News, Insights and Best Practices for Manufacturing in Mexico

Severance Pay in Mexico

   
02 Jan 2018

Category: Labor & Economics

When thinking about costs and employees in Mexico, managing severance under labor law is important, especially when dealing with labor competition from other operations. HR departments are smart to become expert navigators of severance stipulations within the local state and federal communities. Recruiting and hiring different types of positions calls for different types of pay stipulations - including temporary and permanent.

Temporary Contract Severance Stipulations

The longest temporary contract legally available to provide is 6 months whether it’s through one contract or multiple smaller contracts. Because contract employees aren’t entitled to termination benefits, they are provided with compensation for the full time of their employment. It is suggested to hire a contract employee that is the right fit, as quickly as possible because competition is high and if an employee doesn’t think there’s a change at stable job they will look elsewhere. When the temporary contract turns into a full time employment the employee immediately attains access to all severance benefits, so finding the right fit is important for a healthy work relationship.

 

Permanent Employee Severance

Permanent employees are protected under Mexican Labor Laws which stipulate that an employee has the right to file for reinstatement and compensation if they are terminated without a legitimate cause. The terminated employee must be provided with 3 months of wages and an additional 20 days wage for each year the employee worked, at the most recent amount earned. The days that accumulate between termination and when the severance is paid are counted as days worked and are owed to the employee in the severance package. Because severance in Mexico is a legal affair, it is essential to be sure of the employees you hire to reduce the risk of high severance costs.  

If the employee does file for reinstatement and are approved, they receive the wages that would have been earned from the time of termination to the date of reinstatement only if that time does not exceed 12 months. Reinstatement also has restrictions for some employees, specifically if:

  • The employee’s manager has been with the company for less than a year
  • The manager and the employee can absolutely not work together
  • The employee was working as a temporary worker
  • The services provided were the rendering of socially learning municipal services issued by the authorities or law.

Because all government pursues a low unemployment rate, grounds for termination without high repercussions are taken seriously. The legitimate reasons for termination include:

  • Deception or scam by the employee relative to their capabilities
  • Delinquency or injuries by the employee
  • Behavior outside of the workplace that affects the employer, and other personnel
  • Deliberate damages or bigotry to the employer or their assets while working
  • Negligence by the employee placing the business or personnel in an unsafe situation
  • Immoral acts at the place of business by the employee
  • Revealing trade secrets of the employer
  • More than 3 absences from work within 30 days, without justification or permission
  • The employee’s refusal to obey orders or work
  • Rejection by the employee to adopt precautionary measures to avoid accidents
  • Drunkenness or drinking at the place of work
  • Imprisonment of the employee
  • The employee has a transmittable sickness
  • The employee is temporarily incapable to work due to an accident or illness
  • Preventive detention of the employee, followed by an absolving decision
  • The arrest of the employee
  • Representation of socially oriented public services imposed by law or order issued by authority
  • When the employee does not have certain credentials required by law to work (sanitation cards, driver’s license)
  • Representation of socially oriented public services imposed by law or order issued by authority
  • When the employee does not have certain credentials required by law to work (sanitation cards, driver’s license)

When thinking about expanding to Mexico, understanding the country’s labor laws is important to maintain production efficiency to boost cost savings. When dealing with severance stipulations is important to hire wisely and stay accustomed with the labor rights in Mexico, local laws, and customs of other HR departments.

Find out how to reduce your Severance Costs in Mexico. Click Here!

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