Using an employer of record in Mexico

Hiring and paying employees in Mexico as a U.S.-based company can be a complex process, as you need to comply with Mexico’s local labor and employment laws, primarily the Federal Labor Law (FLL).

Partnering with a Mexico Employer of Record (EOR), like Payoneer Workforce Management (WFM), makes this process a lot simpler.

Find out more about how Payoneer WFM can help your business, or keep reading to learn about compliant hiring practices with an EOR in Mexico.

How to hire employees in Mexico

There are three key ways to hire employees in Mexico:

1. Set up a local entity: This allows you to hire employees directly, but setup and compliance can be time-consuming and expensive.
2. Hire independent contractors: This option is simple and flexible, but you must be careful not to misclassify employees as contractors.
3. Work with an EOR: An employer of record in Mexico blends compliance with simplicity, allowing you to outsource your hiring and payroll needs to a team that knows the local laws and regulations.

Partnering with an employer of record in Mexico

You can partner with a Mexico EOR to employ workers on your behalf. An EOR takes care of all the business and tax registrations required to operate locally and handles most HR responsibilities, such as hiring, employment contracts, onboarding, payroll, taxes, benefits, leave, and more.

Payoneer WFM offers EOR services in Mexico, so you can hire Mexican talent and manage their employment compliantly without setting up a legal entity.

How to onboard employees in Mexico

Onboarding, especially for new remote workers, is about making sure your new employee has the tools to complete their tasks and feels welcomed to the team.

For a smooth start, prepare the following in advance:

• Enroll your employee in benefits and payroll
• Enroll your employee for social security with the Mexican Social Security Institute (IMSS)
• Configure work devices and set up accounts (Zoom, Slack, etc.)
• Schedule an orientation call to guide the employee through various accounts and tools
• Schedule an introductory call with the team and relevant colleagues

Several of these tasks must be completed before your new hire’s first day. Leaving compliance to an employer of record in Mexico lets you focus on bringing your new employee up to speed.

Pay employees in Mexico

In Mexico, pay cycles are usually 15 days long, so employees are paid twice per month. Paydays usually fall on the 15th and last day of each month.

Workers in Mexico currently receive a bonus in December equivalent to 15 days’ salary. This could change in the future, as a proposal to increase the bonus to 30 days’ salary has been submitted to the Congreso de la Unión.

The tax year in Mexico runs from January 1st to December 31st, and employers must withhold income tax from employee salaries. Employers must then remit the withheld tax to the Mexican tax authorities (SAT) every month.

Tax rates change based on income, as follows:

Income (MXN)	Tax rate (%)
0 to 8,952.49	1.92
8,952.50 to 75,984.55	6.40
75,984.56 to 133,536.07	10.88
133,536.08 to 155,229.80	16.00
155,229.81 to 185,852.57	17.92
185,852.58 to 374,837.88	21.36
374,837.89 to 590,795.99	23.52
590,796.00 to 1,127,926.84	30.00
1,127,926.85 to 1,503,902.46	32.00
1,503,902.47 to 4,511,707.37	34.00
4,511,707.38 and above	35.00

Social security contributions are also required and must be paid to the IMSS monthly. The exact amount varies, but the employer must contribute between 24% to 38% and the employee must contribute 10% to 30%. These contributions fund benefits such as healthcare, disability, and retirement pensions. 

Additionally, employers must pay ISN state taxes based on total payroll expenses. The rate is 3% or 4% depending on the state.

Complying with Mexico’s varying payroll taxes and pay cycles becomes simpler when you use employer of record services in Mexico.

Employment laws in Mexico

The Federal Labor Law (FLL) is the main employment law in Mexico, and it applies to all workers in Mexico. As an employer of Mexican workers, you must comply with these local regulations.

Some of the main points in the FLL include:

• A maximum work day of 8 hours with at least 30 minutes of rest
• A maximum work week of 48 hours (which will be reduced to 40 hours by 2030)
• A maximum of 3 hours overtime per day, 3 times per week (with double rates)
• 1 fully paid rest day for every 6 days of work (usually Sundays)
• Salary payment twice per month, on the 15th and last day of each month

Minimum wage in Mexico

Due to higher living expenses along the U.S. border, there are two different minimum wages in Mexico: one for the Northern Free Zone and one for the rest of the country.

If your employee lives in the Northern Free Zone, you must pay a minimum daily wage of MXN 419.88 (around $22.41). This equates to around MXN 12,596 or $672 per month.

In the rest of Mexico, the minimum daily wage is MXN 278.80 (around $14.88). That’s around MXN 8,364 or $446 per month.

The Mexican government is in the process of raising the minimum wage to improve standards of living, so you should expect frequent adjustments. The easiest way to stay up-to-date and compliant is to work with an EOR in Mexico.

Employment contracts in Mexico

Employment contracts and agreements in Mexico must be in writing, with one copy given to the employee and the other to the employer. This helps define the rights and obligations of both parties. 

Things to include in a contract are:

• The employee’s personal information
• The type of employment (fixed-term, permanent, etc.)
• Job description
• The location (where the employee will work)
• Hours and schedule
• Salary information, benefits, pay cycle, and payment method
• Rest days and vacation days

Leave policy in Mexico

As in many countries, there are minimum amounts of leave that employers must offer their employees in Mexico.

Public holidays

There are 7 public holidays in Mexico, which are mandatory rest days according to the FLL:

Holiday	Date
New Year’s Day	January 1st
Constitution Day	1st Monday of February
Benito Juárez’s Birthday Memorial	3rd Monday of March
Labor Day	May 1st
Independence Day	September 16th
Revolution Day	3rd Monday of November
Christmas Day	December 25th

An additional rest day is given on election days.

Vacation leave

After 1 year of service, workers in Mexico get 12 paid days of vacation. This increases by 2 days for every subsequent year, with a maximum of 20 days after 5 years of service. From the 6th year onwards, leave entitlement increases by 2 days for every 5 years of service.

During the vacation period, employers must pay workers a daily bonus equal to at least 25% of their daily wages.

Sick leave

The IMSS manages sick leave in Mexico, and employees must be registered to receive sick pay. Workers receive 60% of their wages from the 4th day of illness, as long as they have a medical certificate from an IMSS-affiliated doctor. Sick pay can continue for up to 52 weeks, with a possible 52-week extension.

Parental leave

Pregnant workers are entitled to at least 12 weeks of maternity leave with full pay. Usually, they take 6 weeks before childbirth and 6 weeks after, but this can be adjusted to a maximum of 10 weeks after and 2 weeks before. 

Maternity leave can be extended for up to 60 days for medical reasons. In this situation, workers receive 50% of their salary.

Partners and fathers are entitled to 5 days of paternity leave with pay.

Employers need to ensure their workers in Mexico receive all paid and unpaid leave they are entitled to according to the FLL. Working with an employer of record in Mexico makes this easy.

Work permit in Mexico

Any foreign national who wants to work in Mexico but doesn’t have the right to must obtain a work permit. The temporary resident visa with a work permit is the most common. You need to request one from the National Migration Institute (INM) on behalf of your employee.  

Processing times vary, but once the application has been accepted, the employee must travel to Mexico to receive their temporary resident card. This is valid for 1 year but can be renewed for up to 4 years.

Background check in Mexico

Background checks aren’t mandatory in Mexico, but you can conduct checks as long as they abide by federal data protection laws and you have written consent from the candidate. 

Common types of background checks include:

• Criminal record check
• Education verification
• Employment history check
• Reference check

Depending on the role, you can also perform a:

• Working with children check
• Social media check
• Credit history check
• Medical screening
• Motor vehicle report

Importantly, checks that discriminate against race, gender, nationality, and other protected characteristics are not permitted. 

Employment termination in Mexico

At-will employment isn’t recognized in Mexico. Instead, employers must have a legally valid reason to terminate an employee, as outlined in Article 47 of the FLL.

To terminate an employee with just cause, you have to provide written notice of termination and clearly state why you’re ending the contract. If there is no just cause, you have to pay your employee a severance package.

This includes 90 days’ worth of wages as standard, plus additional compensation based on seniority, benefits, unused holiday, and other entitlements.

Company registration in Mexico

Registering a company in Mexico is a big step, but it can be the right decision if you’re expecting to develop a significant presence in the area.

To set up a legal entity in Mexico, you need to:

• Choose a business structure
• Prepare incorporation documents
• Register with the Mexican Tax Administration Service (SAT) to get a tax ID
• Register with the social security and labor authorities
• Open a corporate bank account
• Get business permits and licenses
• Set up accounting and reporting processes

All of these steps have associated costs, such as registration fees, accounting fees, capital requirements, and notary fees. 

For many U.S.-based companies, it’s easier to hire local talent through an EOR in Mexico.

PEO in Mexico

If you set up a local entity, you can work with a Professional Employer Organization (PEO) to assist you with HR and hiring responsibilities. PEOs take care of the administrative and HR work, but you remain the legal employer.

If you don’t want to set up a legal entity, working with a Mexico EOR is a better option. Not only can you outsource all HR responsibilities to the EOR, but you don’t need to register your business either. Additionally, EORs offer services in multiple countries, which is important for companies that want to build an international workforce.

Payoneer WFM: One of the best employer of record services in Mexico

Working with an EOR in Mexico makes compliance simple, particularly when you’re hiring in multiple countries. It handles onboarding, employment contracts, benefits, leave, payroll, tax obligations, and more on your behalf. 

Payoneer WFM offers EOR services in over 160 countries, so your business can hire talent globally. 

FAQs about employer of record Mexico 

1) What is an employer of record in Mexico?

A Mexico EOR is a company that hires talent on your behalf and handles onboarding, payroll, tax obligations, and compliance according to local laws to enable foreign companies to expand their workforces more easily.

2) What is the SBC in Mexico?

The SBC refers to the total amount of compensation a worker gets in Mexico. It includes base salary, benefits, bonuses, commissions, and any other kind of compensation. It’s used to calculate social security contributions.

3) What is the employer tax in Mexico?

Employers hiring in Mexico must withhold income tax for their workers, make social security contributions, and pay the ISN state tax.