Common Misconceptions About Labor Rates in Mexico

Cost-competitive labor is one of the main reasons U.S. and other foreign manufacturers have increasingly expanded their production to Mexico. Labor rates in Mexico are comparably less expensive than those in the U.S., plus there’s greater availability of industrial talent.

However, there are a few common misconceptions about the full cost of labor and what’s involved when recruiting and retaining Mexico’s top workers.

Here’s a look at what you need to know regarding workforce expectations and compensation best practices when manufacturing in Mexico.

Misconception #1: Benefit Packages Are the Same as the U.S.

Benefits are a significant part of any compensation package, although, in Mexico, there are several “non-traditional” benefits and perks compared to the U.S.

Some of these include transportation services, cafeteria subsidies, and bonuses related to productivity, punctuality, and attendance. Plus, many of Mexico’s employment taxes are charged through payroll.

These are in addition to standard benefits like medical insurance, savings funds, and housing credits, as well as paid time off, vacation days, maternity/paternity leave, and holiday bonuses.

Misconception #2: Hourly Salary Accounts for Full Labor Costs

Depending on the region, labor rates in Mexico range from $5.50-$6.50 per hour for production workers and approximately $7-$8 per hour for advanced skill workers. For instance, Mexicali will be on the lower end of the salary range while Tijuana will be near the top.

This may be a surprise for some manufacturers as companies often expect salaries to equal closer to $2-$3 per hour. Yet, benefits must be added to establish the full labor cost as a fully burdened salary.

Those who seek out the cheapest labor will find this strategy is not sustainable nor a good fit when working with a shelter partner. Instead, manufacturers should seek out employees who wish to grow with the company and increase their skill set. New companies launch production every year, so offering competitive labor rates in Mexico is important.

Misconception #3: Industrial Recruiting Isn’t Competitive

Though worker availability in Mexico is more promising than in the U.S., this also makes industrial recruiting highly competitive. And, when manufacturers lose any part of their workforce, it’s costly to fill those positions and keep production on track.

To retain quality technical talent, it’s common to hold annual reviews to account for inflation, which can range from 4%-6%. While manufacturers are not obligated by law to adjust for inflation, it’s important to stay in line with what other companies offer.

Misconception #4: Hiring Employees Is Easy

It’s always challenging to launch production in a foreign country, especially if it’s for the first time. Therefore, it’s helpful to have a skilled shelter partner to navigate the complexities of recruiting, hiring, and firing employees. In addition to unique benefits and salary expectations to account for, there are also unique severance policies and taxes to consider as well.

Additionally, when working with a shelter company in Mexico, U.S. and other foreign manufacturers save significantly on administrative labor rates and costs.

Hiring the Support You Need

Mexico maintains a highly skilled workforce that is continuing its competitive rise. Though manufacturers appreciate the cost savings on labor compared to other countries, it’s not a race to find the cheapest workers.

Working with a shelter company like IVEMSA helps you to navigate Mexico’s workforce to hire the right employees to fit your production needs. For more information about labor rates or the extensive list of shelter services offered, contact our team today.