How to use an Employer of Record in Mexico

Mexico has a lot more to offer than sunshine and tequila. The country is the fifteenth largest economy, globally, and the second-largest in Latin America.

Mexico City is strategically located and acts as a bridge between Latin American and North America. In fact, Mexico is the third-largest trading partner of the United States. This presents an excellent business opportunity if you’re looking to recruit an international workforce.  

To hire employees in Mexico, you’ll have to open a local entity in the country, which takes a significant amount of time and resources. You’ll also have to understand Mexican employment laws and handle every aspect of the employment process — draw employment contracts, offer benefits, pay your workers, and ensure compliance with local regulations.

Alternatively, you could make your life easier and partner with an employer of record (EOR) in Mexico to hire employees in Mexico on your behalf. An employer of record is a service that allows you to recruit top talent abroad and onboard them within a few weeks — without having to waste time and money on establishing a legal entity within the country. 

Using an employer of record in Mexico will also ensure that your company remains compliant with the local labor laws, while also providing you and your international employees with a full-scale HR team to handle all the administrative tasks. 

Keep reading to learn more about how to use an employer of record in Mexico, so you can start expanding globally today.

6 steps to hiring employees in Mexico using an employer of record

The best way to choose the right employer of record in Mexico is by following these six simple steps:

1. Start by listing out exactly what you are looking for in an employer of record in Mexico. Narrow down your potential partners by making sure the EOR offers services that address everything on that list. Then, compare the pros and cons of each to identify a few options that suit your business needs.

2. As you review your potential EOR partners, check if they offer services that address your chosen criteria. For instance, make sure they:

• Own their own legal entity in Mexico, rather than depend on third-party providers.

• Offer a global payroll solution so that you can pay your workers at the same time.

• Have the ability to handle onboarding, taxes, and benefits.

1. Read through the EOR's reviews and testimonials online to see how others’ experience has been with them. You can review the company website, check out third-party review websites, or press coverage — these can help you gain insights into how the company operates and the kind of service you can expect to receive.

2. Double-check to ensure that the employer of record service you are considering can and will provide an optimal employee experience for your new hires in Mexico. How do they treat employees? Do they pay them on time? Do they respond to employee queries quickly?

3. Work alongside your potential EOR partner to work out a fair and equitable compensation package to find and retain top candidates. Keep in mind that the benefits packages need to be created considering each employee’s skill level, role, and individual experience. It’s also crucial that you make sure that the benefits package is compliant with local labor laws.

4. Check out your potential partner’s security measures to ensure that they can safeguard your intellectual property and maintain the data security for your business. The ideal EOR should offer a high level of security compliance standards and data protection.

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What are the benefits of using an employer of record in Mexico?

When you partner with an employer of record in Mexico, the greatest benefit is that you won’t have to go through the time-consuming and expensive process of forming your own legal entity within the country. Plus, you won’t have to find legal counsel within the country or have to worry about outsourcing an HR team.

You’ll also get the added benefit of having a partner that can take care of employment contracts for you, specifying all the legal requirements expected from both sides. This is especially important when taking on international hires because different countries, Mexico included, have different legislation regarding employment contracts.

An employment contract is a critical component because it acts as the foundation for the employer-employee relationship. It defines an employee’s role and responsibilities and contains essential details such as working hours, compensation and benefits, termination clauses and procedures, and more. Typically, while hiring employees in Mexico, the employment contract should include the following details:

• The full identity of the employer, including place of work (if applicable)

• Salary or wages

• Benefits and compensation regarding paid time off, vacation duration, bonuses, etc.

• Scheduling, as in the expected hours the employee will be expected to fulfill each workweek

• Duration of employment, which can be fixed or not 

• The employee’s specific role and general responsibilities

• Collective bargaining agreements (CBAs) if applicable

• Start date of the employment period

• Notice period and procedures for termination

It should be noted that employment contracts are mandatory in Mexico. There is no “at will” employment, and every employee must enter into an individual agreement with the employer, setting out the terms and conditions of the specified role. 

How much does it cost to use an EOR in Mexico?

Generally speaking, an employer of record service will cost you anywhere between $599 to $2,000 and upwards, per employee. However, it is important to keep in mind that actual costs vary depending on the kind of services your company needs and the location and number of workers you want to hire.

EOR services tend to come with two types of pricing: flat-fee structures and percentage structures. It’s not recommended to partner with an employer of record service that charges a percentage of the employee’s salary. This is because percentage-based structures can end up causing companies to reduce their workers’ salaries to cover the cost of third-party providers. 

You also want to avoid traditional partners that only offer enterprise-level rates, as well as partners that advertise suspiciously low rates. With the low-price model, you could lose out on compliance or security because the company cuts corners to keep costs low. 

Remote offers an affordable flat-rate model for Mexico — while still offering the highest and strictest standards in compliance and security.

Hiring in Mexico

Mexico’s workforce is regulated by the Mexican Constitution of 1917 and the Federal Labor Law. Both govern the country’s standard working hours, minimum wage, discrimination laws, workplace health and safety, unions, and more. However, the country is constantly amending its labor laws to be more inclusive to all businesses.

One of the country’s recent additions to its labor statutes came around in 2017. The Mexican Labor Department has established a digital-based system that allows companies to self-report compliance with labor laws to avoid disruptions in productivity caused by inspection visits. 

While typical business hours run from 8 am to 6 pm, six days per week, the country’s Labor Department also recognizes three standard work shifts: day shifts, night shifts, and mixed shifts. Mexican citizens are also entitled to six paid vacation days per year, accumulating extra days for each year of working for the same company.

Additionally, employers in Mexico are required by law to pay a Christmas bonus, otherwise known as el aguinaldo by December 20 of each year.

Employment contracts and agreements in Mexico

There is no “at will” employment in Mexico. Therefore, employment contracts are mandatory for all employees within the country. 

Most employment contracts in Mexico are also considered to be open-ended. However, fixed-term contracts for temporary roles do exist as long as the duration of their terms is explicitly stated within the contract.

Employment contracts in Mexico must include the following information to remain legally compliant with the country’s labor laws:

• Identification of the employer, and in some instances, their residency

• Identification of the employee, including nationality, civil status, tax ID number, etc.

• A highly detailed explanation of the employee’s specific role and responsibilities

• The starting date of employment and the end date (for fixed-term agreements)

• The location of employment

• The expected working hours and agreed-upon schedule 

• Salary and statutory benefits, including severance

• Notice periods, probation, and standard procedures for termination.

Labor law compliance in Mexico

Labor laws in Mexico are strictly governed by the Mexican Constitution of 1917 and the Federal Labor Law. These laws cover everything from working hours and statutory benefits to wages, overtime, and more. 

You’ll find that the work culture in Mexico is different from what you’re likely used to. For example, the average workday can be broken up into three shifts (day, night, and mixed) as long as they’re agreed upon between employee and employer and do not exceed a certain number of hours. Additionally, while the practice of taking a traditional two-hour siesta that typically takes place after lunchtime has waned, there are still some areas within the country that observe this time away from work.

Mexican citizens are also entitled to eight paid public holidays as well as certain civic holidays and festivals that count as time off, but not paid time off. However, employees that are mandated to work on paid holidays must receive triple their daily wages.

There’s a lot to learn about Mexico’s evolving labor laws, which is why it’s essential to partner with an employer of record that can keep your business compliant at all times. 

If you have to hire from Mexico, it’s essential to keep up with Mexico’s evolving labor laws. This is why it’s essential to partner with an employer of record that can keep your business compliant at all times. A reliable EOR will handle everything — employment contracts, global onboarding, benefits and compensations, taxes, and payroll — so you don’t have to worry about staying compliant with the country’s labor laws. 

Payroll and payroll taxes in Mexico

Staying compliant with Mexico’s payroll and payroll tax laws requires a deep understanding of how payroll works in the country.

The official currency of Mexico is the Mexican peso, and the Mexican payroll cycle is bi-weekly. This means employees are generally paid on the 15th and the last day of each month. There’s also a 13th-month salary that must be paid as a bonus (el aguinaldo) by December 20 each year. 

Payroll tax in Mexico is levied at the state level. The tax rates range from 1% to 3% of employees’ salaries and are withheld by the employer. Mexico follows a progressive taxation system, with employees paying a higher percentage for higher levels of income, with a maximum rate of 35%.

Contributions for retirement in Mexico are complex. They’re governed by the Mexican Administrator of Retirement Funds (AFOREs) which also handles housing accounts for employees. If an employee doesn’t choose his or her AFORE account type within one year of employment, the government chooses it for them. 

Your EOR in Mexico will work out the right payroll deductions based on Mexican laws and ensure you’re withholding the right percentage for your Mexican employees.

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Mexico employee benefits and compensation

When it comes to negotiating the terms of an employment contract with a potential candidate in Mexico, you’ll need to keep the country’s legal compensation and benefits requirements in mind.

For example, Mexican citizens are entitled to six days of paid vacation each year after one year of employment. Paid vacation time increases by two days for every additional year up to four years of employment, then it increases by two days every five years. However, many employers may offer more generous vacation time, with senior-level employees receiving 15 days or more per year.

Compensation for sick leave will depend entirely upon the agreement between employer and employee. In most instances of non-work-related illness, employees can access a government fund that allows for up to 60% of their wages with a doctor’s note. For work-related illnesses, employees are entitled to 100% of their wages.

The government also covers maternity (12 weeks) and paternity leave (five days), with the limit being 2500% of the minimum wage.

Remote’s priority is ensuring that all international employees are paid fairly and competitively on a global scale to give you a competitive advantage in attracting and retaining top talent. This includes providing benefits for global contractors as well.

Check out our guide on employee benefits in Mexico for more information on statutory benefits your company can offer.

Severance pay and employee terminations in Mexico

Under the Federal Labor Law, employers in Mexico must have just cause for terminating employees, which would include:

• Dishonesty or insubordination

• The misrepresentation of job qualifications

• Acts of violence, sexual harassment, or threats

• Damage done to an employer’s property, whether intentional or caused by negligence

• Absence from work more than three times without permission in 30 days

• Compromising workplace safety or failure to follow safety procedures

• Revealing trade secrets or other confidential information

• Working under the influence of alcohol or other substances

• Being committed of a crime

Workers must be notified in writing about the cause of termination within one month of the event that justified the termination — otherwise, the cause will be considered invalid. Mexican employees who are terminated with just cause are still entitled to all wages earned and benefits accrued.

Employees dismissed without cause are entitled to severance pay that’s equal to three months of their regular wages. They are also entitled to an additional 20 days of daily pay per year of service, plus a seniority premium equal to 12 days of pay per year of service.

It can be tricky to stay updated with local regulations in Mexico. The best way to ensure compliance with the country’s employment laws is to work with a trusted EOR provider while hiring employees in Mexico. An EOR takes on the legal responsibility of global hiring, and saves you the hassle of staying on top of local employment regulations.

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Benefits to offer employees in Mexico

Because Mexico has robust requirements for statutory benefits, many companies choose not to provide any benefits beyond these, with a few notable exceptions. This guide on employee benefits in Mexico goes into greater detail on statutory benefits and elective perks companies can offer.

What are the risks of employee misclassification in Mexico?

Each country has different definitions of employee versus contractor, including Mexico.

According to the Mexican Federal Labor Law, an employee is bound by an employment contract and performs services in subordination to the employer in exchange for payment of regular wages. An independent contractor is a self-employed individual or entity whose work performance, schedule, and work location are not controlled by the employer. 

The employer is responsible for paying local payroll taxes to employees, unlike independent contractors who have to pay income taxes on their own. Since payroll and reporting are handled differently between employees and independent contractors, employers must make sure their workers are classified appropriately. If an employer is found to misclassify their employees, they run the risk of having to pay penalties, fines, back wages, and benefits, and may be subject to lawsuits.

If you don’t have a solid understanding of Mexican employment regulations, it can be tricky to avoid misclassification risks and remain legally compliant. An EOR in Mexico has the local knowledge and expertise to correctly classify your workers, so you don't have to worry about the dangers of misclassification. 

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Get started with an EOR in Mexico

To successfully hire and onboard top talent in Mexico, it’s crucial to rely on a reliable EOR that can do the heavy lifting for you. Your EOR partner can help you hire internationally without having to physically expand your operations into Mexico — which would require a lot of time, money, and resources.

Global employment doesn’t have to be a complicated and time-consuming affair. Remote’s global employment services can help you efficiently hire, onboard, and pay your workers in Mexico, and beyond. Our global HR platform can manage all your administrative needs while ensuring that you remain compliant with Mexico’s labor laws at all times. Remote can offer you:

• An intuitive platform that allows you to view, manage, and communicate with your employees in Mexico

• HR services that take care of the entire hiring and onboarding process, including employment contacts, benefits, and labor law compliance.

• A legal team that can ensure compliance with evolving laws and local regulations.

• A suite of tools that can help you process everything related to global hiring including payroll, taxes, and associated paperwork.

• A top-notch security solution that protects your intellectual property and data information, while offering maximum protection.

Ready to discover the benefits of global employment? Learn more about how you can hire international employees quickly and compliantly in Mexico. If you’re ready to start onboarding employees in Mexico, sign up with Remote and get started in minutes! 

Read Remote's expert guide to hiring in Mexico

Use our expert hiring guide for information on local benefits, taxation, and compliance requirements to help you employ in Mexico with ease.

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