3,000,000.01. The employer withholds the tax at their end and then remits it to the Mexican tax authorities. The employees must obtain their tax ID numbers.
The 35% tax rate applies to those individuals whose income exceeds MXN 3,000,000. Also, a non-resident will have to pay income tax if they earn their salary from Mexico. These rates can range from 0%, 15%, and up to 35%.
The professional fees or income from business activities are also taxed at regular rates. However, some components are tax-exempt. These components include:
- Insurance benefits related to sickness or injuries caused due to work
- Reimbursement of expenses related to healthcare, funeral, etc.
- Some selected social security contributions
- Income or benefits that come from the Workers’ Housing Fund
Restrictions for Mexico Benefits and Compensation
The major restriction for compensation and benefits policy in Mexico is adhering to the legislation. The employers of Mexico have to stick to the minimum wage and the maximum working hours that have been pre-decided by the federal labor law in Mexico.
These restrictions have been implemented throughout the country. Therefore, the companies must be well-versed with the country’s prevailing compensation laws before they onboard any local or foreign employees. The process can be time-consuming. To make the process hassle-free, you can outsource global EOR solutions like Multiplier. Our team of experts will help in administration and business development.
Supplemental Benefits for Employees in Mexico
The employees in Mexico can also avail certain supplementary benefits while employed in the country. These supplemental benefits include:
- Food vouchers: In Mexico, many firms opt to give their staff members food vouchers. Food vouchers are a typical discretionary benefit in Mexico, even though they aren’t exactly statutory benefits. Employees can use these food vouchers at numerous grocery and general merchandise stores.
- Private health insurance: Everyone in Mexico has access to government-provided health insurance. However, the public health service is often not the same as private. In contrast to state insurance, private health insurance in Mexico gives access to prestigious hospitals and reduces wait times. Employers can increase their capacity to attract top people by providing extra private health insurance. Many firms offer stipends or supplementary income to their staff, which they can use to pick their private health insurance.
- Productivity bonus: Bonuses for productivity are one of the most common worldwide benefits, and Mexico is no exception. Employees in Mexico are given incentives to achieve specific targets in exchange for bonuses, frequently tier-structured. These bonuses are typical for employees who use their intellect to accomplish their work.
- Transportation expenses: Some employers provide fixed cash or gasoline vouchers and food vouchers to assist employees in getting to work. Several businesses run their transportation services to pick up workers in the morning and transport them home after the workday. Free parking is a highly sought-after benefit for employees who own cars because it might cost more than a thousand pesos per month to park in some urban areas.
- Life insurance: Some companies in Mexico also offer life insurance to their employees. In the event of an employee’s death, this life insurance pays a fixed amount to the employee’s family.
How Multiplier Can Help with Benefits Management in Mexico
It might be challenging to launch a new company in a foreign nation. Companies must abide by each nation’s specific labor regulations to provide employees benefits and remuneration. It might be difficult and time-consuming to draft a favorable employment contract that complies with the employment laws. You can out-source these projects to a worldwide employment solution provider like Multiplier to help you navigate Mexico’s federal laws.
Working with Multiplier will make understanding Mexican labor regulations and pay scale straightforward. Our experienced staff can assist you in successfully managing your business while following all regional labor rules that may be in force. A complete set of employee perks is something we help you develop.
Without the requirement for a subsidiary, we provide the infrastructure required to hire people abroad. Thus, you can lower your hiring expenses and look into other opportunities.