Annual Vacation Accrual Reset in Mexico | Detailed Guide

What “Annual Vacation Accrual Reset” Means Under Mexican Law

In Mexico, the concept of an “annual vacation accrual reset” is often misunderstood by foreign employers. Mexican labor law does not recognize a reset of vacation rights based on the calendar year or company policy. Vacation entitlement is a statutory benefit tied strictly to employee seniority, not to annual PTO cycles.

• Meaning of vacation accrual in Mexico
  Vacation accrual refers to the legal right an employee earns based on completed years of service. Once vacation days are earned, they become a vested labor right. They do not disappear, reset, or restart due to year-end payroll cycles or internal HR calendars.
  
  

• Why Mexico does not use a US-style PTO bank or calendar-year reset
  Mexican law does not allow combining vacation, sick leave, and personal time into a single PTO bank. Each benefit has its own legal treatment. A calendar-year reset would contradict the principle that vacation is earned through service time, not employer policy.
  
  

• Seniority-based entitlement vs annual reset misconception
  Vacation days increase as seniority grows. There is no legal concept of “unused vacation expiration” caused by a new year. Any reset applied internally creates compliance risk.
  
  

Correct vacation handling requires strict alignment with seniority-based rules, not global HR models.

When Vacation Accrual Starts in Mexico

Vacation accrual in Mexico follows a strict legal rule that differs from many foreign employment systems. Under Mexican labor law, vacation entitlement does not begin immediately upon hiring. The right to paid vacation is earned only after completing a defined period of service.

• One full year of service requirement
  An employee becomes legally entitled to vacation only after completing one full year of continuous service with the same employer. Before this anniversary, there is no statutory obligation to grant vacation days, regardless of internal HR practices used in other countries.
  
  

• No pro-rated vacation before completing the first year
  Mexican law does not require prorated vacation during the first year of employment. Any vacation granted before the one-year mark is considered an employer benefit, not a legal obligation. If granted, it must be clearly documented as discretionary to avoid future claims.
  
  

• Legal basis under Federal Labor Law Article 76
  Article 76 of the Federal Labor Law establishes the minimum vacation entitlement beginning after the first year of service and increases with seniority. Employers cannot override this framework with internal policies.
  
  

Correct application prevents benefit misclassification and future labor disputes.

How Annual Vacation Days Are Earned (Seniority Schedule)

In Mexico, annual vacation days are earned strictly through a seniority-based schedule defined by federal labor law. Employers do not have discretion to design their own accrual tables or reduce statutory minimums. Vacation entitlement increases automatically as service time increases and applies to all employees under an employment relationship.

• 12 days after the first year
  Once an employee completes one full year of service, they are legally entitled to a minimum of 12 vacation days. This entitlement becomes enforceable immediately after the first anniversary and cannot be deferred or reduced.
  
  

• Increase by 2 days per year through year 5
  For each additional year of service from year two through year five, vacation entitlement increases by two days per year. This progression is mandatory and applies regardless of job title, salary level, or contract language.
  
  

• Increase by 2 days every five years after year 5
  After completing five years of service, vacation days continue to increase by two days for every additional five-year period of service. The growth rate slows but never stops.
  
  

• No discretion to reduce statutory minimums
  Employers may offer more vacation, but never less than the legal minimum.
  
  

Any deviation from this schedule creates direct non-compliance with Mexican labor law and exposes the employer to claims, penalties, and retroactive benefit corrections.

When Vacation Must Be Granted by the Employer

Mexican labor law not only defines how vacation is earned, but also when it must be granted. Once vacation entitlement is generated, the employer has a clear legal obligation to ensure the employee actually takes the vacation within a defined timeframe. This obligation cannot be shifted to the employee.

• Six-month window after employment anniversary
  After the employee’s work anniversary, the employer has a maximum of six months to grant the corresponding vacation period. The law does not allow indefinite deferral. If the vacation is not taken within this window, the employer remains in breach.
  
  

• Employer obligation to schedule and grant vacation
  Vacation scheduling is an employer responsibility. While dates may be coordinated with operational needs, the employer must actively ensure vacation is taken. Failure to do so cannot be justified by workload, staffing shortages, or employee preference.
  
  

• Legal requirement to issue an annual vacation certificate
  Each year, the employer must issue a written record confirming the vacation period granted and the corresponding vacation bonus. This document serves as proof of compliance in audits, inspections, and labor disputes.
  
  

Failure to grant a vacation timely exposes employers to labor claims, penalties, and retroactive obligations, even if the employee continued working voluntarily during the period.

Does Vacation Accrual Reset Every Year in Mexico?

In Mexico, vacation accrual does not reset based on the calendar year or payroll cycle. This is a common misunderstanding among foreign employers applying global HR models. Mexican labor law treats vacation as a seniority-based right that renews annually without eliminating previously earned days.

• No calendar-year reset
  There is no legal concept of a January 1 reset for vacation entitlement. Vacation days are earned on each employment anniversary, not by calendar year. Internal policies attempting to apply year-end resets are not legally valid.
  
  

• Entitlement accrues annually but does not auto-reset
  Each year, new vacation days are generated based on seniority. This annual accrual adds to the employee’s rights but does not cancel or overwrite unused vacation from prior periods.
  
  

• Distinction between earning new days and losing unused days
  Earning new vacation days is not the same as forfeiting unused ones. Mexican law does not allow automatic loss of vacation simply because time has passed or a new year begins. Any loss requires strict legal conditions.
  
  

Treating vacation as a resettable PTO balance creates compliance exposure and documentation risk under Mexican labor law.

What Happens to Unused Vacation Days

Mexican labor law does not treat unused vacation days the same way as PTO balances in other jurisdictions. While vacation is a mandatory benefit, the handling of unused days follows specific legal principles that employers must understand to remain compliant.

• No automatic rollover guaranteed by law
  Mexican law does not explicitly guarantee an automatic rollover of unused vacation days from one year to the next. However, this does not mean unused days can be freely erased or ignored by the employer.
  
  

• Employer policies vs legal minimums
  Employers may define internal rules on how and when vacation should be taken, but these policies cannot reduce or eliminate statutory vacation rights. Any policy that causes employees to lose legally earned vacation without proper granting creates legal exposure.
  
  

• Risk of losing unused days
  Unused vacation days may be at risk only if the employer can prove the vacation was properly offered, scheduled, and refused by the employee within the legal timeframe. Without documented evidence, the vacation obligation remains outstanding.
  
  

Improper handling of unused vacation days commonly results in retroactive payments, penalties, and adverse outcomes during labor inspections or disputes under Mexican labor law.

Vacation Expiration Rules (18-Month Legal Window)

Mexican labor law does not establish an automatic expiration of vacation rights, but vacation-related claims are subject to statutory limitation periods. 

Under Article 516 of the Federal Labor Law, any legal action to claim unpaid or unused vacation is generally subject to a one-year limitation period counted from the date the obligation becomes enforceable. 

Vacation does not reset annually. The employer’s documentation determines whether it can demonstrate that vacation was properly granted within the required timeframe.

Six months to grant + twelve months to claim

After an employee’s work anniversary, the employer is legally required to grant the earned vacation within the following six months, as established in Article 81 of the Federal Labor Law.

If the employer fails to grant the vacation within this period, the obligation becomes enforceable. Any legal action to claim unpaid or ungranted vacation is subject to a one-year limitation period under Article 516 of the Federal Labor Law, counted from the date the obligation becomes enforceable.

• Total 18-month limitation period
  Together, these periods create an eighteen-month window tied to each vacation entitlement. This is not a reset mechanism. It is a limitation period that applies only when the employer has properly fulfilled its obligation to grant vacation.
  
  

• Legal consequence if vacation is not used or claimed
  If vacation is neither taken nor claimed within this window, and the employer can prove it was offered correctly, the right may lapse. Without proof, the obligation remains.
  
  

Failure to manage this window correctly exposes employers to accumulated liabilities, retroactive payments, and enforcement risk during audits or labor claims.

Can Vacation Be Carried Over to the Next Year?

Mexican labor law does not treat vacation as a calendar-year benefit. Vacation entitlement is generated by employee seniority and employment anniversaries, not by year-end cycles. 

Unused vacation days may remain outstanding when they are not granted within the required timeframe, but internal policies cannot eliminate statutory vacation rights or create unlimited accumulation. 

Foreign employers often confuse calendar-year PTO models with Mexico’s seniority-based vacation system.

Carryover allowed only within legal timeframes

In Mexico, vacation “carryover” is not based on calendar years. It results from legal timeframes for granting and claiming vacation.

Employers must grant vacation within six months after the employee’s anniversary, and any legal claim for unpaid or ungranted vacation is subject to a one-year limitation period. 

Unused days may remain outstanding only within these legal limits. Internal policies may support scheduling but cannot extend or override statutory rules.

Carryover does not override statutory expiration

Even when vacation days remain outstanding beyond the anniversary date, legal limitation periods still apply to any claim for unpaid or ungranted vacation. 

These limitation periods cannot be reduced or suspended by internal practices, although employers may adopt internal policies that grant more favorable scheduling conditions to employees.

Why “unlimited carryover” policies still face legal limits

Policies that allow extended or flexible vacation scheduling cannot override Mexican labor law. Vacation rights remain subject to statutory granting obligations and limitation periods. 

Internal policies may offer more favorable conditions to employees, but they cannot eliminate legal requirements or create unlimited or indefinite vacation liabilities beyond what the law permits.

Carryover can reduce short-term scheduling pressure, but without strict controls, it increases long-term compliance risk, recordkeeping exposure, and uncertainty during labor audits or disputes.

Can Vacation Be Paid Instead of Taken?

Mexican labor law is clear that vacation is intended as mandatory rest, not a compensable alternative to time off. Employers cannot replace vacation with additional pay while the employment relationship continues.

• Prohibition on cash-in-lieu while employed
  Paying vacation days instead of granting time off is not allowed during active employment. Even if the employee requests payment, the employer remains obligated to grant actual rest days.
  
  

• Mandatory rest requirement
  Vacation serves a health and safety function under labor law. The employer must ensure the employee takes time away from work. Paying extra compensation does not satisfy this legal requirement and does not eliminate liability.
  
  

• Exception only upon termination
  The only permitted exception is when the employment relationship ends. At termination, any unused accrued vacation must be paid out along with the corresponding vacation bonus as part of the final settlement.
  
  

Paying vacation instead of granting rest during employment exposes employers to labor claims, penalties, and retroactive vacation obligations during inspections or disputes.

Vacation Pay and Vacation Bonus During Accrued Leave

When vacation is granted in Mexico, the employer has strict payment obligations tied to both salary and the statutory vacation bonus. These payments are mandatory and must be handled correctly in payroll to avoid underpayment claims or audit exposure.

• Vacation days paid at regular salary
  Vacation days must be paid at the employee’s normal daily salary. The employer cannot reduce pay, apply averages incorrectly, or treat vacation as unpaid time. Vacation pay is considered ordinary salary and must be reflected properly in payroll records.
  
  

• Mandatory vacation bonus of at least 25 percent
  In addition to regular vacation pay, employers must pay a vacation bonus equal to at least twenty-five percent of the salary corresponding to the vacation days taken. This bonus is a statutory benefit and cannot be waived, replaced, or reduced by agreement.
  
  

• Payment timing requirements
  Vacation pay and the vacation bonus must be paid at the time the vacation begins. Delayed payment or post-vacation reimbursement does not meet legal requirements and creates compliance risk.
  
  

Incorrect handling of vacation pay or bonuses commonly results in payroll corrections, retroactive payments, and increased exposure during labor inspections or employee claims.

What Happens to Accrued Vacation Upon Termination

When an employment relationship ends in Mexico, all accrued and unused vacation rights become immediately payable. Termination does not eliminate or reduce vacation obligations, regardless of the reason for separation.

• Payment of unused accrued vacation days
  Any vacation days earned but not taken must be paid in full at termination. This applies whether the employee resigns, is terminated with cause, or is terminated without cause. Accrued vacation cannot be forfeited.
  
  

• Payment of proportional vacation bonus
  Along with unused vacation days, the employer must also pay the corresponding proportional vacation bonus. The bonus is calculated based on the statutory minimum or contractual rate applied to the unpaid vacation days.
  
  

• No expiration of accrued vacation at termination
  Limitation periods related to granting or claiming vacation during employment do not eliminate payment obligations at termination. Once the employment ends, all accrued vacation becomes a liquid, enforceable debt.
  
  

Failure to include accrued vacation and the vacation bonus in the final settlement exposes employers to underpayment claims, penalties, and challenges during labor proceedings or inspections.

Common Mistakes Employers Make With Vacation Accrual Reset

Foreign employers often apply global HR concepts that do not align with Mexican labor law. These mistakes usually stem from misunderstanding how vacation is earned, granted, and limited under the Federal Labor Law, creating avoidable compliance exposure.

• Treating vacation as calendar-year PTO
  Many employers assume vacation resets every January 1. In Mexico, vacation is earned based on the employment anniversary, not the calendar year. Applying a calendar reset has no legal effect and does not eliminate accrued rights.
  
  

• Forcing forfeiture without legal basis
  Some employers attempt to cancel unused vacation automatically. Vacation cannot be forfeited unless the employer can prove it was properly granted and refused within the legal window. Automatic forfeiture policies are non-compliant.
  
  

• Misunderstanding carryover vs expiration
  Allowing carryover does not suspend statutory limitation periods. Employers often confuse internal flexibility with legal extension, which leads to undocumented and accumulated liabilities.
  
  

• Paying vacation instead of granting time off
  Paying vacation while employment continues violates the mandatory rest requirement and does not satisfy legal obligations.
  
  

These errors commonly result in retroactive payments, audit findings, and unfavorable outcomes in labor claims due to poor documentation and incorrect policy design.

Why Foreign Companies Struggle With Vacation Accrual in Mexico

Vacation accrual in Mexico is governed by strict legal rules that differ significantly from global HR standards. Foreign companies often struggle because they rely on internal frameworks that are incompatible with Mexican labor law, creating compliance gaps without realizing it.

• Global HR assumptions vs Mexican labor law
  Many foreign employers assume vacation works like a flexible PTO bank that resets annually. Mexican law ties vacation strictly to seniority, mandatory rest, and legal timeframes. Applying global assumptions leads directly to the misapplication of benefits.
  
  

• Misalignment between payroll systems and legal rules
  Global payroll systems are often configured for calendar-year accruals, automatic forfeitures, or cash-based adjustments. These features conflict with Mexican requirements and result in incorrect payroll records, missing documentation, and audit exposure.
  
  

• Risk of labor claims and fines
  Incorrect vacation handling frequently triggers employee claims during termination or labor inspections. Authorities focus on documentation, timing, and payment accuracy. Errors can lead to retroactive payments, fines, and legal disputes.
  
  

Without Mexico-specific payroll logic and employer controls, vacation accrual quickly becomes a compliance risk rather than an administrative task.

How Human Resources Mexico (HRM) Manages Vacation Accrual Correctly

Managing vacation accrual in Mexico requires strict legal alignment, precise tracking, and documented employer action. At Human Resources Mexico (HRM), we apply Mexico-specific controls to ensure vacation rights are earned, granted, and paid in full compliance with federal labor law.

• Seniority-based accrual tracking
  HRM tracks vacation entitlement strictly by completed years of service. Accrual increases automatically according to statutory seniority schedules, with no calendar-year assumptions or PTO-style logic applied.
  
  

• Anniversary-based scheduling
  Vacation eligibility and scheduling are anchored to each employee’s employment anniversary. HRM ensures vacations are granted within the legal timeframe and properly documented, eliminating deferral or forfeiture risk.
  
  

• Compliance with Articles 76, 78, and 81
  HRM applies the legal framework governing vacation entitlement, timing of use, and issuance of vacation records. Payroll, documentation, and payment timing are aligned to these articles at all times.
  
  

As the sole legal employer, HRM assumes full compliance responsibility and controls labor risk related to vacation accrual, granting, and payout.

Hiring in Mexico requires strict vacation compliance. HRM operates as a real employer in Mexico, ensuring vacation obligations are managed correctly from day one.

Reach out and get a custom proposal for your hiring needs.

FAQs

Does vacation reset every January in Mexico?

No. Vacation in Mexico does not reset based on the calendar year. Vacation entitlement is earned on each employment anniversary and tied to seniority. A January reset has no legal effect and does not eliminate previously accrued vacation rights.

Can unused vacation days be lost in Mexico?

Unused vacation days are not automatically lost. Vacation entitlement arises on the employee’s anniversary, but it becomes legally enforceable only after the six-month granting period ends. From that date, the employee has one year to file a claim. If no claim is filed, the right may lapse. If a claim is filed, the employer must prove the vacation was properly granted.

How long does an employee have to take accrued vacation?

Employers have six months after the work anniversary to grant vacation. If properly granted, the employee has up to twelve additional months to take or claim it. This creates an eighteen-month legal window.

Can employers force employees to waive vacation?

No. Vacation is a mandatory labor right and cannot be waived by agreement. Any document or policy attempting to waive vacation has no legal effect under Mexican labor law.

Is vacation paid out if not taken?

Yes, but only at termination. During employment, vacation must be taken as time off. At termination, all unused accrued vacation days and the corresponding vacation bonus must be paid in full.