Forming a new company always comes with unknowns, but one thing you can be certain of is that your people will make or break your success. This is particularly true when it comes to the people supporting personnel management. You likely don’t need to see the research to know that competitive pay and benefits are critical in recruiting and retaining employees (although Tetakawi has ample market data to support this fact). Filing for benefits and managing pay and bonuses are critical steps on day one for your new hires.
Rather than taking a risk on overlooking an important payroll step, you may consider outsourcing payroll administration. It’s a decision that can pay dividends in the long run. Consider the following five reasons to outsource your payroll administration.
Reason #1: Secure social security support
When expanding into a foreign company, you expect that you’ll have to face new regulatory requirements, or new ways of handling familiar requirements. For example, all employers with five or more workers must make monthly contributions on worker-employer fees for the Mexican social security program, IMSS. Contributions help fund retirement pensions, daycare, and health, disability, and old age insurance. Employees also contribute, but the employer is responsible for a larger share (7.58% of wages for employers versus 1.65% for employees) and for withholding the employee’s contribution.
Social security payments may seem straightforward for some employers, but this requirement must be done through the local system. All payments are made via SUA (Sistema Unico de Autodeterminacion, or Single System for Self-Determination). This computer program records, calculates and pays worker-employer contributions for social security, retirement and Infonavit, the program that provides employees with worker housing credits. Employers also must make contributions to Fonacot, a fund that supports workers in acquiring goods and services.
Reason #2: Get profit-sharing help
Mexican Federal Labor Law (FLL) requires employers to distribute 10% of the company’s taxable profit among employees every fiscal year. Half of the overall profit-sharing amount is divided evenly among all employees based on days worked. The other half is divided in proportion to each employee’s accrued wages or salary. The company must make these distributions within 60 days of filing its annual tax declaration.
However, there are several exceptions here, including first-year employees, general managers and administrators, who are excluded from the program, and companies within the first two years of operations or below a set earnings amount. In addition, employees have the option of filing a claim if they feel their employer doesn’t comply accurately with the requirements. Companies must establish an employer-employee committee to ensure every appropriate step is taken and any challenges are resolved. But why worry about exceptions and challenges when an experienced payroll administrator can help navigate this distribution?
Reason #3: Pay the bonus right
Attractive bonuses are often key in recruiting and retaining employees, but federal law also mandates payment of certain additional bonuses. For example, the law mandates payment of what’s referred to as the 13th month (also known as Christmas or aguinaldo) bonus. Employers must pay at least 15 days’ wages by December 20, although that amount is prorated for individuals employed less than 12 months. It also can be negotiated higher by employees. The aguinaldo bonus helps covers expenses over the holiday and serves as an incentive for continuing the employment relationship.
Beyond those required bonuses, many companies also entice employees with special bonuses for things ranging from punctuality to productivity. A payroll professional can help arrange to pay out those incentives over time.
Reason #4: Say goodbye as expected
Should you have to let a permanent employee go, it’s important to know that they are entitled to severance based on three months of salary, plus their prorated Christmas bonus and vacation pay. For employees with 15 years or more seniority add to that 20 days of salary for each year worked based on the amount most recently earned.
Keep in mind too that any employee of more than two years has the right to sue the company for reinstatement. If they win the suit, your payroll professional will have to account for back pay.
Reason #5: Reduce costs and avoid big fines
If you opt to hire HR personnel internally, you’ll need someone qualified in managing Mexican payroll and experienced in payroll and tax requirements. You may also need a local accounting firm and perhaps legal assistance to ensure you are complying with all employment laws. These services can add up — yet ignoring one of these steps is more costly still. Consider, if you don’t register employees for social security and insurance on the day they are hired, you face potentially steep penalties, more than $18,000 USD by one calculation.
Get the support you need
Whether or not payroll needs are outsourced, you remain the employer of record and are dependent upon your payroll manager to comply with all local regulations. Missing a requirement won’t just cost you in fines but may also cost you a valued employee. Working with a consultant experienced in all tax and payroll laws will ensure that you and your employees are adequately supported.
Need more reasons to outsource your payroll? Reach out to Tetakawi to learn how our payroll administration service can help you and your employees.