The impending reform to the workweek in Mexico that seeks to reduce it from 48 to 40 hours per week, is generating an intense debate and analysis in various sectors. While the potential impact on the Gross Domestic Product (GDP), inflation and the capability of small and medium-sized enterprises (SMEs) to generate formal employment is acknowledged, specialists in the labor area envision a series of scenarios and strategies to transit toward this new system.
Jorge Sales Boyoli, a specialist in labor law, explains the alarms about a possible increase in informality. “It is hard for informality to grow significantly as the result of this reform, as it has already reached monstruous proportions, higher than 53% according to the Inegi [National Institute of Statistics and Geography]”; in this sense, research conducted by his Firm indicates that there is no significant correlation between the reduction of working hours and a substantial increase in informality.
Additionally, Sales Boyoli points out that a large portion of companies already operate under the 40-hour “English week”, working 8 hours a day for 5 days. This group of companies would not be directly affected by the reform.
Given this panorama, various scenarios and proposals are being defined in order to mitigate possible adverse effects and facilitating the transition, among them, tax incentives and incentives by sector for certain industrial sectors or geographic regions, with the objective of lessening the economic impact during the transition period. These measures seek to alleviate the burden placed on companies, particularly SMEs, which are the largest creators of jobs in Mexico.
Another one is the reduction of the cost of overtime, as Mexico is the OECD country with the highest cost of overtime (double or triple the wage) in comparison with the majority of the countries that pay the regular wage or 1.3 times the wage. “The possibility of rebalancing the cost of overtime is being raised as a “bargaining chip” for the business sector, in a similar way to what was achieved with the caps to Employee Participation in Company Profits (PTU) during the reform on outsourcing.
On the other hand, Óscar de la Vega Castillo, partner at the D&MAbogados Law Firm, said that there are at least 4 aspects that must be included in the proposal for the implementation of the 40-hour work week in Mexico, these are: a gradual implementation; flexibility in time schedules; sectorization of the reform and tax incentives for overtime.
Regarding gradualness in implementation, he said that a progressive application of the reduction of working hours is considered, “while the objective of 40 hours per week will be reached by 2030, at the latest, the first reduction is projected to take place in 2026, possibly to 46 hours, and a reduction will be made every two years until the final goal is reached. This gradualness seeks to minimize impact on companies and allowing a proper adaptation.”
He added that flexibility is being analyzed as “time-for-time” or monthly instead of weekly working hours, thus offering greater adaptability to the specificities of each sector and industry; lastly, sectorization: as it cannot be uniform, differentiated schemes will be sought, taking into account the specificities of industries such as manufacturing, in comparison with offices, for example, in order to ensure an effective and fair implementation.
Additionally, he agreed that tax incentives can be given so that overtime is more beneficial to workers, particularly when it exceeds the current limits for hours worked.
It is worth remembering that the Department of Labor and Social Welfare (STPS) is analyzing all of the proposals and conclusions gathered during the course of the six forums. A preliminary document with significant progress on the proposal is expected to be ready by July 30.
Lastly, the Federal Government will present its formal bill for the reform on September 1; the approval process of this bill is expected to considered as prioritary.
