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Types of Employment Contracts in Mexico (Payroll in Mexico)

Autor: info@taxid.mx

Publicación: Nov 9, 2023

Categoría: English

Mexican Labor Law is complex, is important to understand the liabilities of the payroll in Mexico, before hiring people.

Fixed-Term or Specific Work Contract:

a. Fixed Term: In this type of contract, the exact duration is known, and there is a justified cause. For example, it may be used to cover maternity leave or to replace an executive who will be out of the country for a year to pursue a master’s degree. There is no severance pay for unjustified dismissal at the end of the contract.

b. Specific Work: In this type of contract, the duration is not known as it may depend on various factors, such as the development of a mobile application or a specific project. There is no severance pay for unjustified dismissal upon completion of the work or project.

Indefinite with a Probationary Period: This type of contract allows for a probationary period of up to 180 days, which can be adjusted as deemed necessary by the company to assess the employee’s performance. To implement this type of contract, a Joint Training and Development Committee must be established, and there must be evidence that the employee did not meet the job expectations and requirements. When selecting the probationary period, it should be considered that the employee will need to remain with the company for that duration. If the contract is terminated following the above conditions after the probationary period, there is no severance pay for unjustified dismissal.

Indefinite: This contract is for an indefinite period of time. Although the law allows for a 30-day probationary period, winning such a case in the event of a lawsuit is challenging. If the employee is terminated, they must be compensated according to the rules for unjustified dismissal.

Severance Pay for Unjustified Dismissal: 3 months’ salary plus 12 days per year worked.


Illegality of Personnel Outsourcing (“Outsourcing”)

Mexican companies are prohibited from providing outsourcing services to each other. In other words, if Company A is primarily engaged in providing “software development” services, it cannot contract Company B if it has the same primary activity. However, this restriction does not apply if the services are provided to a foreign company. Therefore, a Mexican company can hire individuals in Mexico and sell services to a foreign subsidiary, as long as the billing amount to the foreign subsidiary includes a MARK UP.

In the case of a Mexican company (Company A) providing software development services to a foreign subsidiary, Company A must hire Mexican employees directly and may hire a human resources (HR) company for payroll administration and hiring services, as long as the HR company is not engaged in software development.

Conclusions in Mexican payroll

Is important to understand the Mexican labor legislation and types of contracts is indispensable. If you required more information you can contact us.

You can learn more about setting up a Mexican Corporation in our Blog.

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