Mexico represents an attractive opportunity for foreign expansion and international companies need to understand their Mexico employment options. With a vibrant workforce of over 50 million people representing the 15th largest economy in the world by GDP and an attractive exchange rate, many businesses are considering Mexico.
When entering any new market, smart businesses should assess all their options and weigh the costs and benefits accordingly. There are a few different options for foreign employers entering a new market, each with their own advantages and risks. Let’s take a look at Mexico employment options for international companies.
Employment in Mexico using Independent Contractors:
Many businesses look to independent contractors as a means to test out a new market without the burden of establishing a legal presence in-country. Independent contractor relationships on the surface are appealing from a flexibility and cost standpoint. However, contractor agreements established in the US are not valid in Mexico or any foreign country for that matter. Businesses exploring this option should seek the counsel of local legal experts to determine the risks associated with this sort of arrangement. In many cases, contractors have challenged their employment status in local courts, exposing the employer to a host of fines and penalties and requiring local legal representation.
While appealing in theory, independent contractor arrangements in Mexico do not represent a viable or compliant solution for employing in Mexico. In order to have a compliant and recognized business in-country, it is necessary to have a taxable business presence either through an established in-country subsidiary or International PEO.
Read more: How to Pay Contractors in Mexico: 4 Methods for International Payments
Establishing a Foreign Subsidiary:
Traditionally, the only way to compliantly hire part-time or full-time employees in foreign markets was through the establishment of a foreign subsidiary. Certain industries, manufacturing, and real estate, for example, require a subsidiary in order to own property and do business. For businesses primarily engaged in sales and service, there are other options. Establishing a foreign subsidiary can help establish strong ties in the local market as it is a strong signal of commitment on behalf of your business. The advantages of establishing a foreign subsidiary do, however, come at a cost. In Mexico, establishing a subsidiary can take as long as four months and start up costs alone can exceed $30,000USD – not to mention the administrative burden and soft costs associated with the process.
Furthermore, dismantling a foreign subsidiary is often even more costly and time-consuming than establishing one in the first place. For businesses looking for the flexibility to test out employing and operating in Mexico, consider international PEO to avoid the financial and opportunity cost of establishing a foreign subsidiary.
Velocity Global has pioneered a way for businesses to enter foreign markets legally and compliantly while maintaining the high flexibility and low cost associated with a contractor relationship through our International PEO model.
This service allows businesses to hire and operate in Mexico in a legal and compliant fashion without the costs and administrative burden maintaining a foreign subsidiary. Through our International PEO model, we become the employer of record for the client’s business and handle all the backend HR functions like payroll, tax withholding, local employment contracts, social program payments and even supplementary insurance and work permits. In plain English, we operate in the background to handle your HR burden so you can focus on managing your employees and growing your business.