Overtime and Payment by the Hour: the Debate that is Reopened by the Reduction of Working Hours in Mexico

Employers stated that if reduction of the work week from 48 to 40 hours is approved, the use of overtime to cover production schedules will be inevitable.

Article published on July 7, 2025, on www.bloomberglinea.com, Mexico section, by Zenyazen Flores. Mention: Ricardo Martínez Rojas.

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Mexico City – The reduction of working hours in Mexico triggered the discussion on the payment of overtime and reopened an old debate on the  hourly payment system, which was incorporated into the Law more than a decade ago, but is rarely applied in reality.

Former President Andrés Manuel López Obrador postponed the labor reform for the reduction of the work week from 48 to 40 hours despite the fact that the legislative proposal was made by a representative of his Morena party.

President Claudia Sheinbaum decided to drive the initiative and on May 1 of 2025, Labor Day, announced the gradual implementation of the 40-hour work week and, for this reason, public forums with the objective of creating a reform built on consensus, particularly with businessmen that have been involved in increasing the minimum wage, were required to be held.

The Sixth and last forum organized by the Department of Labor and Social Welfare (STPS) was held on July 7. More than one hundred employers, unions, academics and members of the civil society agreed in these forums that the reduction of the working hours in the labor week must move forward, but gradually, as planned by Sheinbaum.

Employers stated in the forums that, if the reform to the Federal Labor Law (LFT) for the reduction of the work week from 48 to 40 hours is approved, the use of overtime to cover production schedules in industry or customer service in the commerce and service sectors will be inevitable.

The International Labor Organization (ILO) proposed that the reduction in the number of working hours begin gradually and be conducted by sectors and type of activity.

Lawyer Ricardo Martínez Rojas, founding Partner of the De la Vega & Martínez Rojas Law Firm, said that with the reduction in the number of working hours companies will necessarily have to make use of more overtime, it will be almost inevitable not to do so.

In face of this scenario, he stated in an interview with Bloomberg Línea that the business sector seeks that tax changes in regard to overtime be discussed alongside the labor reform.

“We propose that overtime with triple pay cease to be taxed, that Income Tax (ISR) on this overtime be eliminated, and that it ceases to be part of the Base Salary for Contribution, so that overtime no longer pays IMSS [Mexican Social Security Institute] dues.

Ricardo Martínez Rojas, founding Partner of the De La Vega & Martínez Rojas Law Firm

The lawyer, who is legal counsel to dozens of large companies in Mexico, said that employers are seeking to have more overtime with “double pay”, asking that double pay overtime be increased from 9 to 12 hours a week and that further overtime be triple pay.The reasoning behind this petition is that overtime with “triple pay” is currently taxed.

The Labor Law in force establishes three ways for calculating the payment of overtime in Mexico.

  1. The first nine hours of overtime per week are paid at double the equivalent of one hour of a person’s salary.
  2. If a person works more than the abovementioned nine hours, the additional hours must be paid at triple the equivalent of one hour of a person’s salary.
  3. If there is a risk of a major incident within the company, working hours may be extended for the time that is strictly necessary for preventing damage.

Jorge Sales Boyoli, partner at the Sales Boyoli Law Firm, said on a note analyzing this matter that the payment of overtime has become the “elephant in the room” of the forums, as the majority of the speakers acknowledge that overtime will have to be used, but the discussion of this topic is an uncomfortable one.

According to data from the OECD (Organization for Economic Cooperation and Development), Mexico is the country in which overtime has the highest cost, as current Law establishes that the first nine hours of overtime must be paid at double the hourly wage, while additional hours are paid at triple the hourly wage, while the global average for overtime is 1.3 times the hourly wage.

However, according with labor statistics in Mexico, only 3% of the overtime that is worked is paid, as this payment is omitted under various strategies that are somewhat legal.

Reyes Soberanis, president of the Labor Congress, the federation that brings together unions and confederations such as the CTM [Confederation of Mexican Workers] or the CROM [Regional Confederation of Mexican Workers], said that workers do not want negative effects to arise from the reduction of the number of working hours and pointed out that this reform will not include informal workers.

Payment by the hour, an old debate

Employers proposed an hourly payment system in face of the entry into force of the reform that reduces the number of weekly working hours from 48 to 40.

Payment by the hour was incorporated into the Labor Law in 2012 with a labor reform promulgated by former President Felipe Calderón, who sought to bring flexibility into the labor market and promote the creation of jobs.

Nevertheless, payment by the hour has been practically inapplicable because,while entering into contracts for hourly pay is legal, the salary that must be paid is the minimum wage as if the employee had worked an eight-hour day.

Employers propose that, if five hours are worked, these five hours be the ones that are paid for salary purposes and for the purposes of contributions to the Mexican Social Security Institute (IMSS).

In the last forum, held in Cancún, Quintana Roo, the Xcaret  tourism company proposed a pilot program that allows the evaluation and continuous improvement of the reduction of working hours, and proposed that it should be allowed for workers to be hired part-time, or on an hourly basis, which would entail that IMSS contributions would be proportional.

Octavio de la Torre, president of the Concanaco-Servytur [Confederation of National Chambers of Commerce, Services and Tourism], said in an interview with Bloomberg Línea  that his proposal is based on a system of payment by the hour by sectors, with 40 effective hours of work, not including breaks.

He declared to be in favor of keeping a threshold of up to 56 work hours  per week, with the corresponding payment of overtime. Additionally, he requested that no additional tax be paid after 40 hours, that is, that the payment of taxes be capped at 40 hours and that overtime not be taxed.

Luis Munguía, president of the National Minimum Wage Commission, told Bloomberg Línea that under the current Labor Law a salary cannot be paid by the hour and maintained that he would not be in favor of splitting the minimum wage because the current wage level is what is required by a family.

“If it is split we will have half-minimum wage days and, in that case, people earning this will fall below the poverty line; this is why I do not think it is a good idea.”

Luis Munguía, president of the National Minimum Wage Commission

He gave the example of a worker earning the minimum wage for four hours, saying that he would only receive half the minimum wage and, therefore, it could no longer be guaranteed that someone in Mexico earning the minimum wage be above the Line of Welfare. “Of course, this could be a possibility if the minimum wage were higher, but we are still not there; maybe later, it would have to be discussed.”

Tereso Medina, general secretary of the Confederation of Workers of the State of Coahuila of the CTM, proposed the creation of the “Saturday Bonus”, similar to the currently existing “Sunday Bonus”, and he expressed that he was in favor of the reduction of the weekly working hours entering into force in two years.

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