Employee Pay Requirements

Last update 10 December 2012

Some of the following information was researched and compiled by my friend David Bodwell who operates an English language book store in Mazatlán.  Visit his website here.  

Nothing on this page should be considered legal advice; nor can I personally vouch for the accuracy of the information although I have tried to make it correct and up-to-date.  Use this as a guide and rely upon your lawyer or accountant for the final word.


 

Payday:

Employees are to be paid weekly in cash.  Payday is the last day worked each week.  Payment must be made in cash, not by check or by commodities.

If a worker is hired to work by the week, the daily rate is the weekly amount divided by 7.  If s/he is hired by the month, the daily rate is the monthly amount divided by 30.  Note this method of calculation differs from that used in the USA and Canada.

Instituto Mexicano del Seguro Social  = IMSS:
(social security, medical, retirement investment fund, government housing fund, etc.)

In the USA, an employer must withhold income taxes, social security and medicare payments and pay matching social security and medicare amounts.  It works differently in Mexico.  The employer pays the entire social security and certain other taxes. These payments are paid monthly to the IMSS which does all the record keeping and payment calculations and sends a bill each month.  (Actually there is one bill each month for SS and health; and a second bill on alternate months for the housing fund.)

All employees, except certain exempt ones noted later, must be registered with the IMSS.   You will need a certified public accountant (L.C.P.) to set up your account with the IMSS.  Don’t attempt to do-it-yourself; it requires too much specialized knowledge. 

Once the account has been set up with the IMSS, you will receive regular bills from them for the payments you owe.   If you don’t pay on time (the 17th of each month), there is a penalty.   Watch for the bill each month; if it doesn’t come (and sometimes it does get lost), go to the office to get a copy so you can pay and avoid a late penalty. You must pay at a specified bank, not at the IMSS office.  Be sure to keep the payment receipts -- forever -- you may need them.

Certain workers are classified as exempt from IMSS registration. These workers include: artisans, craftsmen, non-salaried workers, and domestics; i.e., maids, cleaning ladies, cooks, etc., who work only in your home.  The law says that these exempt workers may decide if they want to be included in the IMSS program.  Generally, it is best to provide them with IMSS coverage.  Among other things, it provides protection for you in case the worker is injured on the job.

If your employee does not want IMSS coverage, it would be wise to have a signed agreement stating that as protection from any possible trouble if there happened to be an unfriendly parting of the ways.

Non-salaried workers are those who are paid by the job or by the piece rather than by time worked.  They include the plumbing repair guy, the cabinet maker who builds and installs your kitchen cabinets, the electrician who installs a grounded receptacle for your computer, etc. They don't need to be registered.

If you hire a building contractor to build or remodel your home, he is responsible for the workers he employs.  But the question of who pays the IMSS bills is a matter to be worked out between you and the contractor.  Generally the contractor will register the job in your name, and you will responsible for paying the monthly billsMaking you responsible for the IMSS bills assures that the final bill, which will come a month or more after the job is completed and the contractor has left the job, gets paid to IMSS.  You should understand that IMSS has very high payment expectations for new construction work, and the final bill may be substantial.  (This usually does not apply to remodeling work.)  In my Las Casas building project the final end-of-job bill from IMSS was staggering.  Be prepared for a large closeout payment.

This large final payment comes about because the IMSS has a table of expected payments for certain kinds of work.  New home construction is expected to generate X pesos per square meter.  At the end of the job when you or the contractor applies for termination papers, the IMSS will send someone to measure the building.  Then they calculate the amount of money they expect the project to have generated for them.  If you have paid that much, or more, they will terminated the job.  No refund if you have over paid.  If you have not paid in as much as their calculation says, then you must pay the difference.  In my projects we had a lot of family volunteer work, thus our labor cost and IMSS payments were low, so our final closeout bill was quite high.

If your contractor agrees to pay the IMSS bills, you need to be very sure that he does so, especially the final closeout bill.  If he fails to pay, sooner or later the IMSS will come after you as the owner of the property.  I know one case where the IMSS came after the owner two years after the job was completed.  The owner had to pay the past due amount and a very large late penalty.  Be sure to keep all the payment receipts for years because you may need them.  I did.  Dealing with the IMSS was the second biggest headache of my building projects -- the cabinet makers were the worst.

If you directly hire construction workers to do some repairs or remodeling on your house then you are self-contracting, and you are suppose to register them  with IMSS.  In reality, for a short job, registration is usually not done.  To be sure of avoiding trouble, you should pay the workers by the job rather than by the day or week. That makes them independent contractors -- non-salaried workers -- and exempt from IMSS.  (The voluntary rule still applies; so if they ask to be registered, you must do it.)

On the other hand, if the job is very long or needs a building permit, the workers need to be registered.  The IMSS inspectors usually check the workers at all the permit jobs, and if a non-permit job lasts any length of time, or would be noticeable from outside, it could draw their attention, which would result in a check.   In some cities, IMSS agents cruise the streets looking for unreported construction. The IMSS registration papers as well as the building permit should be available at the job site for the inspector to see.

There are advantages to the worker to be registered with the IMSS.  These include health insurance and qualification for government-subsidized housing among others.  There are advantages to the employer as well, including medical care for an on-the-job injury.  If a worker is injured on the job and is not registered, you may have to pay his medical care as well as continue his wages while he is unable to work.  The bottom line is that although some workers can be exempt, it is not to their advantage to opt out of IMSS, and it may not be good for the employer either.

The law requires that the following items be paid whether or not the worker is registered with the IMSS.

Aguinaldo (Christmas Bonus)

The aguinaldo must be paid on or before the 20th of December.   The aguinaldo must be paid in cash; gifts, Christmas baskets, and other presents do not fulfill the requirement.

The aguinaldo must equal 15 days of salary.   To calculate the amount for a part-time employee, divide the number of days worked during the year past by 365. Multiply that figure by 15 x the daily salary to determine the amount of the aguinaldo.

Examples:

If you have an employee who works one day a week for $50 pesos:
52/365 x 15 x 50 = $106.85 pesos

If the worker is paid by the week and has worked a full year, use a multiplier of 2.14 to make the math easier.  If the worker is paid $500 pesos per week, then it is $500 x 2 .14 = $1070 pesos

If the weekly worker has not worked a full year, divide the number of weeks worked by 52.14 x 15 x the daily salary (weekly salary divided by 7) to determine the amount of the aguinaldo.

Vacación (Vacation)

The vacación must be paid in cash, either before the vacation or before the end of the year if no vacation has been taken.

The vacación pay must equal required number of vacation days of salary plus and additional 25% of the amount. To calculate the amount, divide the number of days worked during the year past by 365.  Multiply that figure by number of vacation days times 1.25 to determine the amount of the vacación pay due. 

Examples:

If you have an employee for one year who works one day a week for $50 pesos:
52/365 x 6 x 1.25 x 50 = $53.42 pesos =
vacación

If the worker is paid $500 pesos per week, convert the weekly rate to a daily rate by dividing by 7.

500/7 x 6 x 1.25  = $535 pesos = vacación

Note:  The 6-day minimum vacation is only for the first year worked.  The basis increases by 2 days each year through the 4th year.  The 5th year it increases 2 days to 15 days.  Thereafter, the time increases by 2 days each 5th year.

For example:  A maid has worked for 5 years, so she is due 14 days vacation.  She works 3 days per week for $760 per week. which is $253.33 per day.  3 x 52 = 156 days worked per year.

156/365 x 14 x 1.25 x 253.33 = $2642.71

If we ignore that she works only 3 days and consider her a weekly employee, then

760/7 x 14 x 1.25 = $1900

Year 1 -- 6 days
Year 2 -- 6 + 2 = 8 days
Year 3 -- 8 + 2 = 10 days
Year 4 -- 10 + 2 = 12 days
Year 5 -- 12 + 2 = 14 days
Year 10 -- 14 + 2 = 16 days
Year 15 -- 16 + 2 = 18 days
etc

Holidays:  

If your worker works on any of the Mexican legal holidays, you must pay double time plus the regular pay; i.e., triple time.  If the worker is paid for the holiday, but doesn't work, you cannot deduct the day from the "days worked" in the preceding computations for aguinaldo or vacación.

If your worker works on any Sunday, you must pay an additional 25% of the daily wage.  For weekly workers, you divide the salary by 7, then add 25% to the daily amount for the Sunday pay.  This assumes that you have given the employee some other day off during the week.  If the employee worked the full 7 days that week you owe overtime pay also.  That gets much more complicated.  Talk with your accountant. 

The Mexican legal holidays are:

Jan 1,  New Year's Day
1st Monday in Feb, Constitution Day
3rd Monday in March, Benito Juarez's Birthday
May 1, Labor Day
Sep 16, Independence Day
3rd Monday in Nov, Revolution Day
Dec 25, Christmas

There are several other commonly accepted holidays (the banks may even be closed), but these seven are the only legal holidays.
 

Maternity Leave:

A woman is entitled to six weeks before and six weeks after delivery with full pay.  If she is unable to return to work after that leave, she's entitled to a period not to exceed 60 days at half pay.

Termination Pay:

The labor laws are very pro worker.  Nowhere is this more evident than in the draconian termination law.   When an employee is terminated, he is entitled to termination pay; unless:

1.  The employment was for a specified period of time, such as while building a house, or for house sitting for the winter while the owner is away, etc.  It is best to have the time stipulation in writing.

2.  For just cause.  This is a very complicated issue, and you may need the help of a labor lawyer if the employee appeals to the labor review board.  Just cause is spelled out in detail in the law. 

The termination pay shall include 3-months salary plus 20 days for each year worked plus prorated vacation and Christmas pay. 

20 days means 20 times the daily rate which is 1/7 of the weekly rate.

Example:  A maid worked 2 days per week for $50 pesos per day for 4 years.  That is $100 per week. There are 13 weeks in 3 months.  Her daily rate is not $50.  It is 100/7 = $14.29.  So her termination pay will be (13 x 100) + (20 x 14.29 x 4) = 1300 + 1143.20 =  $2443.20 plus any Christmas and vacation pay that may be due.

If this termination package cannot be paid at the time of termination, regular salary shall continue until the termination is paid in full.

If the employee quits voluntarily, termination pay is not required.  A common tactic to avoid termination pay is to induce the employee to quit.  One must take care with this because the law cited above spells out what an employer cannot do to harass a worker and his family.
 

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