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11. Employee Benefits

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11. Employee Benefits

Social Security

The social security system in Mexico is governed by the Social Security Law (LSS) of 1995, which went into effect on 1 July 1997. The Mexican Social Security Institute (IMSS) is responsible for administering social security programs. The IMSS is a quasi-official entity, under tripartite (government-worker-employer) management, whose executive director is appointed by the President of the Republic.

In general, social security coverage is compulsory for all workers, including members of production cooperatives, worker-run and joint worker-management-run companies, traditional agrarian communities of common ownership (ejidatarios), joint property communities (comuneros), small farmers (colonos), small property owners organised in groups, and local societies or credit unions covered by the Agricultural Credit Law.

Required Contributions

The social security system is financed from contributions by workers, employers, and the government. The contributions are based on salary levels. However, workers do not make contributions if they earn the monthly minimum wage in their geographic area. The maximum salary amount used to calculate social security contributions is 25 times the monthly minimum wage in Mexico City.

Within this minimum/maximum range, employee contributions are 2.00 per cent of earnings for retirement benefits, plus 3.15 per cent of earnings for disability and survivor benefits. For employers, the contribution rate is 5.15 per cent of covered payroll for retirement benefits. Government contributions amount to 7.43 per cent of covered earnings, plus an average flat rate of MXN$4.07 (depending on salary range) for each day a worker contributes for retirement benefits, and .125 per cent of covered earnings for disability and survivor benefits.

Contribution rates, limited to earnings up to 25 times the minimum wage, for sickness, medical, and maternity benefits currently are as follows:

Salaries Up to 3x the Minimum Wage Salaries Over 3x the Minimum Wage
Employer 20.40% 1.10%
Employee N/A .40%
Government 13.255% National CPI
Total 33.65% 1.50%

Contributions for day-care benefits are paid entirely by the employer and are equal to 1 per cent of covered payroll, subject to the minimum and maximum earnings limits.

Workers with at least 52 weeks’ worth of payments into the social security system, and who withdraw for whatever reason, are entitled to continue making voluntary payments. Should the worker obtain salaried employment again, the worker may return to the system and maintain all benefits.

The compulsory nature of social security means that workers are automatically covered by virtue of being workers, whether or not they are registered in the system. If there is an omission in registering a worker, the employer is responsible.

Healthcare and Insurances

The social security system protects workers in the following matters: Occupational accidents and illnesses (old-age, retirement, and survivor pensions; disability; sickness; medical benefits; maternity; and day care for children of insured workers); and Social services.

Required Leave

The social security system protects workers in the following matters: 1) Occupational accidents and illnesses (old-age, retirement, and survivor pensions; disability; sickness; medical benefits; maternity; and day care for children of insured workers) and 2) Social services.

Required Leave

Holidays and Annual Leave

Article 74 of the FLL establishes 9 mandatory holidays:

  • 1 January
  • first Monday in February, in commemoration of 5 February
  • third Monday in March, in commemoration of 21 March
  • 1 May
  • 16 September
  • third Monday in November, in commemoration of 20 November
  • 1 December every six years, on the day of the national presidential inauguration
  • 25 December
  • the election day scheduled by federal and local electoral laws.

Workers who are required to work on a mandatory holiday are entitled to double pay in addition to their regular pay –

“An employer shall be required to observe, in the installation of its establishments, the legal regulations on hygiene and health, and to adopt adequate measures for the prevention of accidents in the use of machines, instruments, and materials of labour, as well as to organise the same in such a way as to ensure the greatest possible guarantee for the health and safety of workers as is compatible with the nature of the work, under the penalties established by law in this respect.”

Workers are entitled to 6 vacation days after being employed for one year, and to 2 additional days for each subsequent year, up to a maximum of 12 days. As of the fifth year, the worker is entitled to 14 workdays’ vacation; for each additional group of five years, two more vacation days are added. Employers must pay workers a vacation premium equivalent to 25 per cent of the salary earned during the vacation days. Vacations must be taken on the date indicated by the employer, within 6 months following the worker’s anniversary with the employer.

Maternity and Paternity Leave

Working mothers are entitled to forty-two days after childbirth as maternity leave, with the IMSS paying them 100% of their registered salary. Statutory maternity leave may be extended as necessary if work is not possible because of the pregnancy or the delivery. During the maternity leave, the employee receives her regular salary.

During the nursing period of 6 months, the new mother is entitled to two additional thirty-minute rest periods per day to feed the child, in an adequate and hygienic place set aside by the employer. When returning from maternity leave, the employee is entitled to reinstatement, provided that not more than one year has passed since the date of delivery.

Maternity leave is included in the length of service. Moreover, working mothers may request the employer transfer up to four weeks of pregnancy leave in order to enjoy them after childbirth. Male employees are entitled to enjoy a paid paternity leave of five days when the child is born or in case of adoption, as of the placement of the child.

Sickness and Disability Leave

An employee is entitled to sick leave depending on the type of illness and degree of disability. In case of illness or injury, an employee must obtain a doctor’s order from the IMSS. The IMSS, not the employer, pays the employee’s income during the leave.

There is no mandatory unpaid medical leave of absence in Mexico. If the employee needs an unpaid medical leave of absence due to a condition not recognised by the IMSS, then the employer has the discretion to grant the leave.

The FLL provides leave due to:

  • Occupational Injuries: defined as any accident or disease to which the employees are exposed in the course of their employment, or any consequences thereof;
  • Industrial Accident: defined as any organic injury, functional disturbance (whether immediate or subsequent) or death, occurring suddenly in the course of the employment or as a result thereof (i.e., the place where or the time when the accident occurs is related to the employment); or
  • Occupational Diseases: defined as any pathological condition arising out of the continued action of a cause that has its origin or motive in the employment or in the environment in which the employee is obliged to render his services.

The consequences of any of the injuries described above, and the term they may last, according to the SSL, are as follows:

Injury  

Period of Leave

Temporary disability  

52 weeks (which may be extended to an additional period of 52 weeks)

Permanent partial disability  

Permanent leave. IMSS issues payment according to amounts established in FLL

Permanent total disability  

Permanent leave. IMSS issues payment according to amounts established in FLL

The economic benefits paid by the IMSS due to illness are based on 60% of the employee’s registered salary, and they are paid as of the fourth day of absence.

The SSL establishes the periods of leave depending on the division of the compulsory social insurance plan:

Division  

Period of Leave

Workers’ compensation insurance for job-related injury and illness  

according to the abovementioned outline

Illness  

1 day to 52 weeks

 

Pensions: Mandatory and Typically Provided

Disability Benefits

For disability benefits, the IMSS retains responsibility for the management and collection of contributions, but private insurance companies provide benefits.

Workers who were first covered by the social security system prior to 1 July 1997 are eligible for a disability pension if they are assessed with a permanent 50 per cent reduction in normal earning capacity and have at least 150 weeks of contributions. Other workers are eligible for a disability pension if they are assessed with a permanent loss of at least 75 per cent of normal earning capacity and have at least 150 weeks of social security contributions, or if they are assessed with a loss of 50–74 per cent of normal earning capacity and have a least 250 weeks of contributions. The IMSS assesses the level of reduced earning capacity.

Disability pension benefits are equal to 35 per cent of the worker’s average adjusted earnings during the last 500 weeks of contributions. In addition, 15 per cent of the worker’s pension is paid for a wife or partner, and 10 per cent is paid for each child younger than age 16 (age 25 if a student, no age limit if disabled). If there is no wife, partner, or child, 10 per cent is paid for each dependent parent. A worker who requires the constant attendance of others to perform daily functions is also eligible to receive a constant attendance allowance of up to 20 per cent of the pension amount.

A disability pension is subject to a guaranteed minimum. Benefits are adjusted annually in February according to changes in the price index. Disabled workers also are entitled to a Christmas bonus equal to 15 days of pension benefits without supplements. If a worker is eligible for a disability pension and has an individual retirement account with a balance greater than the minimum pension, he may withdraw the amount exceeding the minimum pension, use the excess amount to purchase an annuity, or apply the excess amount to survivor benefits.

Retirement Benefits

Effective 1 July 1997, the Mexican pension system was reformed from a defined benefit system, without any change for workers who were pensioned before that date. The current pension system in Mexico is a fully funded defined contribution system based on three pillars:

  • a minimum guaranteed pension for low-income workers;
  • mandatory individual savings accounts with competitive mutual fund management;
  • voluntary savings

Normal retirement benefits are available to both men and women who have reached age 65 and who have at least 1,250 weeks of social security contributions. An early retirement benefit is available at age 60.

The first pillar of the Mexican pension system, the minimum pension guarantee is equal to the minimum wage on 1 July 1997, indexed for inflation. The second pillar is based on defined contributions and individual accounts. The IMSS collects the contributions and places them in the worker’s account, but the accounts are managed by private retirement fund administrators (AFOREs).

At retirement, the worker has two options: i) receive periodic payments or a lump sum directly from the AFORE; or ii) transfer the account balance to an insurance company and buy an annuity.

Various factors determine the amount of the pension benefit: the number of contribution years; the period over which the pension is distributed; the annual average investment yield on the individual’s account; and the AFORE’s fees. Workers who started contributing prior to the 1997 reform can choose, at the time of retirement, the highest benefits computed under the two systems.

Any Other Required or Typically Provided Benefits

Survivor Benefits

Survivor benefits are payable provided that the deceased worker was a pensioner and made at least 150 weeks of contributions at the time of death. Survivor benefits are payable to a surviving widow or a permanently and totally disabled widower in an amount equal to 50 per cent of the pension that would have been paid to the worker.

Each surviving child under age 16 receives a benefit equal to 20 per cent of the worker’s pension, or 30 per cent if the child is an orphan. If there is no eligible spouse or child, a benefit equal to 20 per cent of the worker’s pension is paid to each person. Survivor benefits may not exceed 100 per cent of the pension that would have been paid to the worker. Upon the death of a covered worker, the social security system pays a funeral benefit to the family equal to two months of the worker’s salary.

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