A Quick Guide to Understanding Mexico’s Labor Laws
November 17, 2016
Following the introduction of the North American Free Trade Agreement (NAFTA), many industries have relocated their manufacturing operations to Mexico. This exodus has caused a need for a better understanding of labor laws in Mexico and how they differ from those in the United States. Mexico labor laws improve the quality of work relationships, benefits, payroll and social security.
Origins of Mexico’s Labor Laws
There are four main documents that have had the greatest effect on Mexico’s Labor Laws. These documents are Mexico’s Constitution of 1917, the Federal Labor Law of 1970, The Social Security Law of 1997, and The National Workers’ Housing Fund Institute’s Law of 1972. In order to understand Mexican labor law, it is necessary to know the basis of each of these sources of law.
- Mexico’s Constitution of 1917: The Constitution of 1917 protected employees’ rights, including but not limited to: vacation, overtime pay, job stability, maximum work shift, maternity rights, social security rights, salary protection, profit-sharing entitlement, severance payment in case of unfair dismissal, freedom of association (the right to unionize), and collective bargaining rights (the right to strike).
- Federal Labor Law of 1970: Mexico’s Federal Labor Law of 1970, a revision of the 1931 law, was enacted during a period focused on the employee environment and employee rights. The Federal Labor Law of 1970 was reformed in 2012 by Felipe Calderón. This attempt to modernize Mexico’s labor laws updated previous statutes to include new circumstances and terminology.
- Social Security Law of 1997: The Mexican Social Security Law of 1997 establishes and regulates the employees’ and employers’ rights and obligations regarding social security.
- The National Workers’ Housing Fund Institute’s Law of 1972: This law is sometimes referred to as the “INFONAVIT Law.” This law requires employers to contribute five percent of the employee’s earning to the INFONAVIT to finance the construction of low-cost housing units.
Minimum Wage
The low cost of labor in Mexico is one of primary reasons that many companies relocated their manufacturing after the introduction of the North American Free Trade Agreement. On January 1, 2016 the National Commission on Minimum Wages, or CONASAMI, approved a general minimum wage increase of 4.2%. Unlike in the United States, Mexico does not have one flat minimum wage. In Mexico, minimum wage depends on the occupation, industry, and geographical location. The full list of all new minimum wages can be accessed here.
Work Shifts and Overtime
In Mexico, there are three potential work shifts an employee can have. They are:
- The Day Shift: eight hours for day work between 6:00am and 8:00pm.
- The Night Shift: seven hours for night work between 8:00pm and 6:00am.
- The Mixed Shift: Seven and a half hours for work that includes both day and night work. For this shift, the night work must comprise less than three and a half hours of the work or it transitions to night work.
With these three shifts, employees are eligible to work six days per week with a maximum of forty-eight hours. Overtime is considered any hours above these listed statues. A more detailed explanation of hours and overtime can be found here.
Employment Law Agreements
The Federal Labor Law establishes several different types of employment agreements that employees can enter into. They are:
- Probationary and Training Periods: When an employer-employee relationship is going to be for an indefinite term, which is defined as longer than 180 days, employers can establish a probationary period to establish that the employee has the skills and knowledge required to perform the work. This period can be anywhere from 30-180 days and is at the discretion of the employer.
- Initial Training Period: If a position requires initial training, the employment agreement can allot a term of up to three months, or up to 180 days for managerial or technical positions, in which this training will be conducted.
- Indefinite Period: In Mexico, there is a principle of employment stability, which is different from the at-will employment doctrine common in the United States. The Employment Stability principle is designed to protect the employee by assuring the permanence and continuity of their position unless their employer has a legitimate cause to terminate them. Unless specified otherwise, a contract is deemed for an indefinite term.
- Fixed Term: A fixed term contract is only available if it is required by the nature of the work or it is for the replacement of an absent employee.
- Specific-Task: This is a contract that is only available if the nature of the work being performed requires it.
How NAPS Can Help
North American Production Sharing, Inc. (NAPS) specializes in helping companies successfully expand their manufacturing to Mexico. Under the NAPS Operating Model, NAPS provides support and expertise in the areas of human resources, accounting, customs and environmental health & safety to help ensure compliance with Mexican and international business laws. Get in touch to learn more about labor laws in Mexico and how NAPS can help your business.