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RELOCATION: Alternatives to Long-term International Assignments

Many companies are replacing traditional long-term international assignments with short-term assignments and extended business trips in order to cut expenses while achieving global objectives.

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back to index backGLOBALtalk March,  2016


Mexico: Replacement of Minimum Wage Linkage in Benefits and Other Nonwage Items Expected

EMPLOYER ACTION CODE: MONITOR

The Mexican government is preparing to introduce a new measure that would replace the use of the minimum wage (MW) for certain purposes including:

- The pay cap in the seniority premium benefit calculation
- Tax limits related to pension contributions and payments
- Social security contributions and benefits

KEY DETAILS

The current national daily MW is Mex$73.04, or Mex$26,645 annually (about US$1,535). Past efforts to substantially increase the MW have failed, in part because they would have impacted numerous calculations that use MW such as traffic fines and mortgage balances under the public house mortgage program, in addition to the three items noted above.

Therefore, the national congress has approved a new measure, the Unidad de Medida y Actualización (UMA), which replaces the MW’s use for purposes other than determining minimum hourly wages and makes a substantial MW increase possible. It also affects:

Seniority Premium (i.e., the mandatory defined benefit lump sum payable by employers upon certain employee terminations)

- The minimum lump sum payment is calculated as 12 days of final base pay times years of service, where base pay is capped at two times MW.

Taxes

- Tax exemptions and deductions are expressed in terms of MW. For example:

- Annual personal tax deductions are capped at 10% of taxable earnings or four times annual MW, whichever is lower.

- When a pension is paid as a lump sum, 90 times annual MW is tax-exempt for the recipient; if paid in installments, 15 times monthly MW is tax-exempt. The employer’s tax-deductibility of pension payments is related to the level of tax-exemption for the retiree.

Social Security

- Under both the 1973 law (defined benefit program) and the AFOREs/1997 law (defined contribution program), contributions are capped at 25 times monthly MW. Defined benefit pension payout amounts are also capped at 25 times monthly MW.

The national constitution would need to be modified to introduce the UMA, requiring a majority approval of state congresses. These approvals have been obtained, and the next step is for the president to promulgate a decree. Congress would then need to publish regulations within 120 days to establish the UMA’s value, after which all references to the MW in laws, regulations and other pronouncements would need to be updated to reference the new UMA measure.

EMPLOYER IMPLICATIONS

Currently, there is no specific UMA proposal, and it’s unclear when regulations will be finalized and adopted. However, change is likely, and companies will want to analyze and prepare for both wage and nonwage potential impacts.

Source: Towers Watson
- GAI





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