Mexican Labor Law | Complete Guide for Employers

What Is Mexican Labor Law?

Mexican labor law is the set of national rules that regulates how employers must hire, manage, and protect employees. These laws create a clear structure for fair work conditions, legal benefits, and social security rights.

The purpose is to ensure every employment relationship in Mexico follows the same standards, no matter the company’s size or nationality.

• Meaning of Mexican labor law
  It includes all rules that define work hours, wages, benefits, workplace safety, contracts, and employer obligations. These rules apply to every employee in Mexico.
  
  

• Scope of employee protections
  Protections include vacation, overtime rules, maternity rights, severance, workplace safety, IMSS access, and limits on working hours.
  
  

Mexican labor law ensures every worker receives fair treatment under federally controlled standards.

Why Mexican Labor Law Matters for Employers (Local and Global)

Mexican labor law matters because it shapes every part of the employer–employee relationship. It defines how companies must hire, manage, pay, and protect workers.

The system is designed to prevent abuse, guarantee fair treatment, and ensure that every employee receives legally required benefits. For employers, especially foreign companies, understanding these rules is essential to avoid serious compliance problems.

• Purpose of employee protection
  Mexican labor law exists to guarantee fair wages, safe workplaces, paid benefits, and access to social security. These protections apply to every employee, regardless of industry or nationality.
  
  

• Strict rules on hours, contracts, benefits, and termination
  Employers must follow specific standards for working hours, overtime, paid leave, written contracts, and lawful termination. Benefits like Aguinaldo (Christmas bonus), vacation bonus, PTU, and IMSS coverage are mandatory and non-negotiable.
  
  

• High employer risk if not compliant
  Mistakes can lead to fines, IMSS audits, retroactive payments, severance obligations, and legal claims. Even small errors, such as missing benefits or incorrect contracts, create significant exposure.
  
  

• Why global companies must understand the LFT
  Foreign employers often use rules from their home country, which do not apply in Mexico. The LFT controls everything from hiring to termination, so understanding it is essential before onboarding any worker.
  
  

Mexican labor law sets firm standards, and employers must follow them closely to operate safely and legally in the country.

Core Legal Framework Governing Employment in Mexico

Employment in Mexico is regulated by a strong legal structure that protects workers and sets clear responsibilities for employers. This framework combines constitutional rights, federal laws, workplace standards, and social security rules.

Together, they create a strict system that every company operating in Mexico must follow, whether local or foreign.

• Federal Labor Law (Ley Federal del Trabajo)
  The LFT is the main law governing employment. It sets rules for hiring, contracts, wages, working hours, overtime, benefits, workplace conditions, and termination. All employers must follow it without exceptions.
  
  

• Mexican Constitution Article 123
  This article is the foundation of labor rights in Mexico. It guarantees fair wages, social security, safe workplaces, and legal protections for all employees. The LFT is built directly from these constitutional rights.
  
  

• NOMs (Official Mexican Standards)
  These are mandatory technical standards issued by the Mexican government that regulate safety, health conditions, ergonomics, noise levels, risk prevention, and emergency readiness. Every employer must comply with relevant NOMs for their industry.
  
  

• Role of STPS
  The Secretaría del Trabajo y Previsión Social enforces labor laws, inspects workplaces, investigates complaints, and ensures employers follow safety standards and legal obligations.
  
  

• IMSS and social security
  Employers must register workers with IMSS and pay social security contributions to provide healthcare, disability coverage, maternity benefits, and risk insurance.
  
  

These rules form the backbone of employment compliance in Mexico.

Types of Employment Contracts Under Mexican Law

Employment contracts in Mexico must follow strict rules to protect employees and clearly define the terms of the working relationship. Every contract must be in Spanish, must outline specific legal elements, and must match the real work performed.

The Federal Labor Law controls how each type of contract is used and limits when temporary arrangements are allowed.

• Indefinite contracts
  This is the most common contract type in Mexico. It creates a long-term employment relationship with full benefits, seniority rights, and full protection under Mexican labor law.
  
  

• Fixed-term contracts
  These contracts are allowed only when the work has a defined end date. Employers must clearly explain the reason for the temporary period. Once the fixed term ends, benefits and obligations remain active until the employer formally terminates the relationship.
  
  

• Probation periods
  Probation allows employers to evaluate new hires. The maximum period is typically 30 days, but may extend to 180 days for specialized or managerial roles. Employees keep full legal protection during probation.
  
  

• Seasonal and project-based contracts
  Used only when work is linked to a specific season or defined project. Employers must document the scope and expected duration.
  
  

• Mandatory elements
  Contracts must include salary, work schedule, place of work, duties, benefits, payment frequency, and employer information.
  
  

All contracts must be written in Spanish and aligned with the Federal Labor Law to be legally valid.

Working Hours, Shifts, and Overtime Rules

Mexico has strict rules for working hours, shift schedules, and overtime. These rules protect employee health and ensure fair compensation for extra work. 

Employers must classify employees correctly by shift type and track hours accurately to avoid penalties or disputes. Understanding these limits is essential for safe and compliant operations.

• Day, night, and mixed shifts
  Day shifts run between 6:00 and 20:00 with a maximum of 8 hours per day. Night shifts run between 20:00 and 6:00 with a maximum of 7 hours. Mixed shifts include hours from both periods and cannot exceed 7.5 hours. Each shift type has different legal limits.
  
  

• Maximum legal hours
  The standard workweek is 48 hours for day shifts, 42 hours for night shifts, and 45 hours for mixed shifts. Employers must not exceed these limits unless overtime is legally authorized.
  
  

• Overtime rules and premium pay
  The first 9 overtime hours per week must be paid at 200 percent of the normal rate. Any hours beyond that must be paid at 300 percent. A detailed explanation is available in the guide on Mastering Overtime in Mexico.
  
  

• Weekly rest day requirements
  Employees must receive at least one paid rest day per week, usually Sunday. Work performed on the rest day must be paid with additional premiums.
  
  

Clear rules on hours and overtime help employers stay compliant and maintain safe working conditions.

Wages, Minimum Wage, and Payment Requirements

Mexico’s labor law includes strict rules for wages, payment methods, and timing. Employers must follow national standards for minimum pay and comply with payment regulations that ensure employees receive their earnings safely and on time. These rules apply to all industries and all types of employment contracts.

• National and regional minimum wages
  Mexico sets minimum wages each year, with different rates for the general zone and the Northern Border Zone. Employers must pay at or above the minimum wage applicable to the region where the company is registered, regardless of where the employee performs their work.
  
  

• Payment must be in Mexican pesos
  All wages must be paid in MXN. Even if a foreign company uses USD or another currency internally, employees must receive their salary in pesos to meet legal and tax requirements.
  
  

• Approved payment methods
  Employers must pay wages through approved channels such as bank transfers, payroll cards, or official banking institutions. Cash payments are discouraged and may create compliance risks.
  
  

• Payroll timetable requirements
  Payments must follow the agreed pay cycle, whether weekly, biweekly, semi-monthly, or monthly. Delays can lead to employee claims and potential labor penalties.
  
  

Following these rules ensures that wage payments remain fully compliant with Mexican labor and tax standards.

Mandatory Employee Benefits Under Mexican Labor Law

Mexico requires a wide range of mandatory benefits that all employers must provide. These benefits protect employee well-being and are a core part of labor compliance.

Each benefit is regulated by the Federal Labor Law and must be calculated correctly to avoid penalties or disputes. Foreign companies hiring in Mexico must understand these obligations before onboarding staff.

• Paid vacation and vacation premium
  Employees receive paid vacation starting at 12 days after the first anniversary, increasing with seniority. A mandatory 25 percent vacation premium must also be paid on top of vacation salary.
  
  

• Public holidays
  Employees are entitled to paid federal holidays. Work performed on a holiday must be compensated at an additional premium rate.
  
  

• Aguinaldo (Christmas bonus)
  Employers must pay at least 15 days of salary as a Christmas bonus each December. This benefit is mandatory and cannot be waived.
  
  

• Profit sharing (PTU)
  Employees must receive 10 percent of the company’s taxable profits. PTU is paid annually and follows strict calculation rules.
  
  

• Seniority premiums
  Paid during termination or certain special events, seniority premiums compensate long-term employees based on years of service.
  
  

• Social security and INFONAVIT
  Employers must register each employee with IMSS and pay housing fund contributions to INFONAVIT as part of mandatory social benefits.
  
  

These benefits form the backbone of employee protection and are non-negotiable under Mexican labor law.

Anti-Discrimination, Harassment, and Worker Rights

Mexican labor law places strong protections on worker dignity, safety, and equal treatment. Employers must provide a workplace where employees are respected, treated fairly, and protected from any form of abuse.

These rules apply to all companies operating in Mexico and form a key part of compliance under the Federal Labor Law and the Constitution.

• Equal pay requirements
  Employees performing similar work must receive equal pay regardless of gender, age, nationality, or any personal characteristic. Wage differences must be justified only by skills, responsibilities, or experience.
  
  

• Anti-discrimination protections
  Employers cannot discriminate based on gender, age, disability, pregnancy, marital status, religion, sexual orientation, ethnicity, or social status. Hiring, promotion, and termination decisions must follow objective criteria.
  
  

• Prohibition of harassment and workplace violence
  Labor law strictly bans physical, verbal, sexual, and psychological harassment. Employers must prevent, investigate, and address these behaviors immediately to maintain a safe work environment.
  
  

• Protections for pregnant workers
  Pregnant employees have the right to maternity leave, job security, safe working conditions, and protection from dismissal during pregnancy and breastfeeding periods.
  
  

• Right to join unions
  All employees have the right to form or join labor unions and participate in collective bargaining without retaliation.
  
  

These protections ensure that every employee in Mexico is treated with fairness, dignity, and legal respect.

Unionization, Collective Bargaining, and Strikes

Mexican labor law protects the rights of employees to organize, negotiate, and take collective action. These rights are part of the country’s constitutional framework and are strengthened by recent labor reforms.

Employers must understand how unions operate and how collective negotiations affect workplace obligations and payroll decisions.

• Union rights
  Employees have the right to form, join, or leave unions freely. Employers cannot interfere with union activities or retaliate against workers who participate in union matters. Union representation is common in many industries across Mexico.
  
  

• Collective bargaining agreements
  Unions can negotiate Collective Bargaining Agreements (CBAs) with employers. These agreements set wages, benefits, working conditions, and workplace rules. CBAs must be registered and approved through the official labor system to be valid.
  
  

• Right to strike
  Employees may legally strike when negotiations fail or when employers violate labor rights. A lawful strike pauses company operations until both sides reach an agreement. Employers must follow strict legal procedures when responding to a strike.
  
  

• Labor court system after the 2019 reform
  The 2019 labor reform replaced old labor boards with new labor courts and mediation centers. This modern system aims to resolve disputes faster, increase transparency, and ensure unions operate democratically.
  
  

These processes ensure employees have a formal voice in workplace decisions while maintaining legal structure and fairness for both sides.

Termination, Dismissal, and Severance Obligations

Termination in Mexico is heavily regulated to protect employees from unfair dismissal. Employers must follow strict procedures and understand the difference between termination with cause and without cause.

Any mistake can lead to significant financial liabilities, so companies must handle every separation carefully and document each step.

• Valid legal causes for termination
  Termination with cause is allowed only for specific reasons listed in the Federal Labor Law, such as dishonesty, serious misconduct, or repeated violations of workplace rules. The employer must fully document the behavior and notify the employee correctly.
  
  

• Termination without cause
  Employers may end the relationship without cause, but they must pay full severance. This is the most common method because proving legal cause is difficult under Mexican law.
  
  

• 90-day severance rule
  When termination is without cause, the employee is entitled to 90 days of integrated salary, plus seniority premiums, accrued benefits, and proportional payments for vacation, Aguinaldo (Christmas bonus), and PTU.
  
  

• Final payments required by law
  The employer must pay all pending wages, unused vacation, vacation bonus, proportional bonuses, and any other earned benefits on the final settlement.
  
  

• Risk of wrongful termination claims
  Incorrect procedures can lead to lawsuits, reinstatement orders, and large financial penalties. Documentation and legal compliance are essential during every termination.
  
  

These rules ensure employees are treated fairly and employers follow a consistent, lawful process.

Independent Contractors vs Employees (Critical Distinction)

Mexico has one of the strictest distinctions between employees and independent contractors. The Federal Labor Law focuses on how the work is performed, not what the contract says. If a contractor behaves like an employee, the law treats them as one.

This makes proper classification essential for any company operating in Mexico.

• Subordination test under the LFT
  The key test is subordination. If a person works under supervision, follows schedules, uses company tools, reports to managers, or depends economically on one client, the law considers them an employee. Written agreements cannot override this.
  
  

• Why misclassification is illegal
  Calling someone a contractor when they function as an employee is viewed as an attempt to avoid benefits, social security, and tax obligations. This is strictly prohibited and monitored by labor and tax authorities.
  
  

• Penalties and back payments for misclassification
  If a contractor is reclassified as an employee, the company may owe retroactive IMSS payments, INFONAVIT, ISR withholding, seniority premiums, full severance, unpaid benefits, and fines. These liabilities can equal years of back pay.
  
  

• Why global platforms mislead companies
  Many global EOR and payroll platforms encourage contractor models to offer “quick hiring.” These models often ignore Mexican law, resulting in serious legal exposure for foreign companies.
  
  

Understanding this distinction is essential to avoid costly disputes and ensure fully legal hiring in Mexico.

Outsourcing and Subcontracting Rules (Post-2021 Reform)

Mexico’s 2021 labor reform transformed how companies can use outsourcing and subcontracting. The goal was to stop abusive practices, protect employee rights, and ensure workers are hired directly by the company that benefits from their services.

These rules apply to all employers, including foreign companies hiring in Mexico.

• Outsourcing limitations
  Outsourcing of core business activities is prohibited. Companies can no longer subcontract roles that form part of their main economic activity. Employees performing core functions must be hired directly or through a compliant EOR that becomes the legal employer.
  
  

• REPSE registration requirements
  Any company offering specialized services must have active REPSE registration. REPSE confirms the provider is legally allowed to offer labor services. Working with a non-REPSE provider exposes employers to severe penalties.
  
  

• When outsourcing is allowed
  Specialized services unrelated to the company’s core activity may be outsourced. These services must be clearly defined, documented, and supported by a REPSE-registered provider.
  
  

• What services cannot be outsourced
  Anything considered core to the company’s main business cannot be subcontracted. Attempting to outsource core tasks is treated as illegal labor placement.
  
  

• High-risk penalties for non-compliance
  Violations can result in major fines, blocked tax deductions, retroactive benefits, and possible criminal liability. SAT and STPS actively audit for improper outsourcing.
  
  

The 2021 reform ensures companies hire legally and use outsourcing only in clearly defined, compliant situations.

Remote Work and Teleworking Rules (2023 Reform Updates)

Mexico’s teleworking rules were updated to protect employees who work from home and ensure employers follow clear obligations. These rules apply when an employee performs most of their work outside the company’s workplace using digital tools.

Employers must understand these requirements to avoid violations, especially as remote work becomes more common for global teams.

• When teleworking counts as home office
  Teleworking is legally recognized when the employee performs more than 40 percent of their work from home or another remote location using digital communication tools. Occasional or temporary work-from-home arrangements do not qualify as teleworking.
  
  

• Employer obligations
  Employers must provide the necessary equipment, such as computers, software, and communication tools. They must also compensate employees for part of their electricity and internet costs, based on fair and documented calculations.
  
  

• Health and safety NOM compliance
  Remote workers are still protected by workplace safety rules. Employers must evaluate home office conditions and comply with relevant NOMs, including ergonomic standards, risk prevention, and mental health considerations. Documentation is required to show compliance.
  
  

• Monitoring, privacy, and data rules
  Employers may supervise work but must respect employee privacy. Monitoring must be limited to work-related activities, and the employer must protect personal data and comply with cybersecurity requirements.
  
  

These rules ensure remote work remains safe, fair, and compliant for employees working from home in Mexico.

Labor Law Compliance for Foreign Companies Hiring in Mexico

Foreign companies hiring workers in Mexico must follow the same labor rules as any local employer. Even if the company has no physical office in Mexico, the employment relationship is still governed by the Federal Labor Law.

This means hiring, payroll, benefits, and social security must all follow Mexican standards to avoid serious legal and tax risks.

• Hiring requirements for foreign employers
  Foreign companies must follow Mexican hiring rules, including written contracts, registration of employees with social security, and full compliance with benefits, hours, and workplace protections. Remote location does not change these obligations.
  
  

• Contracts must comply with LFT even if remote
  All employment contracts must be written in Spanish, must follow the Federal Labor Law, and must include mandatory clauses on salary, mandatory benefits, hours, and job duties. Remote employees are still protected by all LFT rules.
  
  

• Payment of wages in pesos
  Employees must be paid in Mexican pesos, even if the foreign company uses another currency internally. This ensures proper tax calculation and accurate payroll records.
  
  

• Registration with IMSS, SAT, and INFONAVIT
  Employers must register workers with IMSS, issue CFDI payroll receipts through SAT, and pay housing fund contributions to INFONAVIT. These registrations are mandatory for all employees.
  
  

• Why operating without a Mexican legal entity is risky
  Hiring workers directly without a local entity or EOR creates tax exposure, misclassification risks, and potential audits. The company may also be viewed as having an illegal permanent establishment.
  
  

Compliance ensures foreign employers operate legally, protect employees, and avoid penalties when hiring in Mexico.

Why Many Global Companies Use an EOR in Mexico

Mexico’s labor system is strict, detailed, and heavily enforced. For global companies without a local entity, meeting every requirement can be difficult and risky. This is why many foreign employers choose to work with an Employer of Record (EOR) in Mexico.

The EOR becomes the legal employer in Mexico and ensures full compliance with contracts, payroll, benefits, and social security.

• EOR acts as the legal employer
  The EOR takes full responsibility for labor law obligations, tax compliance, social security registration, and employee protections. This removes legal risk from the foreign company.
  
  

• EOR handles contracts, IMSS, payroll, benefits, and compliance
  The EOR prepares Spanish contracts aligned with the LFT, registers employees with IMSS and INFONAVIT, processes payroll, issues CFDIs, and manages benefits and severance.
  
  

• Removes the need for a Mexican legal entity
  Foreign companies can hire in Mexico immediately without opening a local entity or dealing with complex registrations and ongoing monthly filings.
  
  

• Protects against misclassification and outsourcing violations
  The EOR structure prevents illegal contractor use and ensures the company stays compliant with Mexico’s strict post-2021 outsourcing laws.
  
  

Human Resources Mexico (HRM) is REPSE-registered and has been operating in Mexico for over 16 years with a genuine Mexican HR team. This is quite different from global "platform-only" EORs that depend on shell entities or undisclosed partners.

Penalties for Breaking Mexican Labor Law (Critical for Ranking)

Mexico enforces labor law very aggressively, and employers who fail to comply face serious financial and legal consequences. These penalties apply to both local and foreign companies and can become extremely costly when errors accumulate across payroll, benefits, or terminations.

Understanding these risks is essential for any employer hiring in Mexico.

• Fines for non-compliance
  STPS, SAT, and other authorities can issue fines for missing contracts, incorrect payroll, unsafe workplaces, or failure to meet employee rights. These fines can reach significant amounts depending on the violation.
  
  

• IMSS back payments and surcharges
  If employees are misclassified or reported with a lower salary, IMSS can demand retroactive payments, interest, and penalties. Back payments often include several years of unpaid employer contributions.
  
  

• Legal claims and labor court judgments
  Employees can file claims for unpaid benefits, overtime, discrimination, or unfair practices. Labor courts typically favor employees, which increases company liability if documentation is weak.
  
  

• High liability for wrongful termination
  Terminating an employee incorrectly can lead to reinstatement orders or large severance payments. Employers may also owe seniority premiums and accrued benefits.
  
  

• Penalties for outsourcing violations
  Working with a non-REPSE provider or outsourcing core activities can result in heavy fines, blocked tax deductions, and possible criminal exposure.
  
  

These penalties make strict compliance essential for any company operating under Mexican labor law.

To avoid these compliance risks and the high penalties that come with them, many foreign companies work with an EOR in Mexico, like HRM, that manages every labor and payroll obligation correctly.

Human Resources Mexico (HRM) provides full legal compliance with a real presence in Mexico. Reach out today and get a custom proposal for your hiring needs.

FAQs

What is the Federal Labour Law?

The Federal Labour Law (LFT) is Mexico’s main employment law. It regulates hiring, contracts, wages, benefits, safety, working hours, and termination. All employers must follow it, including foreign companies hiring remote workers in Mexico. It protects employee rights and defines every part of the employment relationship.

Can foreign companies hire in Mexico without an entity?

Foreign companies can hire legally without a local entity only by using a compliant EOR. Hiring directly without an entity creates tax exposure, misclassification risks, and potential permanent establishment issues. An EOR becomes the legal employer, ensuring payroll, benefits, and compliance follow Mexican labor law.

What are mandatory benefits?

Mandatory benefits include paid vacation, vacation bonus, Aguinaldo (Christmas bonus), PTU profit-sharing, public holidays, seniority premiums, and full social security coverage through IMSS and INFONAVIT. These benefits apply to all employees in Mexico and must be calculated and paid accurately under the LFT.

How is termination handled?

Termination must follow strict legal rules. Employers need valid cause or must pay full severance, including 90 days of salary, accrued benefits, and seniority premiums. Incorrect handling can lead to reinstatement orders, lawsuits, or large financial penalties.

Are contractors legal in Mexico?

Independent contractors are legal only when they work autonomously. If a contractor works under supervision, follows schedules, reports to managers, or depends on one client, the law classifies them as an employee. Misclassification creates major risks, including back payments and fines.

What is REPSE?

REPSE is the official government registry for companies offering specialized services. Any provider performing labor-related services must have active REPSE authorization. Working with a non-REPSE provider can result in fines and outsourcing violations under the 2021 reform.

How does an EOR help?

An EOR becomes the legal employer in Mexico, handling contracts, payroll, taxes, IMSS, INFONAVIT, benefits, and compliance. It prevents misclassification, ensures correct filings, and removes the need to open a Mexican legal entity, making hiring faster and legally secure for foreign companies.