The rules on severance pay in detail
An employer in Mexico may dismiss an employee without liability only if there are justified grounds for dismissal. In such a case, there is no obligation on the employer to pay the employee severance. By contrast, if the termination is carried out without specific grounds for dismissal, the employee is entitled to full severance pay equivalent to the following:
- A lump sum payment of ninety days’ ‘integrated salary’ (described below).
- Twenty days of integrated salary for each year of service.
- A seniority premium equivalent to twelve days’ salary for each year of service, but with a cap of twice the minimum daily wage in Mexico.
- Any accrued benefits must be paid up to the termination date. These can include salary, pending vacation, vacation premiums, Christmas bonuses or any other benefit agreed by the parties.
For the purposes of calculation, the ‘integrated daily salary’ is the employee´s annual income divided by 365 days. The annual income is comprised of the employee´s base salary plus vacation, Christmas bonuses, and any other contractual benefit agreed between the parties, such as saving funds, restaurant coupons, food vouchers, stock options, bonuses, commission, medical and life insurance and sports club membership.
In some cases, employers provide contractual redundancy pay schemes that are more generous than the statutory ones, but this is rare in practice.
Author: Basham, Ringe y Correa S.C.
Date: December 2019