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A Christmas bonus equivalent to 15 days base pay is mandatory in Mexico.
Profit sharing is compulsory
70% of large and medium-sized companies offer pension plans
Flexible benefits are an emerging trend
Article in full
Employers in Mexico may feel that they are playing Lady Bountiful when handing out mandatory Christmas bonus payments and a share of profits to employees. But in a country where the minimum wage is on average 45 pesos a day – the equivalent of $140 a month – these compulsory benefits help employees to make ends meet.
The Christmas bonus is paid annually, usually in December, at a minimum legal rate of 15 days base pay. But it is not unusual to find some employers paying up to another 15 days of base pay on top of the legal rate.
In addition, it is the right of all employees to share in the profits of a business in which they work.
Ignacio Cano Cervantes, general manager of Towers Perrin in Mexico, says: “The profit sharing in Mexico is for all companies, 10% of the profits should be distributed to all employees except for the general manager of each company. The distribution is calculated on the number of employees and level of salary.”
But some organisations have set up a new corporate structure designed to reduce exposure to profit sharing payments, in some cases putting in their place tax deductible bonus schemes for employees. A service company, employing the bulk of workers, is created and invoices the operating company for services rendered.
Other mandatory payments also include severance pay for employees who are dismissed without good cause and a seniority payment in the event of resignation following a minimum of 15 years’ service, termination without just cause, disability or death. Age is not considered to be a reason for a company to terminate someone’s employment.
As for holiday, employees after one year of employment are only entitled to a statutory six days and public holidays.
It is also mandatory for employers and employees to contribute to the social security scheme which provides for a pension on a defined contribution (DC) basis, with the normal retirement age set at age 65, and other benefit payments, such as death, sickness, disability, maternity and medical. There is no provision for unemployment benefit under the social security system, apart from the aforementioned severance payments.
It is normal practice for employers to provide other perks in addition to the mandatory and social security-funded benefits.
Around 70% of large- and medium-sized companies offer retirement plans. As in the UK, there has been a move away from defined benefit schemes to DC plans. Some companies also provide group life insurance cover for certain employees, payable on death-in-service or accidental death.
More than 90% of companies also give major medical insurance and life insurance as benefits to their employees. José de Caso, employee benefits director at Mercer Human Resource Consulting in Mexico, says: “Many private companies, in particular multinational firms, offer employees the benefit of major medical expenses, in addition to the social security which is mandatory.”
As in the UK, flexible benefits have become an emerging trend in Mexico. And cars, telephones and leisure club memberships are among some of the perks top execs can expect. But for the workforce in general, advantageous tax treatment has led to employers operating employee savings plans and social welfare allowance schemes to fund food vouchers or medical expenses.