Mexico Compensation / Benefits
Compensation and benefits are two critical parts of Mexico’s employment laws.
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Compensation and benefits are two critical parts of Mexico’s employment laws.
Mexico compensation laws
As of January 1, 2023, Mexico’s minimum wage is MXN 207.44 per day according to Mexico compensation laws. This is true for all states except those at the Northern Border. Northern Border states (Baja California, Sonora, Chihuahua, Coahuila, Nuevo Leon, and Tamaulipas) have a minimum wage of MXN 312.41 per day. You can pay employees weekly, or biweekly depending on what is outlined in the employment contract. The net pay, which includes salary, cash benefits in kind, and hardship allowances, must be received in official Mexico banks and paid in pesos.
Employees are also entitled to an Aguinaldo — a yearly bonus. The Aguinaldo typically equals 15 days of salary and amounts to about 2 weeks of pay. Larger companies may give up to 4 or 6 weeks. Sales employees often get large sales commissions or quota bonuses.
Guaranteed benefits in Mexico
Every employee is guaranteed certain benefits in addition to the compensation laws listed above. For example, workers earn an annual vacation entitlement of 12 days after their first full year of employment. They receive an additional 2 vacation days for each year that they continue to work for a company.
Employees are also entitled to a statutory vacation bonus, which is at minimum 25% of the amount equal to the number of annual vacation days, and can be increased at the company’s discretion. This percentage is granted based on the annual leave entitlement days and paid on the anniversary month of the employee’s start date with the company.
Employers in Mexico are required to provide profit sharing, in which employees are entitled to receive payment no later than May 30 each year. The profit that is shared is divided into 2 parts: the first part will be split in equal parts among all employees, taking into consideration the number of worked days for each employee during the previous year, and the second part will be distributed in proportion to the amount of the salaries earned during the year. The profit sharing is capped at 3 months of salary or the average of the profit sharing received in the last 3 fiscal years, whichever option benefits the employee.
All employees get public healthcare coverage through the Mexican Social Security Institute, as it is mandatory for employers to enroll their employees under such coverage. However, many employers offer their workers supplementary health insurance options.
Mexico benefits management
Mexico benefits management includes optional features that enhance an employee’s work life. Many companies offer flexible work hours or telework accommodations. Some employers opt for additional contributions to retirement savings, life insurance, and more. Employers can also provide a monthly allowance for employees to choose their own private plan.
Compensation in Mexico
Mexico benefits management includes understanding their festivals, civic holidays, and statutory holidays. The country’s national public holidays include:
- New Year’s Day
- Constitution Day
- Benito Juarez’s Birthday
- Labour Day/May Day
- Independence Day
- Revolution Day
- Christmas Day
- Election days
Overtime, weekly rest periods, and public holidays, when worked by the employees, must be paid and cannot be waived or compensated by time off.
There are also specific compensation rules regarding employee sick leave. If an employee has an illness not related to work that keeps them out of work for more than 3 days, they will receive 60% of their salary. The 60% of their salary is paid by the Social Security Institute, and the remaining 40% of the salary is paid to the employer. If the sickness or accident is related to the job or while commuting, the employee receives 100% of their salary despite length of absence and the employer’s occupational risk premium rate may increase. For both the 60% salary compensation and 100% salary compensation, the employee will need to go to the Social Security Institute to file for sick days and get approval.
Paternity leave, adoption leave, and maternity leave (under some circumstances) are paid by the employer.
Mexico competitive benefits planning
As employers establish an employee benefits plan in Mexico, they need to consider key factors such as compliance, taxes, employee expectations, and local market standards. Navigating the requirements successfully will allow you to create a plan that makes the business competitive for hiring and employee retention.
Mexico employee benefits plan
As employers establish their business internationally, they need to develop a benefits plan that meets legal regulations and market standards. The government in Mexico has outlined some mandatory employee benefits to include in company programs, but most employers also offer supplemental benefits to attract talent for their open positions. Some of the most common supplemental benefits include:
- Variable use benefits employees can opt to use.
- Performance bonuses for increased productivity, punctuality, or other achievements.
- Food subsidies, gasoline card, grocery coupons, or cafeteria meals at the job site.
- Private healthcare coverage.
- Complimentary transportation to and from the work site.
- Savings fund.
Once a company implements certain additional benefits, it must offered said benefits to all employees.
Requirements for employee benefits in Mexico
According to national labor laws, employers will need to provide these mandatory benefits at a minimum:
- Paid time off
- Set vacation days
- Mandatory Aguinaldo bonus
- Vacation bonus
Keep in mind that most employers provide several additional benefits along with these mandatory ones.
How to design an employee benefits program
Preparing to implement a competitive employee benefits program that serves the needs of employees and your company requires a strong strategy. Here are some best practices to make the planning and implementation process smoother.
1. Determine your company’s goals.
As companies begin developing a benefits plan, they must assess the resources available, and take time to consider the company objectives for providing benefits and evaluate priorities. Is the focus to stay competitive in a specific industry or region? Is the company prioritizing recruiting efforts, or is employee retention a top consideration? Your plan can meet multiple goals, but knowing which ones are priorities will help you budget accordingly.
2. Assess the requirements of local employees.
Knowing what employees are looking for in a company is critical to developing a competitive program that genuinely benefits them. Send out questionnaires to employees, conduct interviews, and research what competitors in the region offer their employees.
3. Develop employee compensation and benefits plan.
After you’ve gathered in-depth data on employee needs and local expectations, employers can build a plan that reflects the information discovered. Compensation and benefits must be balanced with the budget. Keep in mind that a company can re-examine its benefits plan and build on it as the company grows.
Average cost of benefits per employee
The cost of your benefits program will differ based on individual requirements. As you build your benefits plan, make sure you’ve evaluated the resources you have available. Prioritize your offerings based on what your company can feasibly provide, as once the benefits are offered to employees they cannot be cancelled or decreased.
How to calculate employee benefits
Employers are obligated to provide fully paid annual leave and holiday leave. For supplemental benefits, employers can base the rates on market standards in the business region. Some benefits such as a savings fund, are mandatory once they are established in the company’s policies.
Rates for benefits such as transportation, housing, or variable use benefits will depend on the industry and employee-specific needs.
How are employee benefits taxed in Mexico?
Taxable income for employees includes:
- Salaries.
- Bonuses and prizes.
- Professional fees and income from business activities.
- Dividends on stock options and other investments.
- Any other benefit, unless expressly exempted by the law.
Food benefits of less than 40% of the monthly value of the UMA for 2023 (MXN 3,153.70) are not taxable. The UMA value is updated on a yearly basis.
Employee health benefits plans
Mexico has a state-funded healthcare system, and it is mandatory for employers to enroll its employees in it, but many employers choose to supplement that coverage with private insurance for their employees.
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THIS CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL OR TAX ADVICE. You should always consult with and rely on your own legal and/or tax advisor(s). G-P does not provide legal or tax advice. The information is general and not tailored to a specific company or workforce and does not reflect G-P’s product delivery in any given jurisdiction. G-P makes no representations or warranties concerning the accuracy, completeness, or timeliness of this information and shall have no liability arising out of or in connection with it, including any loss caused by use of, or reliance on, the information.