Term Paper on "Wage Costs and Employee Benefits in Mexico for a Medium to Large Company"

Term Paper 9 pages (4005 words) Sources: 1+

[EXCERPT] . . . .

Wage Costs and Employee Benefits

The Legal definition of an Employee is "a person who is hired by another person or business for a wage or fixed payment in exchange for personal services and who does not provide the services as part of an independent business; Any individual employed by an employer" There are in existence three tax laws that will apply to employees. Under this law, when the person who has employed the individual has any sort of right over his employee, then he can control his working methods in any manner, including the end result expected of him, and the details of how and when and where the job is to be done. "Where the employer does not possess that right, the individual involved is an independent contractor, not an employee"

An employee has the right to expect certain benefits from his employer. In order to deal with any disputes that may arise from this issue, the 'Employee Benefit Research Institute' aims to contribute to the creation and the development of good employee benefit programs and employee benefit policies as applicable, which would be based on deep research and education. In their section entitled 'General Benefits Research' released in 2003, the Institute states that the general median tenure of the employee with his current employer was 4.7 years in 2002, that the distribution of salaried workers aged above 20, all over the state was evenly distributed across different tenures, and that there was a slight increase in the tenure of female workers at the present time. Again "the median tenure for male workers declined from 5.9 years in 1983 to 4.9 years in 2002" "Private-sector workers' median tenure held steady from 1983 (3.6 years) to 2002 (3.6 years). By contrast, the median tenure for public-sector workers increased from 1983 (6.0 years) to 1998 (7.5 years) before declining to 6.9 years in 2002." It is this type of research that employers would find useful in their various dealings with their employees. Research is also conducted on issues like retirement income, health care of the employee, and social security issues.

What are 'Wage Costs?' Wage costs must be determined by the employer in relation to the amount of work that the employee is expected to perform during his tenure with the employer. Today, the computer and the calculator do most of this type of time consuming work. "The Wage Calculator allows you to define roster schedules and will automatically calculate associated wage costs by staff, Area, and Department for each day, and the week." The final wage structure will be determined by using the calculations based on the basic wages as well as at least six additional loadings of average wages, and this can if necessary include wage classifications and staff. The format used in the table is by Department and Area of the organization, and once the framework is established, then the calculations will become easier and the staff can be allocated according to the roster and wages can be calculated with the mere click of a small button, and both the employee as well as the employer would be fully satisfied.

The United States department of Labor periodically issues news about the varying employee conditions, and the issue of wage costs was dealt with in their release on August 2004. Their opinion was that in the month of March 2004, the average wage cost in the private industry employment sector in the South was $20.80/hour, and this was indeed a good wage. In the Northeast it was found to be $26.29 per hour, in the West it was $24.54 per hour, and it was $23.26 in the Midwest. On an average scale, the wage costs amounted to about $23.29 per hour for the U.S. employee employed in a private sector industry. The U.S. Labor Department stated that "among the benefit categories, one of the larger employer costs was legally required benefits, such as Social Security, unemployment insurance, and workers' compensation"

The method of calculation used by the Department of Labor for the purpose of measuring wages is the "average cost per employee hour worked that employers pay for wages and salaries and benefits." It is generally referred to as the ECEC or the Employer Costs for Employee Compensation. Those employees who are self-employed or are private workers are not included in this method of calculation. A wage is defined as either the hourly straight time compensation, or as the straight time wages divided by the number of hours that the employee has worked totally. They are also referred to as the 'total earnings' of the employee and they generally include incentives and bonuses and any sort of cost of living adjustments.

It is a well-known and acknowledged fact that the Labor Force in Mexico, also known as the 'Trabajador' has been steadily growing over the years at the rate of 2.4% per year, and that the agricultural market has, in fact, been decreasing in size steadily because of increased urbanization wherein people from villages move on to bigger cities in search of better employment opportunities, primarily in the manufacturing sector. Skilled and semi-skilled workers make up about one third of the total labor force in Mexico. All the regulations and policies pertaining to labor are based on the laws written in the Mexican Constitution of 1917, and also on the Mexican Federal Labor Laws, also known as MFLL. In comparison with the wages in the U.S.A., the wages are definitely much lower, but safety laws and other laws related to laborers and employees are protected by the MFLL. "The Federal Labor Law regulates labor contracts, minimum wages, employee benefits and union activity within Mexico"

When one desires to set up a small or a medium or a large company in Mexico, what is to be remembered is that at the very outset, the work relationship must be clearly defined and stated so that there can be no disputes later on. "If a work relationship is not specifically defined as temporary from the beginning, there are few circumstances under which you legally can dismiss an employee without incurring compensation responsibilities." Therefore it is mandatory to describe the working relationship as being for a set time period or for a specific job or as temporary, and so on. Employee discrimination is also protected by the MFLL, and "also, employers cannot discriminate on the basis of race, sex, age, religious or political beliefs, or social standing" complete set of privileges are also granted under the MFLL to the employee, wherein the employer cannot impinge on the employee's right to safety and on the basic minimum salary and on his work shift. The employer must also be aware of the employee benefits that are a mandatory requirement when a Mexican worker is employed in a medium or large company. Though these benefits tend to add on to the burden of paying compensation and to the 'labor costs' of the worker, they must be followed to the letter. Some of the employee benefits that are granted under the MFLL to the employee are: profit sharing, the Christmas Bonus, legal holidays, vacation time, social security, housing for the employee, and retirement plans and benefits. "Federal law requires firms to participate in a profit sharing program in which employees receive 10% of the firm's annual profits. Executive officers and general managers often do not participate in this program."

Generally, all the employees of the company will derive the benefits of this plan, but it does happen that sometimes, the General Managers and the Executive Officers of the firm do not find the need to take part in the program. The Christmas bonus to be offered as part of the employee benefit program is also known as the 'Aguinaldo'. This will be an amount to the tune of a minimum of two weeks' pay to be paid at the end of the year during Christmas. If the employee has been employed for less than a year, then he will receive a pro-rated bonus from his employer. Further the "Mexican Federal Labor Law establishes 7 legal paid holidays per year. Besides these holidays many businesses and labor contracts observe additional days for religious and national celebrations"

The issue of granting 'vacation time' is generally based on the seniority of the employee. Usually, after a period of one year, the employee is granted a six-day paid vacation, and the six days will become eight days the next year and ten the next, and twelve the next. At the end of the completion of five years of service the employee gets the benefit of two weeks of paid vacation time. "After five years of employment, two more days must be added for each five-year block of service" the Mexican Institute of Social Security takes care of the social security of the employees of small and large business establishments in Mexico. Also known as the 'Instituto Mexicano de Seguro Social', or IMSS, the Institute is responsible for the social security… READ MORE

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