Provisions in Mexico

A provision is an accrued expense for a company.

Provisions are generated for two main reasons:

• To cover the earnings financially, so that when your company has to pay this earning, it is prepared to do so.

  From a general ledger perspective, each provision is a debt that your company is accruing, and sooner or later, it has to be paid. So, debt accounts are balanced with the use of provisions.

• To keep track of costs.

  Although the employee receives his earnings at the end of the year or on his anniversary date, the cost is generated every day that the employee works. Costs can be controlled and distributed accordingly to the real cost generation.

In Global Payroll for Mexico, you can generate three types of provisions:

• Christmas bonus provision

• Vacation provision

• Vacation premium provision

The vacation premium and Christmas bonus are legal earnings that are assigned to an employee on a yearly basis, depending on his seniority. For every day that an employee works, he earns a fraction of these earnings. Even if an employee leaves the company before receiving his bonus, a proportional part of this earning will be paid in his termination pay.