What Is the Cost of Skilled Labor in Mexico?01.18.22
Mexico manufacturing solutions are part of an effective, cost-saving strategy for many U.S. and other foreign companies, particularly when it comes to the cost of labor in Mexico. However, though cheaper in comparison to both the U.S. and China, labor rates can quickly become costly without the help of a shelter. A shelter provider helps guide foreign manufacturers through the three main areas of calculating labor costs in Mexico – hiring, wages, and severance – to ensure savings and success for their operation.
Hiring Skilled Labor
Research shows the cost of hiring a new employee in the manufacturing industry can cost upwards of $5,000 and can be detrimental to a hiring budget and production when it’s not a good fit. With the majority of U.S. companies struggling to find workers to fulfill industrial roles, particularly among mature economies of U.S. border states, such as California and Texas, an effective solution is manufacturing in Mexico so you can benefit from the skilled workforce available.
One of the greatest cost advantages of Mexico manufacturing solutions is working with a shelter company. A shelter company has the systems, infrastructure, and expertise in place to attract and retain qualified employees for the project in a timely manner. Furthermore, there are no surprise costs, as all recruiting, hiring, and onboarding will be done by experts in Mexico’s labor laws and HR compliance.
Calculating Competitive Wages
To start the new year, Mexico’s minimum wage percentage increased by 22%. Though a seemingly significant jump, this increase translates to 260.34 pesos or $12.15 USD per day in the northern border zone and a lower amount of $172.87 pesos or $8.07 USD per day for the rest of Mexico.
Many foreign manufacturers were already paying their workers far above this minimum wage threshold before these changes and continue to benefit from the low cost of labor in Mexico. Additionally, all Mexico labor rates are calculated as fully burdened salaries, which means costs include mandatory and competitive benefits, as well as state and federal taxes. As a reference, in the manufacturing sector, you can expect an initial salary for an operator will start around $4.60 USD per hour, fully burdened. This means we are considering mandatory and competitive benefits, as well as state and federal taxes. This is basically all in.
Navigating Severance Pay
The third part of assessing the cost of labor in Mexico is understanding the complex differences in labor law compared to the U.S. It is one of the key components for success or failure. If companies are unable to retain qualified workers or provide competitive compensation, the turnover, replacement, and training costs will deter a company’s ability to succeed. It is another reason why it’s beneficial to partner with a shelter company that can take on these administrative responsibilities.
Furthermore, the advantage of working with a shelter company is the inclusion of legal protection, which is necessary regardless of company size. In Mexico, there is a 90-day severance payment that applies when terminating an employee without a justified cause.
There are extensive documentation and protocols HR personnel must follow in order to avoid the 90-day severance payment.
Rather than taking away from the time and resources needed to continue production, a shelter company like IVEMSA takes on the full responsibility of handling severance pay situations in compliance with Mexican laws. Furthermore, IVEMSA drafts the employee handbook, which is approved by the manufacturer, and submitted to Mexico’s labor board to protect the company’s legal interests and to establish the company rules that all the employees must follow.
Working with IVEMSA to Recruit and Retain the Best
HR is a complex part of the operational process, especially for U.S. and other foreign manufacturers operating in Mexico. By utilizing the experience and network connections of a shelter company, manufacturers have the advantage of having a team of experts in place. IVEMSA handles all matters regarding hiring, training, and terminating employees in compliance with Mexico law as part of an all-encompassing, cost-saving solution.
To calculate projected costs of labor in Mexico for your next project with the help of a shelter company, contact IVEMSA today.