LABOR and TAX. Increase in vacation days and their tax impact September 29, 2022
Currently in the Mexican Senate is under discussion the Draft Decree amending, among others, articles 76 and 78 of the Federal Labor Law (FLL), under the argument of providing to the workers a decent vacation increasing the minimum of six days of annual vacation to twelve for such period.
Said Draft Decree proposes in article 76 of the FLL that “workers who have more than one year of service will enjoy an annual paid vacation period, which in no case may be less than twelve working days, and which will increase by two business days, up to eighteen, for each subsequent year of service.”
On the other hand, in the case of article 78 of the FLL it is proposed that “workers must continuously enjoy at least twelve days of vacation”.
If this Draft Decree is approved it will bring several implications, such as an increase in the payment of the vacation premium for workers, which in terms of the Social Security Law will integrate the employee’s contribution base wage, and therefore, will impact the payments for employee-employer dues to the Mexican Social Security Institute, as well as the contributions to the National Workers’ Housing Fund Institute and the Retirement Fund Administrators.
In the same way, this increase in the payment of the vacation premium will be a disbursement destined to remunerate subordinate personal work, which will impact the taxable base of the payroll tax, depending on each State.
Finally, the payment of the vacation premium could be an exempt income for workers and whose deduction for income tax purposes will be limited for the employer (taxpayer), either to 47% or 53%, depending on the case.
There are high possibilities that such Draft Decree will be approved, which would enter into force the day after its publication in the Official Gazette of the Federation according to the sole Transitory article of the Draft Decree.
It will be required to analyze and recalculate, according to each case, the benefits granted to workers to determine the necessary adjustments in terms of employee-employer dues, local payroll taxes and the corresponding deductions for income tax purposes for prevent any contingency due to such implications.
If you have any questions regarding the foregoing, please do not hesitate to contact us.
Mexico City, September 29, 2022