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Overview of Legal, Comp. Practices

August 1, 1994
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Related Topics: Global Employment Law, Featured Article
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Most firms operating in Mexico warn newcomers to simply turn over more complex details to a specialist. However, a basic working knowledge of certain practices is necessary to plan successful HR strategy. Hewitt Associates provides some facts about working in Mexico:

Labor-law Overview:
In case of a dispute, the burden of proof is always on the employer. Also, the labor law is part of the Constitution, and workers are not allowed to renounce these rights. Therefore, any individual employment contracts or collective agreements that limit these rights are considered invalid.

Overtime compensation:
Overtime is limited by law to three hours a day, three times a week. All overtime must be worked voluntarily, and the overtime premium is 100% (double time).

Cash Payments:
In addition to the cash payments required by law, there are several other payments that are used widely enough to make them integral to a competitive compensation package:

  • Savings funds: The purpose of Mexican savings funds is to deliver tax-free cash to employees. Approximately 85% of employers use these.
  • About two-thirds of employers use punctuality bonuses. A common approach is an extra payment-15 to 20 days' pay-for perfect attendance for a year.
  • Annual or short-term incentives for executives are use by about three-fourths of companies. Bonuses awarded in 1993 averaged 19% of pay.

Benefits:
Upon leaving a firm, employees may receive benefits from three sources: social security, retirement savings systems and company retirement plans

  • Social Security is mandatory and covers old-age, survivors' and disability pensions; medical and maternity benefits.
  • Retirement savings systems require employers to pay into a retirement fund 2% of base pay.
  • Severance pay is a major part of company retirement plans. There are two types: cesantia and antiguedad. Antiguedad is paid upon an employee's voluntary resignation after 15 years of service, death or disability. Compensation is 12 days' pay for each year of service, with a maximum of two times minimum wage. Cesantia is severance paid upon termination without just cause. Just cause is limited to gross misconduct-poor performance is not considered just cause.

Severance is not necessary upon retirement. This sets up a problem because employees are often significantly better off being dismissed than voluntarily retiring. To remedy this, some companies establish informal voluntary retirement programs, with pension plans to allow retiring employees to receive severance pay.

Unions:
Unions have the right to organize workers at an operation, but only one union represents a given location, covering all employees at that location. When a strike is called, the workplace is closed until the strike is settled-picket lines are unknown in Mexico. Most manufacturing operations in Mexico are unionized, with plant workers as members, first-line supervisors somewhat unionized; and high-level supervisors seldom unionized.

Personnel Journal, August 1994, Vol.73, No. 8, p. 40.

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