As the second most populous country in North America and the second-largest economy in Latin America (after Brazil), Mexico is among the world’s promising up-and-coming markets.
Affordable skilled labor and proximity to the largest economy in the world (the US) also make it a good place for businesses to expand or to create a presence and leverage the local workforce.
The workforce comprises over 60 million people, more than the entire population of many European countries. If you are planning to hire employees in Mexico, there are a few things you need to know.
Every business that is legally registered in Mexico can hire employees there. So, if your business is based elsewhere, you may need to establish a presence in Mexico before hiring any employees. Mexico has a handful of business entity types, but a Limited Liability Company is the most common, especially for foreign businesses. It’s called Sociedad de Responsabilidad Limitada (S de RL) in Mexico.
Foreign businesses can hire employees through an Employer of Record (EOR). An Employer of Record, such as Engage Anywhere, is more than just a middleman between your company and the employees you want to hire in Mexico. Engage Anywhere will take on all employee-related responsibilities, including running payroll and handling everything from hiring, onboarding, benefits, and termination. The EOR service also will ensure your business remains compliant with local laws and leave your business free to focus on the operational administration of the employees you hire in Mexico. Outsourcing is a labor practiced that is strictly regulated in Mexico. Only companies providing specialized services are permitted to use contractors. EOR services can be greatly impacted by the limitations placed on what employees can be hired for which companies.
You can also hire freelancers or contractors in Mexico as a foreign entity. This comes with minimal compliance regulations/requirements, as you may not be required to offer mandated benefits or deduct tax from the salary of these freelancers.
However, it’s only a feasible option for short-term/temporary assignments/projects. If you want to establish a long-term presence in Mexico (of which employees are an essential part), you may need to hire actual employees while remaining compliant with local labor laws and offering benefits and compensation as required by the local laws.
Opening a branch in Mexico may also allow you to hire employees there. The process will be similar to establishing an entity, though with more factors taken into account.
So, the two main paths to hiring employees in Mexico are either developing a local presence or working through an EOR. The latter is relatively easy as it eliminates the necessary learning curve and management changes you must go through to initiate and maintain an employee management process necessary to tap into the Mexican labor market. But if you are going the former route, i.e., establishing a business entity and then hiring employees, there are several things you should know.
The three things every potential employer in Mexico should understand before hiring an employee are:
The labor laws in Mexico are pretty comprehensive and cover everything from hiring practices and contracts to the termination of an employee. You need to develop a comprehensive understanding of what these labor laws are and if any special considerations impact your particular business/business model.
It’s legal to hire people as young as 15, but they may require parental consent before they can start working. Labor laws also prevent employers from making employees work in conditions that may put their health, security, or “morality” at risk.
There are also several different types of labor contracts, with their stipulations regarding the duration of work and trial period. The labor contracts should be written in Spanish. This is not a legal requirement but a good practice.
The labor laws also cover working hours – a maximum of eight hours a day and 48 hours a week. The employer has to pay overtime after these designated hours. The limit is slightly lower for night shift workers.
The overtime is 200% of the normal pay for the first nine hours and 300% afterward. The unions are allowed, but their powers are relatively limited. Employers/workers who are not Mexican nationals need permanent resident visas while working there.
When deciding compensation for your Mexican employees, you should keep the minimum wage and regional and industrial standards for the position you are hiring in mind. Mexican employees are eligible for a range of benefits, including Profit-sharing (PTU).
This requires employers to share at least 10% of their taxable profits with employees (usually via bonuses) that have worked at least 60 days for the company. A yearly bonus/Christmas bonus is equivalent to at least 15 days’ salary.
The paid time requirements in Mexico are relatively mild – at least six days after working a year for the employer. Employers are not legally required to offer paid sick leaves, as it is covered under the social security program for employees. It’s the same with paternal and maternal leave, five days and twelve weeks, respectively (split half and half before and after childbirth). The compensation during these leaves is the responsibility of the social security program.
Social security falls under Instituto Mexicano del Seguro Social (IMSS). Employers and employees must pay into the program at very different rates. The burden is mainly on the employer, especially for employees on the lower wage spectrum. The contributions are also governed by the risk status a company holds. Employers must also offer severance packages to their employees.
The tax is the responsibility of the employee, and as an employer in Mexico, you may not be required to withhold income taxes from the salaries of your employees. You may have to pay a payroll tax that ranges between 1% to 3%, depending on the state you are registered in.
Establishing a presence in Mexico to hire employees may not be as practical as in other countries, and an EOR such as Engage Anywhere offers a much more practical alternative. But if you want to leverage other benefits the country offers and establishing a presence in Mexico also aligns with your business goals, working with a trusted expansion partner can help you navigate local challenges while remaining compliant. Want to learn more about the benefits of using an employer of record service? Our blog has all the information you need to make an informed decision.