I have read, heard and seen everywhere a multitude of comments regarding the initiative to amend the Federal Labor Law with the purpose of increasing the number of days of the annual paid vacation period granted by such law as a benefit to all workers.
Although it is not yet a law, it appears that it will go through the entire legislative process until its enactment and entry into force.
But one thing I haven't seen is the number. Yes, the cost for the pattern!
How much will this increase in vacation days increase the cost to employers?
Therefore, I started crunching numbers to find out the increase in payroll costs.
The results vary depending on the worker's base wage, but to have an approximation, I present the following results based on one minimum wage (from both geographic areas for minimum wages), two minimum wages and the national average wage reported by the IMSS as of January 2022(https://www.imss.gob.mx/prensa/archivo/202202/064).
Here are the results:
Increase in the SBC (Base Contribution Wage) and SMG (General Minimum Wage)
| 1 SMG DF | 1 SMG FN | 2 SMG DF | National average salary | |
| SBC before reform | $ 180.68 | $ 272.11 | $ 361.37 | $ 466.80 |
| SBC after the reform | $ 181.40 | $ 273.18 | $ 362.79 | $ 468.64 |
| Increase % Increase | 0.40% | 0.39% | 0.39% | 0.39% |
Increase in monthly installments
| 1 SMG DF | 1 SMG FN | 2 SMG DF | National average salary | |
| Total employer contributions before the reform | $ 1,538.79 | $ 2,019.48 | $ 2,264.01 | $ 2,790.64 |
| Total employer contributions after the reform | $ 1,542.58 | $ 2,025.11 | $ 2,271.11 | $ 2,799.83 |
| Increase % Increase | 0.25% | 0.28% | 0.31% | 0.33% |
Increase in the annual vacation bonus payment for the 1st year (the minimum)
| 1 SMG DF | 1 SMG FN | 2 SMG DF | National average salary | |
| Annual vacation bonus (1st year) before the reform | $ 259.31 | $ 390.51 | $ 518.61 | $ 669.92 |
| Annual vacation bonus (1st year) after the reform | $ 518.61 | $ 781.02 | $ 1,037.22 | $ 1,339.84 |
| Increase % Increase | 100.00% | 100.00% | 100.00% | 100.00% |
Increase in the cost of employee benefits
| 1 SMG DF | 1 SMG FN | 2 SMG DF | National average salary | |
| Annual salary | $ 63,097.55 | $ 95,024.10 | $126,195.10 | $163,013.78 |
| Increase in annual vacation bonus (1st year) after the reform | $ 259.31 | $ 390.51 | $ 518.61 | $ 669.92 |
| Increase % Increase | 0.41% | 0.41% | 0.41% | 0.41% |
Percentage increase in benefits plus social charges
| 1 SMG DF | 1 SMG FN | 2 SMG DF | National average salary | |
| Increase in salary cost (benefits) % Increase in salary cost (benefits) % Increase in salary cost (benefits) % Increase in salary cost (benefits) | 0.25% | 0.28% | 0.31% | 0.33% |
| Increase in the cost of the social burden (social security contributions) % Increase in the cost of the social burden (social security contributions) % Increase in the cost of the social burden (social security contributions) | 0.41% | 0.41% | 0.41% | 0.41% |
| Total increase in employer's cost % increase in employer's cost % increase in employer's cost % increase in employer's cost | 0.66% | 0.69% | 0.72% | 0.74% |
As you can see, the increase is marginal (0.7% rounded average), but this is only a first estimate, as it is yet to be quantified:
- Substitution costs
- The fiscal cost of the non-deductibility of the additional vacation bonus (which is exempt for the employee's income tax, but is not deductible for the employer).
- The cost of the state payroll tax
The important thing for companies these days is to consider the possibility of increasing budgets for 2023.
We will keep you informed of changes as they are confirmed.
Finally, I invite you to subscribe to our blog to be informed of all the news in the world of payroll.
See you soon!
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