What Severance Pay Rules Must Employers Follow in Mexico?

Which Employees Qualify for Severance Pay?

• They are terminated without just cause (i.e., reasons not related to misconduct or performance).
• They have an indefinite employment contract (rather than a fixed-term or project-based contract).
• Their contract expires, but they continue to work with the employer beyond the agreed end date.
• They are forced to resign due to employer misconduct (constructive dismissal).
• They are terminated during a company restructuring or closure not due to their own actions.

What Are the Legal Timelines for Paying Severance?

Mexican labor law requires that severance pay be settled immediately upon termination. Employers must make all payments—severance, final salary, and accrued benefits—on the employee’s last working day or within a few days of termination, depending on the local labor board’s standards.

If there is a dispute about the dismissal or the amount owed, the employer must still pay what is undisputed and then resolve the balance through the labor authorities. Delays in payment can trigger additional penalties, including interest and legal costs. Employers are encouraged to document all payments clearly and secure signed acknowledgment from the employee to confirm compliance.

What Penalties Apply if Severance Is Not Paid Correctly?

Failure to comply with severance pay obligations in Mexico can lead to serious consequences. Labor authorities enforce these rules strictly, and employees can file claims through the Federal Conciliation and Arbitration Board or the new Labor Courts. Penalties may include:

• Payment of interest on overdue severance.
• Reinstatement orders, requiring the employer to take the employee back.
• Administrative fines imposed by labor authorities.
• Court judgments awarding back pay and damages.

Employers that repeatedly violate labor laws may also face investigations or reputational damage affecting their ability to operate in Mexico.

Does Outsourcing Employment via an EOR Change Severance Liability?

Yes. When a company uses an Employer of Record (EOR) in Mexico, the EOR is the legal employer of record under Mexican law. This means the EOR is responsible for handling severance payments, calculating the correct amounts, and ensuring they are paid on time in compliance with local regulations.

While the EOR assumes these legal obligations, the client company—the one directing the employee’s work—must still ensure its EOR partner operates compliantly. Using a reliable EOR like Playroll reduces risk, as all employment, payroll, and termination processes are fully aligned with Mexican labor law.

Be 100% Compliant in Offering Severance with Playroll

Severance rules in Mexico can be complex, and even small errors can