How to pay remote workers in Mexico

Are you interested in hiring the best remote talent you can find in Mexico?

Maybe you are, but you’re also hesitant to start without first having a firm grasp of the country’s rules and regulations. Maybe fears about fines or penalties related to misclassification or non-adherence to tax, employment, and labor laws are holding you back.

If this describes you, then you’ve come to the right place.

In our guide to hiring employees in Mexico, we touched on how to pay remote workers in Mexico. In this article, we take a closer look at the complexities of paying workers in Mexico. Learn how to pay your workers to ensure full compliance with Mexican labor laws.

Banking requirements for employers in Mexico

In 2017, changes to labor laws created new rules that require employers to pay all full-time employees who live in Mexico as if they were permanent Mexican citizens. Now, expats and citizens follow the same system of rules, simplifying things for the Mexican government while creating a few complications for foreign employers.

Employers of workers in Mexico must now pay their workers in Mexican pesos through government-approved Mexican banks. Employees can convert their payments after the fact, but they cannot receive their salaries in American dollars or any other currency.

Employers typically set up accounts for employees, but these accounts are specifically for payroll receipts. These payroll bank accounts receive deposits from employers, which employees can spend by using a bank-provided debit card.

While payroll bank accounts do allow employees access to their money, they do not provide a full range of banking services, so employees should still open their own bank accounts for personal use.

While you can also choose between other payment options, including online money transfer providers (like PayPal) or printed checks, these typically come with additional costs and service fees. You also run the risk of delayed payments.

Companies must be diligent to ensure workers in Mexico receive a consistent salary. Depending on the type of business you have, you need to run the payroll cycle weekly or biweekly to remain compliant with Mexican employment laws.

Remote offers businesses full employer of record services in Mexico for a flat fee. We provide guaranteed compliance with all local employment laws while providing a consistently exceptional experience and consistent payment amounts for your remote workers.

Mexico —

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Guide on hiring employees in Mexico

Maintaining compliance across international borders can be tricky. Mexico in particular has a few unusual rules that can catch inexperienced employers by surprise. To stay compliant with Mexican laws while providing the best possible experience for your employees, start with this helpful guide.

Payroll obligations in Mexico

Until 2017, employers only had to pay social obligations and taxes on wages for workers in Mexico. 

Now that employers must keep employees’ net pay in Mexico via the requirement to use Mexican banks, employers are responsible for the full range of payroll deductions and contributions. 

These deductions include:

• Social security

• Federal and state income taxes

• Additional payroll taxes that vary by city and state

Employers are prevented from processing payroll outside of Mexico for employees who work in the country. Employers used to splitting payroll between two countries cannot do so in Mexico. 

When processing payroll in Mexico, all deductions from employees’ paychecks occur in Mexico and are subject to Mexican payroll obligations.

You must also be aware of the following additional payroll regulations for remote Mexican workers:

• In Mexico, the minimum wage is calculated by the day rather than the hour. It is currently set at MXN $248.93 per day in all states except the Free Zone of the Northern Border, where it’s MXN $374.89 per day.

• Mexican workers are eligible for a 13th-month salary or a year-end payment comprising 15 days of standard pay if they’ve been employed for a full year.

• Expect to owe your workers overtime pay if they work beyond the traditional 48-hour week. Employees are owed double the wage for the first nine hours.

• Employees can accrue 12 hours of annual PTO if they’ve been with their current employer for at least a year. Annual leave accrues gradually for each additional year.

• Maternity leave is provided for two to six weeks before the child’s arrival and six to ten weeks after, for a total of 12 weeks. New fathers receive five paid days off.

• If an employee is ill, they are eligible for full-wage sick leave for the first three days. Then, they receive 60% of their wage for up to one year if they’ve been employed for at least one month.

• Seven paid holidays are provided to all workers in Mexico.

• Termination. In Mexico, if the employer has a legitimate reason for terminating an employee, such as dishonesty or gross misconduct, they can terminate the employment without notification or without severance pay. If an employer wishes to terminate an employee without a just cause, they must pay severance, but prior notification is not required.

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Regulations for foreign businesses paying employees in Mexico

Companies outside Mexico can only pay workers in Mexico directly if those workers are independent contractors. 

Full-time employees in Mexico must be employed by a local legal entity and must have an appropriate Mexican work permit to work in the country. Companies should not attempt to pay employees in Mexico as contractors because the Mexican government takes worker misclassification claims seriously.

Businesses can choose to open their own legal entities in Mexico by going through the appropriate government channels and hiring their own lawyers, payroll providers, and benefits administrators. 

However, establishing legal entities is a lengthy, time-consuming, and expensive process typically undertaken by large companies or corporations. If your business pursues this route, you still need to understand and manage the complexities of the Mexican employment and tax laws to maintain compliance.

You also need to consider the risks of permanent establishment if you’re hiring Mexican workers. These risks apply even if you’re onboarding a primarily remote workforce.

To help mitigate these risks, most companies work with an employer of record like Remote.

As an employer of record, Remote manages payroll, benefits, taxes, and compliance for businesses with employees in Mexico and other countries around the world. We keep companies compliant with all applicable labor laws while providing a first-class experience for remote employees.

Process of obtaining approval to pay employees in Mexico

Businesses cannot simply pay employees, withhold social contributions, and report taxes in Mexico on their own. Companies with Mexican employees must also submit pay stubs to the Servicio de Administración Tributaria (SAT), Mexico’s internal revenue service, for approval.

Only after the SAT receives and approves an employee’s pay stub can an employer forward the pay stub to the employee. The SAT verifies that the amount the employer is supposed to pay the employee matches the amount actually paid. 

This process, in combination with the government’s approval process for payroll-approved banks, is designed to protect employees from fraud.

Remote handles this process automatically for all Remote customers.

Ready to pay your team in Mexico?

Mexico is home to a talented pool of workers for businesses in all sorts of industries. From tech to finance and from healthcare to consumer goods, companies looking to expand to Mexico will find plenty of talent on the other end.

Now that you understand the basics of hiring and paying remote Mexican workers, it’s time to take action. If you’re not interested in establishing a legal entity (and want to reduce permanent establishment risk), why not consider a platform designed with your business needs in mind?

Remote’s global HR platform empowers businesses of all sizes to employ and pay top talent worldwide. With our robust employer-of-record solution, we offer the strongest guarantee of compliance along with the best employee experience for your team members in Mexico. 

Book a demo today to see how Remote can help your global business grow.

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