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How to Hire in Mexico

How to hire in Mexico

Expanding your operations into Mexico offers exciting opportunities for growth and diversification. This country is cost-effective and has a wide variety of local talent for businesses to capitalize on. However, navigating the complexities of Mexican labor laws can be a challenge when hiring international workers.

Maintaining compliance during the hiring process will help your business avoid expensive fines and penalties in the long run. Whatever the unique circumstances of your business are, we’ve outlined the best practices and options for global hiring.

Ways to hire workers in Mexico

Legal entity establishment
Global PEO
Independent contractor
FAQs for hiring Mexico workers

How to hire employees in Mexico

Understanding the pros and cons of each hiring method will help you determine the best route for your business.

1. Hire directly with your own entity

Whenever a company hires a foreign employee, it must be done through a local subsidiary or branch. Establishing a local legal entity is an often complicated and time-consuming process that involves registering your business with Mexican authorities, obtaining a tax ID number, and complying with various regulatory requirements.

Hiring through your own legal entity requires ongoing compliance with Mexican labor, tax, and corporate laws. This includes timely payment of salaries, contributions to social security and other mandatory benefits, and adherence to local employment regulations. But this also means you have complete control over the operations and administration of your business.

When to hire directly:

You have already researched and tested the Mexican markets
You plan to operate long-term in Mexico
You will be hiring a large workforce in Mexico

If hiring and paying employees directly is the best path for your business growth, consult with experts on the best entity structure for your operations. Global advisors will ensure your entity is tax-efficient and compliant with all local employment laws.

2. Hire through a professional employer organization (PEO)

A global professional employer organization (PEO) is a third-party service provider that acts as the legal employer for your workers in Mexico. You enter into an agreement with the PEO, and they hire and manage your employees in Mexico on your behalf (an international PEO is also often referred to as an employer of record, or EOR). The PEO handles payroll, tax withholding, benefits administration, and ensures compliance with local labor laws on your behalf.

Hiring through a PEO offers growing businesses speed and flexibility, without the need to establish their own entity. Because the PEO is responsible for all employment requirements, they ensure full compliance and mitigate risks. It can also be a cost-effective solution for businesses looking to reduce overhead costs associated with maintaining their own entity.

When to hire with a global PEO:

You want to research and test the Mexican market for viability
You have a small headcount of workers in Mexico
You don’t want to manage the administrative burden of HR and payroll

Partnering with a global PEO gives you access to a global network of established entities. Their global expertise allows you to hire faster and eliminates the burden of compliance entirely. This allows your business to focus on the day-to-day tasks of your employees, rather than managing shifting administrative requirements.

3. Hire independent contractors

Independent contractors are individuals hired to perform specific tasks or projects on a temporary or project-based basis. Contractors are subject to different legal and tax regulations than full-time employees.

When hiring independent contractors in Mexico, it’s essential to ensure that the working relationship is clearly defined and compliant with local laws to avoid misclassification issues and potential legal liabilities. This includes drafting detailed contracts outlining the scope of work, payment terms, and intellectual property rights, among other considerations.

When to hire independent contractors

You want to engage a worker for a short-term project without paying salaries or benefits
You want to reduce the HR burden when hiring
You want to lower overhead costs

If this is the route you take, make sure you fully understand the contractor management requirements. Businesses that treat their contractors like employees will be subject to penalties and lawsuits.

FAQs for hiring Mexican workers

What are the payroll and tax requirements

Minimum wage: This depends on the location of the employer’s entity. The Free Zone of the Northern Frontier is MXN 312.42/day or 114,029.65/year, while the rest of the country is MXN 248.93/day or 75,715.65/year.

Individual income tax: These taxes are calculated using progressive rates and range from 1%-35%, depending on the total income.

Payroll costs: The employer usually pays about 20% of the employee salary in taxes. These taxes include social security, local taxes, retirement, and more.

Overtime pay and maximum hours: The standard working hours in Mexico are eight hours per day with a maximum of 48 hours per week. Overtime occurs when the maximum hours are exceeded. Overtime cannot exceed three hours a day or three times a week and requires double pay for the first nine hours a week and triple for all hours after that.

What benefits are you required to offer?

Employees are entitled to a wide range of statutory benefits in Mexico. Although the benefits listed are legally required, many businesses elect to offer supplemental benefits to attract top talent.

Christmas bonus: This bonus is called Aguinaldo and is paid prior to December 20th of each year so the funds can be used for the holidays. Employees get a minimum of 15 days’ worth of pay, with some employers opting to give 20 days’ pay.

Paid time off: Full-time employees receive a minimum of twelve days PTO after their first year of employment. The number of days continues to increase with each year of service. Any unused vacation time must be paid out for any employees that quit or are terminated.

Profit sharing: Businesses must distribute a 10% share of their profits to Mexican employees, due by May of each year. However, executives and other high-ranking employees are not entitled to this part of the shares.

Social security and healthcare: Employers pay social security on wages and deduct these contributions from each paycheck, similarly to the United States. However, these contributions cover all basic healthcare in the country, so businesses aren’t required to offer their own healthcare plans.

Severance pay: The amount employers must pay depends on the circumstances of the termination. Workers who quit are still entitled to proportional payments of the Christmas bonus and any unused PTO. Workers fired with cause receive 12 days’ worth of salary per year worked at the company. Workers fired without cause have a much more expensive severance, including a minimum of three months’ salary.

Maternity leave and paternity leave: Although this is required, the cost is covered by the social security and healthcare deductions. Mothers are entitled to six weeks before the due date and six weeks after the birth as paid leave. Fathers receive five days after the birth of the child.

Hire with confidence

No matter how you want to hire employees in Mexico, we can help you find and retain the best talent. Global PEO Services, a Safeguard Global company, helps businesses with their workforces in 170+ countries. Our team of experts can help you navigate the challenges of HR and payroll to keep you compliant as you expand your international operations.

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