Mexico Labor Laws: A Complete Guide for Global Companies

Mexico’s competitive labor force is one of the top reasons global companies expand to this market. Mexico is one of seven OECD countries with the largest proportion of STEM graduates. It is also one of the Total Workforce Index’s ten most attractive labor forces thanks to its efficiency, availability, and productivity. 

However, foreign employers entering this market must thoroughly understand the local labor laws to avoid major pitfalls, such as fines and limited business opportunities. They must be familiar with mandatory profit-sharing regulations, labor unions, CBA regulations, and much more. 

As overwhelming as it sounds, there are ways to simplify compliance when expanding to Mexico. This guide covers everything global businesses need to know about navigating Mexican labor laws.

Mexico labor laws vs. employment laws

While Mexico’s labor and employment laws establish protections for working residents in the country, these two terms refer to distinctly different sets of laws.

Labor laws in Mexico are a subset of employment laws governing the relationship between employers and respective labor unions and collective bargaining agreements (CBA). However, Mexican employment laws regulate a broader set of work-related issues, such as social security, minimum wages, overtime, and workplace discrimination. 

It’s worth noting that portions of each legislation set sometimes overlap. For example, both of them govern termination and severance pay, with CBAs often outlining additional requirements beyond the basic statutory minimums that employment laws establish.

Workers’ rights in Mexico

Mexico's labor regulations focus on balancing production factors with social justice. As a result, employee and employer rights in the country bear the same weight, with the balance always tipping in favor of employees amid disputes. 

To avoid fines, reputational damage, and other noncompliance penalties, foreign employers must familiarize themselves with workers’ rights in Mexico before hiring local talent or relocating foreign nationals to the country.

According to the Mexican Federal Labor Law (LFT), workers have the right to numerous basic protections, including:

• Paid annual leave
• Paid government holidays
• Minimum wage
• Overtime pay
• Mandatory work breaks
• Social security benefits
• Maternity leave
• Severance payments
• Protection of personal data
• Profit sharing
• Annual Christmas bonus

Mexican employment law also states that employers cannot discriminate based on factors like race, nationality, marital status, age, gender, and disability.

Employment contracts in Mexico

Mexican labor laws forbid “employment-at-will” and instead require written work agreements. 

Each written labor contract must include basic details, such as:

• Employer and employee identity information
• Employment duration
• Type of work
• Place of work
• Work schedule
• Salary

The LFT permits several types of employment contracts, depending on the nature of each labor relationship. Below, we outline three of Mexico’s most common employment contracts: 

• Indefinite term contracts. These contracts are for at least 180 days without a specified end date and may include a probationary period. Mexican law deems any contract that does not specify the work duration an indefinite term contract. 
• Fixed-term contracts. These contracts are for a specific duration or individual project. Also called limited-term contracts, employers use these agreements when temporarily replacing an existing employee with another employee.
• Seasonal contracts. These are discontinuous, fixed-term contracts for seasonal work or work that’s available only for a specific time during the year. 

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Employment entitlements in Mexico

Minimum wage

Mexico has two different minimum wages, depending on the region where an individual works.

The general daily minimum wage is MXN$207.44, or US$12.17. However, individuals working in the Northern Border Zone along the U.S. border receive MXN$312.41, or US$18.33, daily. 

Working residents in Mexico are also guaranteed a minimum of 200% of their standard pay for working on official government holidays and an annual Christmas bonus (called Aquinaldo or 13th-month pay) worth 15 days’ wages, due on December 20 of each year.

Learn more: Minimum Wage by Country: A Guide for Global Employers

Social security

Employers in Mexico must register all employees with the Mexican Institute of Social Security (IMSS) and make monthly contributions to the state social security fund. 

Employers withhold roughly 2.79% of an employee’s monthly salary for sick leave, maternity leave, disability and life insurance, retirement, and severance at an old age.

Employer contributions amount to roughly 20% of the employee’s monthly salary, paid into the same funds as employee contributions, plus a housing fund (INFONAVIT), worker’s compensation, and childcare and social benefits.

Learn more in our complete guide to payroll taxes in Mexico.

Probationary period

For indefinite work contracts in Mexico, the LFT requires a minimum 30-day probationary period for employers to determine if their new hires are competent and suitable for the role. 

For individuals in high-level roles on indefinite contracts, such as managers, executives, or specialists, employers can set probationary periods of up to 180 days. 

A 90-day probationary period is most common. However, the exact duration varies depending on the employer and employee's individual agreement, outlined in the employment contract.

Other contracts, such as fixed-term and seasonal work, cannot include a probationary period.  

Standard working hours

A standard work week in Mexico is 48 hours for day work—one of the longest weekly work hours in the world. This amounts to six full days of work and one day of rest.

However, the standard work week is 42 hours for individuals working night shifts and 45 hours for mixed work. In addition to days off, all employees must receive a rest break of at least 30 minutes during a complete work day.

Overtime

Under exceptional circumstances, employers may require overtime from their employees and extend the standard work week by up to three hours per day, no more than three times per week.
 
Employers must pay their employees 200% of their standard wage for the first nine hours of overtime in a single work week and 300% for any additional hours.

Leave entitlements

Employees in Mexico are entitled to vacation, sick leave, parental leave, and seven paid annual government holidays each year.

We discuss the details of each of these leave entitlements below. 

Annual leave

Employees in Mexico who have worked for their employer for at least one year are entitled to 12 days of annual paid vacation at 125% of their standard wage (vacation premium). 

An employee’s total annual vacation leave then increases by two days per year for the next four years, after which it increases by two days every five years. 

Sick leave

Mexican labor law guarantees employees up to 52 weeks (one year) of paid sick leave annually if they have a medical certificate from official medical authorities and the IMSS certifying their illness. 

Employees are entitled to 60% of their regular wage starting on the fourth day of their illness up to 52 weeks unless their illness or injury occurred at work, in which case employers must pay 100% of the employee’s standard wage.

Paternity and maternity leave

Mexican law guarantees new fathers and mothers paid leave for the birth or adoption of a new child.

Pregnant mothers receive two to six weeks of leave before the birth of their child and six to ten weeks of post-natal leave. 

Maternity leave in Mexico is obligatory and paid at 100% of the regular salary. In the case of adoption, new mothers can take up to six weeks of paid leave starting from the day they receive the child.

Fathers receive five days of paternity leave after the birth or adoption of a child, also paid at 100% of their standard salary. 

In the event of birth complications, mothers and fathers can extend their maternity and paternity leave for various durations depending on their individual circumstances.

Learn more: Paid Maternity Leave by Country: The Complete Guide

Termination

Mexico’s termination legislation operates on the job security principle, which protects employees against unjust termination unless they violate specific stipulations outlined in Article 47 of the LFT. 

If an employer wishes to terminate an employee, the employer must provide detailed documentation proving the exact terms the employee violated, like proof of a dishonest act or harassment towards another person in the workplace.

Employers in Mexico must notify employees of termination in writing. Otherwise, Mexican law deems the termination unjust.

Also, Mexican labor law does not require a minimum notice period for termination. Still, both parties can agree on a notice period before starting their work relationship.

Severance

If terminated, employees in Mexico are entitled to severance pay comprised of accrued and unaccrued earnings and benefits, depending on whether the termination was just or unjust and voluntary or involuntary.

Below, we outline Mexico’s statutory severance payments in each case. 

Severance payments for unjust termination

When a company dismisses an employee without just cause, the employee is entitled to a severance package comprised of the following: 

• 90 days of total compensation, including any relevant daily benefits
• 20 days of daily compensation and benefits for each year of service the employee worked
• 12 days of daily base salary for each year the employee worked (called the seniority premium)
• All accrued wages and benefits, such as paid vacation, vacation premiums, and a proportional amount of the Christmas bonus

The exact payments that constitute severance packages can vary depending on individual circumstances, such as the type of work contract the employee has. 

Severance payments for just termination

When an organization terminates an employee for just cause, the employer must provide documented records proving the exact terms the employee violated, such as harassment towards another person in the workplace or intentionally damaging employer property. 

In such cases, the employee is entitled to their accrued salary and benefits and none of the additional statutory payments we listed above, except for the seniority premium.

Severance payments for voluntary resignation

Employees who voluntarily end their employment contract are entitled to the following severance amounts:

• Accrued, unpaid wages
• Accrued benefits, such as vacation days and the Christmas bonus
• Seniority premium
• Other accrued benefits or payments outlined in the work contract

Regardless of whether a company terminates an employee for just or unjust cause or the employee voluntarily resigns, all employees in Mexico are entitled to a seniority premium of 12 days’ worth of wages for each year of employment. 

CBAs may also further regulate termination and severance, which employers must be aware of.

Holidays in Mexico

On top of annual vacation days, all employees in Mexico are entitled to seven paid public holidays plus an additional day of rest every six years for the presidential inauguration. 

Below, we list Mexico’s paid annual holidays:

Employees who work on public holidays receive 300% of their standard daily wage.

Mandatory profit sharing in Mexico

Mexican employees receive the benefit of shared ownership of the businesses for which they work. All employees who have worked for their employer for at least 60 days have a constitutional right to employee profit-sharing (PTU). 

Mexico's LFT requires businesses to divide 10% of their annual taxable income equally among all qualifying employees with a per-employee cap of three times their monthly salary. 

Like statutory social security contributions, PTU is a critical aspect of administering payroll in Mexico. To ensure compliance with Mexican payroll laws, consider teaming up with a global payroll partner. 

Labor unions in Mexico

Labor unions in Mexico are well-organized and dominate large segments of the country’s workforce. For example, in the industrial sector, roughly 90% of companies that employ more than 25 people are unionized.

Most labor unions in Mexico fall under the Confederation of Mexican Workers (Confederación de Trabajadores Mexicanos) or CTM, which comprises roughly 11,000 labor unions.

Previously, labor unions in Mexico operated with limited transparency and without democratic elections. Today, Mexican workers receive greater protections and rights through secret ballot elections, transparent negotiations, and worker-approved CBAs.

Foreign companies doing business in Mexico must be well-versed in the labor union rules and CBA regulations that influence their sectors. Overlooking these regulations can lead to fines, criminal charges, and other noncompliance penalties.

Learn more: How to Stay Compliant When Hiring Internationally

Compliantly hire employees in Mexico with Velocity Global

Navigating Mexico’s labor laws without professional guidance exposes foreign employers to risks like fines, litigation, and other serious penalties. Eliminate the risks by partnering with Velocity Global.

As an Employer of Record (EOR), Velocity Global simplifies hiring talent in Mexico and more than 185 countries by eliminating the need for entity establishment and ensuring compliance with local labor and employment laws in each market you enter.

Our EOR solution offers critical support at every step of the journey, from hiring, onboarding, immigration, and compliance to administering global payroll, preparing locally tailored benefits, and offering ongoing HR support for your distributed team so you can hire and expand globally without the added burden.

Read our guide on hiring employees in Mexico to learn more about compliantly hiring top Mexican talent from anywhere in the world. 

Or contact us today to jumpstart your expansion to Mexico and start engaging top local talent with ease.

Disclaimer: The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. © 2024 Velocity Global, LLC. All rights reserved.