Hiring household staff or employees in Mexico comes with unique legal obligations, and the process can be complex.
Failing to follow the proper procedures can have serious consequences and may cost you a lot more than you expect.
To help you navigate the intricacies, we’ve consulted C.P Jorge Tovar from Corporativo Grupo Babylon Contadores y Abogados who answered common questions on contractual rules, social security, vacation days, and more.
Economic Activity vs Noneconomic Activity
Before we get into the interview, it’s critical we make the distinction between economic activity and noneconomic activity, as it directly impacts your legal obligations when hiring staff in Mexico.
Economic Activity: This refers to any activity where income is generated through business operations, such as running a store, restaurant, or providing paid services. If you engage in economic activity in Mexico, the hiring of staff requires more formal processes, including payroll management and tax reporting, in addition to mandatory social security registration.
Noneconomic Activity: This applies to individuals who are retired or earning income from foreign sources, such as pensions or remote work for companies outside of Mexico, without the income passing through the Mexican banking system. Even in these cases, hiring household staff still requires that you comply with social security regulations. Although you are not running a business, you must register employees with IMSS and make monthly contributions on their behalf.
If you incorrectly classify your situation as noneconomic when you’re engaged in economic activity, it can lead to fines and penalties for misreporting.
Additionally, both categories – whether economic or not – come with specific obligations regarding contracts, wages, and benefits, so compliance is key.
NOTE: This interview ONLY focuses on noneconomic activity.
Q: What is the process for hiring household staff if I have no economic activity in Mexico?
Jorge: Even without economic activity, you are legally required to register household employees – such as maids or gardeners – with the Mexican Social Security Institute (IMSS).
The process is more straightforward than it used to be and can now be completed online.
Although hiring an accountant for assistance is recommended to make sure you follow the correct procedures each month, avoid confusion, and maintain compliance.
Social security registration involves more than just enrollment. It requires ongoing monthly filings, even if you aren’t running a payroll. An accountant ensures these filings are accurate, which will prevent legal issues or penalties down the line.
I strongly advise against giving your accountant direct control over your payments to IMSS. You want to ask the accountant to prepare the necessary documents and provide you with the payment details (capital de liquidación) so that you can make the payments yourself at the bank. This ensures you keep records and avoid the risk of payments being mishandled by the accountant.
Q: What are the general contractual rules for hiring staff in Mexico for those who fall under noneconomic activity status?
Jorge: In Mexico, contracts are essential for formalizing employment. Every employment relationship – whether for full-time or part-time work – requires a formal contract.
The contract should include several essential elements:
Workdays and Schedule: Specify which days the employee will work and how often. For part-time staff, this ensures that wages and benefits are calculated accurately based on actual working days.
The more specific the contract, the better.
There are some people who like to modify their workers’ schedules for meetings or parties. It would be advisable to set the hours worked per week, so that when necessary, the employer can modify the hours on a certain day by notifying the worker.
Wages: Mexican labor law requires wages to be expressed on a daily rate basis rather than hourly, which may differ from what foreign employers are used to.
The daily wage forms the foundation for calculating benefits, social security contributions, and severance pay.
If your employee works part-time (for example, only a few days a week), the contract should clearly state how many days per week or month they will work. The daily rate will be the basis for calculating wages, overtime, and benefits. Additionally, any holiday work must be compensated at three times the usual daily rate.
Benefits and Vacation Entitlement: Contracts must outline vacation entitlement with proportional allowances for part-time employees. Other benefits, such as holidays and overtime, must also be specified.
Social Security Compliance: Even under noneconomic activity status, you are obligated to register your employees with IMSS and ensure contributions are paid monthly. The contract will reflect the necessary arrangements for social security registration and compliance.
Length of the Contract: Contracts can be temporary or permanent, depending on the nature of the job. For example, a temporary trial period must be documented with clear start and end dates. If the employee continues working after the trial, a new, longer-term contract must be issued.
Termination Clause and Severance Rules: Every contract should include termination provisions, detailing severance pay and the required notice periods. If the employee is terminated without legal cause, severance can include 3 months’ salary plus 20 days of pay per year worked.
Make sure to document every payment made to the employee, whether by bank transfer or receipt, and keep these records attached to the contract to provide legal protection in case of future claims.
Q: What are the rules around paying house staff for vacation days?
Jorge: Employees are entitled to 12 days of vacation after completing one year of service. This entitlement increases with each additional year of employment. This is based on a 365-day cycle, not calendar year.
For part-time workers, the vacation allowance is calculated proportionally based on the number of days they worked throughout the year.
Calculation for part-time employees: The concept of vacaciones proporcionales applies to part-time employees, meaning the vacation time is adjusted based on the total days worked. For example, if an employee only worked 100 days in a year, they are entitled to a proportional fraction of the 12 days, so approximately 3 days.
Paid holidays are separate from vacation days. All these conditions must be clearly stated in the contract.
Q: How much extra do I need to pay if my employee works on holidays, Sundays, or overtime?
Jorge: Any agreement on working holidays must be included in the contract. In Mexico, holidays require triple pay, and Sundays come with a 25% bonus if it is a designated workday as Mexico recognizes it as a mandatory rest day. This helps avoid misunderstandings regarding wages for special working days.
If an employee works on a public holiday, they are entitled to triple their normal daily wage (1x for the regular day plus an additional 2x as holiday compensation).
For example: If the daily wage is 500 pesos, working on a holiday would require payment of 1,500 pesos for that day.
If an employee works on a Sunday (Prima Dominical), they must be paid an additional 25% bonus on top of their daily wage.
So, if the daily wage is 500 pesos, working on a Sunday would require 625 pesos in payment (500 + 25%).
If employees work beyond their contracted hours, overtime is required.
Overtime is typically calculated at double the daily rate for the extra hours. However, for holidays and certain Sundays, overtime pay rules may overlap with the holiday or Sunday bonuses.
When paying extra, make sure to transfer the money directly to their bank account so there is a record.
Q: Do you need to have the employment contract notarized?
Jorge: It’s not mandatory to notarize employment contracts in Mexico. I recommend having it drafted or reviewed by a lawyer to make sure you are in compliance with labor laws. And it also helps protect both the employer and employee from potential disputes.
Q: How should I document payments and contracts?
Jorge: All payments should be documented through bank transfers or signed receipts.
If payments are made in cash, they must be recorded to avoid disputes. Keeping thorough records will protect you in case of legal action.
Q: What if I want to pay my employee a higher wage than standard?
Jorge: While it’s generous to offer higher-than-average wages, employers should note that severance and other benefits are calculated based on these wages. Overpaying could increase your financial obligations if you later need to terminate the employee.
Q: What if an employee has multiple employers?
Jorge: Each employer is responsible for registering the employee with IMSS and paying contributions based on the days they employ the worker.
For example, if your gardener works for you on Mondays and for someone else on Tuesdays, both employers must ensure compliance with social security obligations.
Q: What happens if I hire someone on a trial basis?
Jorge: For employees hired on a trial basis, the probation period cannot exceed 15 days. After that time, the employer must register the staff with IMSS.
Temporary contracts can be used, but they need to specify the trial period and conditions. If the employee is retained after the trial period, a new, longer-term contract is required.
Q: What are the obligations related to social security for household staff?
Jorge: All household staff, regardless of your economic activity, must be enrolled in the IMSS.
You’ll need to contribute monthly to their social security, covering healthcare, retirement, and other benefits.
Keep records of your payments to avoid legal issues, as failure to register employees can lead to fines ranging from 12,000 to 160,000 pesos per month.
Again, hiring an accountant for assistance is recommended to make sure you follow the correct procedures each month, avoid confusion, and maintain compliance.
Need Expert Advice?
C.P Jorge Tovar is with Corporativo Grupo Babylon Contadores y Abogados located in San Miguel de Allende, GTO. They work with clients all over Mexico – from CDMX to Monterey.
Email Jorge at grupobaconsultoria@gmail.com or call the office at 415-104-9972.
