Mexican Labor Laws: Everything You Need to Know

Companies considering offshoring in Mexico to benefit from low labor costs must have a complete picture of labor protections in mind before they make a move. Low costs do not equate to unregulated conditions. Quite the contrary, Mexican Federal Labor Law sets out detailed employee protections that ensure your workforce receives fair pay, adequate benefits, and a safe working environment.

Due to regular reforms to the Federal Labor Law, foreign employers often find it beneficial to work with a local HR expert. These professionals can provide guidance on regulatory requirements and pending changes. This ensures that foreign manufacturers remain in compliance with all requirements around work relationships, payroll, benefits, employment agreements, and social security payments.

In the article below, we outline key elements of Mexico’s employment laws to help employers understand what to expect before they begin hiring.

The average work day in Mexico

The average work day in Mexico is between seven and eight hours long, spread across a six-day workweek with a rest day on Sunday. Mexico's employment laws establish three shifts:

• Day shift: This 8-hour shift can fit between the hours of 6:00 a.m. to 8:00 p.m. A work week for a full-time day employee is 48 hours.
• Night shift: This shift falls during a 7-hour period between 8:00 p.m. and 6:00 a.m. Full-time workers on the night shift average 42 hours on the job each week.
• Mixed shift: This 7.5-hour shift is a blend of hours between day and night shift, with no more than 3.5 hours worked at night. Full-time mixed shift workers spend 45 hours on the job each week.

The Mexican Federal Labor Law requires employers to provide a 30-minute meal break during each shift. Many companies provide extra break time as well.

Hourly wages in Mexico

Mexico’s Federal Labor Law expresses wages as a daily rate of pay, rather than an hourly wage. At present, Mexico’s minimum daily wage is 172.87 pesos (approximately USD $8.36), except for the Northern Border Zone where it is 260.34 pesos (approximately USD $12.59) per day.

To attract skilled manufacturing laborers, employers should expect to offer more competitive pay above minimum wage. However, this number will vary based on the location. Workers closer to the northern border and in some more metropolitan areas with manufacturing centers will expect a higher rate of pay.

Workers’ full daily rates are based on the specific shift worked as well as any other benefits factored into their contract. Wages are typically paid out on a weekly basis.

Why are wages so low in Mexico?

Wages remain low in Mexico for a number of reasons, including historically stagnant wages. This has begun to change, with the most recent minimum wage hike taking effect on Jan. 1, 2022. However, the hourly wage of a manufacturing employee is notably different from minimum wage workers. Employers are likely to pay a more competitive salary for skilled manufacturing laborers than employees in other industries, while still keeping labor costs low compared to the U.S. and many other countries.

How is overtime paid in Mexico?

Article 66 of the Federal Labor Law and Section XI of Article 123 of the Mexican Constitution set out requirements for overtime pay. Overtime pay rate kicks in after an employee reaches the legal number of hours stipulated by their shift. In general, overtime is double the typical salary for the first additional 9 hours of overtime. After that point, the rate triples.

Social Security requirements

Under the Federal Labor Law, all employers must register with and contribute to the Mexican Institute of Social Security (IMSS). With the exception of workers who earn the monthly minimum wage in their region, all workers and employers contribute to Social Security. Payment amounts vary based on employee wages.

Social security payments are provided to workers as a result of:

• Occupational accidents
• Retirement and survivor pensions
• Disability, sickness, and other medical benefits
• Maternity care
• Child care
• Other social service

What employee benefits are required in Mexico?

Federal Labor Law mandates a number of benefits including paid time off for federal holidays and paid vacation time. Certain bonuses are also mandated. For example, employees in Mexico receive a year-end bonus known as Aguinaldo, distributed in December. This “Christmas bonus” equates to at least 15 days’ wages for employees who worked for the full year. In addition, companies operating in Mexico are required to distribute 10% of pretax earnings among employees.

Beyond these legally mandated benefits, many companies find they gain a competitive advantage by extending additional benefits. As a result, it often helps to work with an HR expert knowledgeable in the region in which your factory is located. These experts can advise on additional benefits that can attract quality candidates and limit costly turnover.

Labor relations in Mexico

The Mexican Federal Labor Law sets out two types of employment relationships: individual and collective. An individual employment relationship is created when a person is hired to perform the required job duties and signs an employment agreement. A collective employment relationship is established when the employees are represented by a labor union; in these instances, the point of contact is with the union.

Written employment agreements are mandatory in Mexico. Should employees begin work before they have formally signed an agreement, they are still afforded protections outlined by the Federal Labor Law. Employment agreements are an obligation of the employer in Mexico. Any such agreement must be made available to the employee.

Unless the employment agreement specifies otherwise, the employment relationship is established for an indefinite period. The agreement must also include details on any allowed probationary period, specific services to be rendered, the length of the work day, and salary agreements.

Mexico’s labor unions

The 2019 overhaul of the Federal Labor Law Reforms began a series of significant changes to how labor unions operate in Mexico. In the past, companies in Mexico could recognize a union and sign a contract with a union without any input from workers and, in some cases, before the company even hired workers. These "Protection Agreements" typically set employer-friendly contract terms. As a result, few unions provided consistent democratic processes to their members.

Under the changes set out in 2019, unions in Mexico may be recognized as the exclusive bargaining representative with only 30% of employee support. However, ratification of a collective bargaining agreement requires the majority support of all represented workers. This change is meant to prevent employer-friendly Protection Agreements.

The updated law also aims to ensure employees are made aware of their rights. The new law requires unions to make physical or electronic copies of collective bargaining agreements be made available to all members. In addition, an office at the Federal Center for Conciliation and Labor Registry is required to provide free information to workers about their rights.

Terminating workers

There is no “at-will” employment in Mexico, so any worker that is let go must be provided a reason for termination. While there is no notice period required in Mexico, the employer must provide a written statement of the cause of dismissal within a month of the causal event. For collective employees, the union may outline additional restrictions on dismissal.

Employees on indefinite contracts are entitled to a severance package. The size of severance will vary depending on why the employee is fired. As a result, thoroughly documenting any cause for termination can prove useful to employers. For an employee fired without cause, Mexican severance may include three months or more salary, and bonuses for seniority, accrued vacation, and other payments outlined in the employment agreement.

Compliance with Mexico employment laws

Employers new to operating in Mexico find nuanced differences between Mexico's labor laws and the U.S., Canadian, European, or Chinese labor laws. These small details can ultimately lead to major fines for employers who misstep. Just as in the United States and most other developed countries, Mexico enforces employment laws against companies, including foreign investors. In fact, the U.S. Department of Labor continues to fund resources and training for labor inspectors in Mexico to ensure compliance with the terms of the USMCA free trade agreement.

For a more in-depth insight into Mexico’s labor laws, download our free ebook, Your Guide to Understanding Mexican Labor Law, or contact Tetakawi today.