1.- How can you hire personnel in Mexico?
Hiring personnel in Mexico
The following options are available for your organization for hiring personnel in Mexico:
• Legal entity:
A legal entity (Organization or company) must be formally established by your enterprise or yourself within Mexican soil, which shall grant permission for (various) commercial activities and personnel employment in Mexico.
• Representative office:
A formal representative office must be established by your enterprise or yourself within Mexican soil, with elective personnel employment in Mexico.
• Staffing / PEO:
An outsourcing services or company may be selected by your enterprise or yourself for subcontracting personnel on behalf of your organization.
Each of the aforementioned options is available according to the needs of your organization.
2.- What are the obligations as an employer to the Mexican Government?
The obligations of the employer towards the Mexican government.
If you have decided to incorporate a legal entity or representative office in Mexico, you must acknowledge the following considerations:
I. Employer must register before the Mexican Government Institutions. It is necessary that your organization registers for the first time before the following agencies:
• Tax Administration Service (SAT) (www.sat.gob.mx). This is a deregulated agency belonging to the Ministry of Finance and Public Credit (SHCP), which duty is to oversee and pursue the tax and customs legislation, in order to ensure compliance with the tax and customs provisions by physical individuals and legal entities.
In payroll terms, it is a requirement to register at SAT
i. Enrollment on the Federal Taxpayer Registry (RFC)
ii. Taxpayer access password for the online portal.
iii. Private password file (*.key)
iv. Certification file (*.cer)
v. Code word for private password.
• Such files may be obtained through the enrollment process in the Federal Taxpayer Registry (RFC). The RFC registry may be filed online and must be concluded at any Local Administration of Taxpayer Services (ALSC) within 10 days following your application.
• Mexican Social Security Institute (IMSS) (www.imss.gob.mx) is the official healthcare institution for the Mexican government. All organizations incorporated within Mexican soil who compensate their employees via payroll are compelled to enroll such employees before the aforementioned institution.
• In payroll terms, it is a requirement to register at IMSS
Employee registration, which shall contain:
Employee registration number
ii. Enrollment at the occupational risk insurance. All the aforementioned are obtained through the employee registration.
Before the registration at IMSS, a pre-form must be filled out on the IMSS website, in which your appointment will be scheduled to conclude the employee registration and the occupational risk insurance enrollment.
• National Workers’ Housing Fund Institute (INFONAVIT) (www.infonavit.gob.mx) an autonomous, tripartite tax agency where employees, employers, and government join efforts to grant housing credit for employees.
In payroll terms, is it a requirement to register at INFONAVIT?
i. Yes. When your organization is enrolled at the IMSS, you will automatically be registered in INFONAVIT, thus complying with the aforementioned registration.
• Retirement Savings System (SAR) it is a system regulated by the Social Security legislation that arranges the employed compensations through IMSS premiums. The amount of such premiums shall be controlled individually by companies called AFORES. Such companies will be selected individually by the employee and the amount of the savings will be allocated to conform a fund for employee retirement.
In payroll terms, is it a requirement to register the organization before an institution to comply with SAR?
i. Yes. At the moment of being enrolled in IMSS, the employer automatically complies with his SAR enrollment obligation.
• Fund for the Promotion and Guarantee of Expenditures by Workers (INFONACOT) (www.fonacot.gob.mx) is an deregulated public and social interest agency, dependent on the Ministry of Labor and Social Welfare, with legal status to support employee progress and the equity increase through credits and financial services.
For a valid registration before INFONACOT, you must comply with the following considerations:
i. As a legal entity, being enrolled in SAT
ii. Being an entity incorporated under the current legal framework
iii. As an entity, being enrolled in IMSS
In payroll terms, it is a requirement to obtain INFONACOT
iv. Proof of company affiliation.
Note: For employees from work places that benefit from the FONACOT credit, the work place must comply with the following:
o At least two years of uninterrupted labor
o Submit a good credit rating from the credit bureau
• A Ministry of State Finances is present in each and every one of the states of Mexico, a particular tax is levied on organizations that own an registered work place in each state and employ personnel for such work place. Organizations shall register their work place or company before the Ministry of State Finances, for the issuing of monthly deposits related to the payroll tax, as determined by each state.
This procedure is different for every state, in Mexico City’s particular case being established on the following article: In payroll terms, it is a requirement to obtain a registry from the Ministry of Finance in Mexico City:
For enrollment at the Ministry of Finance in Mexico City, it is necessary to fill out a form on the website of the Ministry of Finance in Mexico City and visit the designated Administration Tax Services office to complete the registry. The following documentation must be at hand for this procedure:
A. Application of enrollment to the Federal Taxpayer Registry (RFC)
B. Proof of RFC enrollment
C. Enrollment notification or IMSS employer identification
I. Employer Payments and Notifications to the Mexican Government Agencies
Once your organization has been registered in Mexico before government entities, your organization shall submit the information, statements, and payment of obligations to the following government as follows:
• Tax Administration Service (SAT): the Federal Income Tax Law establishes that employers must calculate and withhold taxes related to the income of every employee during each payment term, and generate an annual statement of Wages and Salaries:
• The Mexican Social Security Institute regulations establishes that employers must calculate and withhold premiums of both employer and employee every payroll term. Such premiums shall be paid on a monthly basis. Furthermore, it determines the calculation of Labor Risk Hazards to be carried out on an annual basis.
• National Workers Housing Fund Institute (INFONAVIT) (www.infonavit.gob.mx) an autonomous, tripartite tax agency where employees, employers, and government join efforts to grant housing credits for employees.
These credits are paid via predetermined amounts withheld by the INFONAVIT from the employee payroll, which shall be disbursed as per the following deadlines.
• Retirement Savings System (SAR) is a system regulated by the Social Security legislation that arranges employer contributions through IMSS premiums. The retirement fund amount is calculated through the SUA (program provided by IMSS for premium calculation). This payment of this benefit is due on a bimonthly basis, no later than on the 17th day of every month.
• Fund for the Promotion and Guarantee of Expenditures by Workers (INFONACOT) (www.fonacot.gob.mx) is a deregulated public and social interest agency dependent on the Ministry of Labor and Social Welfare with the legal status to support employee progress and equity increase through credits and financial services.
INFONACOT is not a tax, but a credit issued by the state in favor of employees; it is a payment that is directly withheld from the employee payroll.
• A Ministry of State Finances is present in each and every one of the states in Mexico, and a tax is levied on organizations who own an established work place in each state and employ personnel in such work place. Organizations must register their work place or company before the Ministry of State Finances, for the issuing of monthly deposits on payroll tax, as determined by the state.
• Federal Income Tax (ISR) is a tax levied on the income of individuals, organizations, or other legal entities.
• 3% tax on payroll
3.- What are the types and validity of Labor Agreements in Mexico?
Labor agreements in Mexico
The Federal Labor Law (LFT) in Mexico established the existence of two types of labor agreements:
• Individual Labor Agreement
• Collective Labor Agreement
Validity of the labor relationship in Mexico
The labor agreements must determine the validity of the labor relationship between employer and employee. The Federal Labor Law establishes the following labor relationships in Mexico:
4.- How long are the work shifts in Mexico?
Work shifts in Mexico
The Federal Labor Law (LFT) in Mexico established the existence of three types or working days:
• Day shift
• Mixed shift
• Night shift
For every (6) work days, the employee shall be granted at least one (1) day on paid leave.
For positions that require continuous labor, the employer and employee shall settle an agreement in which the employees enjoy one weekly day on paid leave.
Employees who work on Sunday shall be entitled to an minimum additional 25% premium (Sunday premium), over the salary paid for ordinary labor days.
Employees who provide services on leave days shall be entitled to, additional to the corresponding salary for a leave day, a double salary for the service provided.
This practice varies depending on the industry and geographical zone, but it shall never differ from what the Federal Labor Law establishes.
5.- What are the mandatory leave days in Mexico?
Mandatory leave days in Mexico
The following mandatory leave days un Mexico have been previously established by the Federal Labor Law in Mexico:
• January the 1st
• First Monday of February, celebrating February the 5th
• Third Monday of March, celebrating March the 21st
• May the 1st
• September the 16th
• Third Monday of November, celebrating November the 20th
• December the 1st, corresponding to the presidential succession
• December the 25th
• Those determined by federal laws and local electoral laws, in case of ordinary elections, for voting purposes.
6.- What are the mandatory labor benefits in Mexico?
Mandatory labor benefits in Mexico
In Mexico, organizations are regulated by the Federal Labor Law (LFT), which determines the following mandatory benefits:
• 6-day vacation after the first year of service
• 8-day vacation after the second year of service
• 10-day vacation after the third year of service
• 12-day vacation after the fourth year of service
• 14-day vacation off after the fifth year of service
• 2 additional days for every 5 years of service after the fifth year
• 25% of the daily payable salary corresponding to the right of paid leave, or employee anniversary in the organization.
Yearly Christmas Bonus:
• Fifteen (15) days of annual paid salary on December
• 10 % of the profits reported by the organization
• The employer shall disburse three (3) months of salary, pursuant to the Federal Labor Law, plus 20 days of Salary per year of service (record) and 12 days per year of service, when the employee decides to terminate the agreement without a valid reason acknowledged by the Federal Labor Law.
Additional to the labor benefits, additional surplus benefits for employees that are often granted, but not mandatory, include:
• Days the organization provides in favor of the employee on a yearly basis so they can be celebrated as paid leave days. The same must be regulated and established under the employee manual or internal labor regulations.
• The amount received by the employee is free of tax up to the upper limit established by the Federal Income Tax Law (ISR). An electronic funds card is provided to the employee, to be used at various convenience stores, pharmacies, or even certain clothing stores.
• The amount received by the employee, free of tax, up to the legal upper limit established by the Federal Income Tax Law (ISR). Employees save a certain amount (percentage to salary) and the organization contributes with the same amount for a one-year period. These payments are usually disbursed on a yearly basis; the payment date is determined by the organization.
Major Medical Expense Insurance:
• Social Security in Mexico now encompasses life insurance and temporary or permanent disability insurance of the employee. However, it is common for the employer to provide an additional life insurance and temporary or permanent disability insurance.
• A fixed amount is established to be paid via payroll for supporting the employee on the maintenance and acquisition of a vehicle.
• The organization provides a gas card, in which fixed amounts are deposited on a monthly basis, and may be used in (active) associated gas stations enrolled in the service provider registry.
• A fixed amount is established, to be paid for employee support on maintenance and acquisition of a home, or for house rental.
• The organization provides a vehicle for the employee, to be used as a work instrument.
Company Mobile Phone
• The organization provides a cellular device with a rental plan for the employee, to be used as a work instrument.
• A fixed amount is established, to be paid for supporting the representation (or miscellaneous) expenses of the employee, as approved by the company.
There is a long list of benefits that may be granted to employees. However, the abovementioned benefits are the most commonly-observed benefits within the labor market in Mexico.