Benefits of Outsourcing Payroll in Mexico
02.13.20
Each part of the operational setup is equally important when manufacturing in Mexico. Hiring several people in separate fields to work together as one, cohesive group can be challenging, particularly when it comes to payroll and other accounting services. This part of the project requires personnel who have a deep understanding of Mexico labor cost, tax requirements, and employment laws. Someone who is inexperienced or not well-versed could potentially cost your company thousands of dollars in penalties if employees are not set up correctly.
Learn more: Mexican manufacturing costs.
One of the advantages of working with a shelter services provider is that you have all of the necessary functions handled under one umbrella. Another favorable option is to work together on an as-needed basis for specific parts of the plan, such as payroll administration, for services that require intrinsic knowledge and cultural expertise to navigate effectively. Benefits of both models include:
- Compliance with social security regulations
- Understanding of Mexico’s profit-sharing law
- Maintenance of a proper bonus structure
- Paying severance accurately
Each of these areas has details and language that go beyond regular payroll and accounting proficiency. It’s important to work with a trusted team with years of experience and expertise in the industry, such as IVEMSA, when operating in Mexico.
Benefit #1: Compliance with Social Security Regulations
There are requirements you’ll be introduced to when manufacturing in Mexico. One example is the difference in how social security works. All employers must make monthly social security worker-employer contributions as part of Mexico’s IMSS program. These help to fund health and disability insurance, retirement pensions, and daycare. Although employees also contribute, the employer is responsible for a greater share.
These payments are authorized through Mexico’s local system, which tracks and pays worker-employer contributions for social security and retirement. The amount of social security withholding required and where contributions are made is different in Mexico compared to other countries and must be treated as such.
Benefit #2: Understanding of Mexico’s Profit-Sharing Law
In addition to social security contributions, each company is responsible for distributing 10% of its taxable profit among employees every fiscal year, based on income of the Mexico manufacturing site specifically, as per Mexican Federal Labor Law. However, companies that work under an IMMEX maquiladora don’t make sales (since these transactions take place in the U.S.), which means these sites are cost centers with minimal profits.
Over half of this profit-sharing amount is divided evenly based on the number of days worked, while the other half is divided and allocated to each employee’s accrued wages. There is a 60-day timeline that begins once a company files its annual tax declaration. If a company doesn’t comply with the requirements accurately or by the deadline, employees can file a claim.
Accurate records of dates of employment, profits, and all other associated financial information to comply with this law in a timely way are essential. The only exceptions to the profit-sharing law include first-year employees, general managers, and companies within two years of operation or that do not generate the set earnings amount are all excluded.
Benefit #3: Maintenance of a Proper Bonus Structure
Bonuses are one of the main ways employers can stay competitive and retain their best employees. The issuance of bonuses is a common practice in the U.S. and other areas of the world. However, in Mexico, it’s mandated by federal law to add specific bonuses, such as the “13th month” or “Christmas” bonus. This stipulates that employers must pay a bonus equal to at least 15 days of wages by December 20, which can be prorated for employees hired within the past 12 months), and can be negotiated for a higher amount by seasoned employees.
There are other special bonuses given to motivate employees and reward them based on productivity or punctuality. A payroll administrator who’s familiar with these bonuses can track what the company can afford and how the bonuses should be distributed fairly. By setting up a structure in advance, it can ensure there aren’t any missed opportunities for calculating bonuses as part of the annual Mexico labor cost when applicable.
Benefit #4: Paying Severance Accurately
When an employee reaches permanent status, they become entitled to severance if they are terminated without valid cause. This severance is based on three months worth of salary, plus prorated vacation pay and the Christmas bonus. This is increased for employees who have 15 years or more seniority. In these situations, employers must pay 20 days of salary for each year of work based on what the terminated employee currently earns.
Additionally, employees with more than two years of service have the right to sue for reinstatement and if they win, employers are responsible for paying back pay. Since these rules differ from what’s typically applied in the U.S. and other countries, it’s important to know all rights of the employer as well as the employee when it comes to Mexican law.
Partner with a Payroll Provider in Mexico
When working with a payroll administrator, take into account the level of experience the person or organization has working with Mexico labor cost, laws, and protocols. Having someone internally handle payroll in a foreign country requires a whole new learning experience, which can prove to be time-consuming and costly.
Rather than face fines or other legal retribution, outsource to a shelter services company that can provide these specialized services and knows local law and employee expectations.