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When Benefits Cease: Guide for Tech Companies on Terminating Employees in Mexico

by Carlos A. Vázquez    |    November 11, 2023    |      3 min read


When Benefits Cease: Guide for Tech Companies on Terminating Employees in Mexico

The intricacies of employment law in Mexico can seem labyrinthine, especially when it comes to the cessation of benefits upon employee termination. Tech companies, often at the forefront of rapid change and growth, must navigate these waters with precision and care. This article provides an in-depth look into when and how employee benefits conclude after termination in the Mexican tech industry.

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The Fundamentals of Benefit Termination

When an employee’s journey with a company ends, so typically do their benefits. In Mexico, this is no different, but the allocation of benefits upon termination is a matter that demands attention to detail:

  • Pro-Rated Benefits: Certain benefits, such as accrued vacation pay and the Aguinaldo (Christmas bonus), are calculated on a pro-rated basis and must be settled at termination.
  • Profit Sharing: Employees are also entitled to a portion of the company’s profits, known as ‘PTU,’ which are distributed annually. If an employee is terminated before this distribution, they are still entitled to the profit-sharing amount accrued during their period of employment for that year.

Severance Packages: A Closer Examination

In instances of involuntary termination, Mexican labor law outlines a comprehensive severance package to compensate the departing employee:

  • Outstanding Wages: Any unpaid wages up until the termination date must be paid out.
  • Three Months’ Salary: Also known as “constitutional indemnity,” this is a lump sum equivalent to three months of the employee’s salary.
  • Seniority Bonus: Applicable to employees with more than 15 years of service, this equates to 12 days of salary for every year worked.
  • 20 Days’ Salary per Year Worked: In addition to the above, employees are entitled to 20 days’ worth of salary for each year of service.
  • Accrued Vacation and Christmas Bonus: Payment for unused vacation days and the pro-rated annual bonus must be provided.
  • Profit Sharing (PTU): As mentioned earlier, employees should receive their portion of the profits from the period they worked during the applicable fiscal year.

Scenarios for Termination and Benefits

The nature of termination significantly influences the structure of the severance package:

  • Voluntary Resignation: Employees who resign are entitled to a basic settlement that includes prorated vacation and the Christmas bonus, with a seniority bonus added if they’ve been with the company for over 15 years.
  • Justified Termination: If an employee is terminated for cause and the employer can substantiate the justification, the severance owed is similar to that of a voluntary resignation.
  • Wrongful Termination: Should termination be deemed unjustified, the severance package expands to include three months of salary, 20 days of salary for each year worked, plus the basic settlement and seniority bonus where applicable.

Partnering with CodersLink for Seamless Transitions

For tech companies, the end of an employment relationship is a critical moment that, if mishandled, can lead to legal complications and damage to the company’s reputation. It’s imperative to approach this process with thorough understanding and strategic planning.

CodersLink offers tailored support to tech companies venturing through the complexities of Mexican labor law. We provide expertise in legal compliance and strategic HR management, ensuring that your company upholds the highest standards of fairness and legality when terminating employee benefits.

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