Mexico’s growing economy, highly skilled workforce, and numerous free trade agreements make it a viable option for many global companies interested in expanding into the country. However, successfully hiring and retaining talent in Mexico requires a deep understanding of the market.
To fully enjoy Mexico’s duty-free trade and ease of doing business, foreign employers traditionally must establish a legal entity in the country, undergo lengthy permit processes, clarify tax liabilities, and comply with complex labor laws. Still, as cumbersome as these steps sound, there are ways to simplify the process.
This guide covers everything global businesses need to know about hiring employees in Mexico.
Foreign businesses can hire employees in Mexico by setting up a legal entity or partnering with an employer of record. Additionally, foreign companies can hire and pay contractors.
Set Up a Foreign Entity in Mexico
One way to hire employees in Mexico is by establishing a legal entity in the country. While this is the most complex route, it could make sense if you envision long-term growth in Mexico.
There are several types of companies in Mexico that foreign businesses can choose from—the two most common being the Sociedad de Responsabilidad Limitada (S. De R.L.) and the Sociedad Anónima (S.A.). The S. De R.L. caters to small- and medium-sized businesses, while the S.A. offers more potential for growth and profit.
Regardless of which structure you choose, registering a subsidiary in Mexico is a time-consuming process that takes about four to eight weeks. Foreign employers must complete several steps, such as defining company bylaws, formalizing incorporation documents, and registering with the Registry of Foreign Investment.
What if you’re not ready to set up a company in Mexico? A simpler option is to partner with an employer of record.
Partner With an Employer of Record in Mexico
The simplest way to hire employees in Mexico is to use an employer of record (EOR) in Mexico. An EOR allows foreign employers to unlock the power of global expansion without carrying the burden of setting up a legal entity in the country. With an EOR, your business can jumpstart its growth into Mexico rather than wait weeks or months.
An EOR handles all aspects of hiring employees in Mexico, such as onboarding, payroll, benefits, and risk mitigation, so you can focus on overseeing day-to-day employee tasks and business operations.
An EOR is also familiar with Mexican labor laws, ensuring your business complies with local legislation.
Read more: What Is an Employer of Record (EOR)?
Hire and Pay Contractors in Mexico
Some businesses choose to engage contractors in Mexico instead of hiring employees. This option allows for lower commitment and more flexibility.
However, this route entails several risks, such as establishing compliant work agreements and correctly classifying workers.
While you classify your talent as contractors, local authorities may classify them as employees under local labor laws and impose hefty penalties on your business, such as taxation back pay and benefits arrears.
We discuss contractor misclassification in more detail later on in this guide.
The Mexican government highly prioritizes employee rights. Before hiring employees in Mexico, businesses must familiarize themselves with key aspects of Mexico’s labor law, such as payroll, employee termination standards, labor unions, and employment agreements.
Payroll in Mexico
Payroll in Mexico is relatively straightforward, with some distinct nuances:
- Minimum wage: The general minimum wage (salario mínimo) is MX$207.44 per day. In the Free Economic Zone of the Northern Border, the minimum wage is MX$312.41 per day.
- Workweek: A standard workweek is 48 hours for day work and 42 hours for night work, with an eight-hour workday and a seven-hour worknight.
- Overtime: Mexican labor law permits overtime. Employees receive 200% of their regular wage for the first nine hours of overtime per week and 300% for any additional hours.
- Bonuses: Employees are entitled to an annual Christmas bonus (aguinaldo) in mid-December worth 15 days of their salary, though many employers pay four weeks’ worth.
Employers must pay all wages and statutory payments in pesos to a government-designated in-country bank account. This rule is critical to keep in mind, as it can cause delays when setting up payroll in Mexico.
Terminating Employees in Mexico
Under Mexican federal labor law, termination and resignation notices are not mandatory. Once your employee has worked for your company for a month, they become an indefinite employee and, except in cases of gross misconduct, are entitled to three months’ severance pay.
Labor Unions in Mexico
Mexican labor unions are democratic, enjoy ample political support, and afford workers a range of protections and rights. Today, there are over 6,000 active labor unions in Mexico, and all employees have the right to unionize or receive union representation via Collective Bargaining Agreements (CBAs).
When hiring employees in Mexico, your industry’s respective labor union and CBA regulations predetermine many of your work agreement terms and conditions.
Employment Agreements in Mexico
Written employment agreements are mandatory in Mexico and should include a minimum set of terms, such as:
- Basic information (name, age, nationality)
- Description of services
- Employment duration
- Place of work
- Work schedule
It’s worth noting that an employment contract in Mexico is automatically set for an indefinite period unless its terms specify otherwise. Fixed-term contracts may apply under particular circumstances, such as seasonal work, special projects, and trial and training arrangements.
Misclassification, permanent establishment status, intellectual property, and immigration requirements present compliance risks for foreign employers expanding into the Mexican market.
Before hiring employees in Mexico, a business must familiarize itself with each one:
- Misclassification. Many factors, such as subordination, expense reimbursement, and the continuous nature of a relationship, determine how you should classify your workers in Mexico. If local authorities see your employees as contractors under local law, you will face misclassification penalties, such as fines, tighter tax inspections, and limited business opportunities.
- Permanent establishment. If you operate through a fixed entity, a dependent agent, or a third party that concludes agreements on your behalf, you will trigger permanent establishment status and create a local tax liability for your business. Understanding your permanent establishment status is critical for avoiding noncompliance penalties such as tax arrears and fines.
- Intellectual property (IP). IP protection in Mexico is intricate and involves many statutes. Before engaging talent in Mexico, foreign employers should identify current and future IP assets, including those that employees will create during employment. Preparing detailed work agreements and registering relevant copyrights, patents, and trademarks help mitigate third-party abuse and ensure you and your employees understand where ownership rights lie.
- Immigration requirements. At some point, you may need to hire an employee in Mexico who is not a resident or citizen of the country. Familiarize yourself with Mexico’s visa and immigration laws to ensure your worker can reside and work in-country. In most cases, they will need a temporary or permanent resident visa.
Mexico’s strong employment laws can be overwhelming for many foreign employers eyeing expansion into this market. Fortunately, you don’t have to go it alone.
Velocity Global’s Employer of Record (EOR) solution helps global companies build highly skilled teams in Mexico without setting up a legal entity. With our EOR solution, you can jumpstart employment in Mexico rather than waiting weeks or months.
Our EOR solution seamlessly connects employers with employees worldwide. Lean on Velocity Global to handle everything from onboarding and payroll to benefits, immigration services, and compliance so you can focus on your employees’ day-to-day work.
Get in touch with Velocity Global today to learn how to compliantly hire employees in Mexico.