Mexico’s growing economy, highly skilled workforce, and numerous free trade agreements make it a viable option for many global companies looking to set up shop in the country. However, successfully hiring and retaining talent in Mexico requires a thorough understanding of the market.
To take full advantage of duty-free trade and the ease of doing business in Mexico, foreign employers have traditionally had to establish a legal entity in the country, go through lengthy authorization processes, clarify tax obligations and comply complex labor laws. Yet, as cumbersome as these steps may seem, there are ways to simplify the process.
This guide covers everything global companies need to know about hiring employees in Mexico.
How to Hire Mexican Employees: What Are Your Options?
Foreign companies can hire employees in Mexico by creating a legal entity or by partnering with an employer of record. Additionally, foreign companies can hire and pay contractors.
Create a Foreign Entity in Mexico
One way to hire employees in Mexico is to establish a legal entity in the country. Although this is the most complex route, it might make sense if you are looking at long-term growth in Mexico.
There are several types of companies in Mexico that foreign companies can choose from, the two most common being the Sociedad de Responsabilidad Limitada (S. De RL) and the Sociedad Anónima (SA). The S. De RL is aimed at small and medium-sized businesses, while the SA offers more potential for growth and profit.
Whichever structure you choose, registering a subsidiary in Mexico is a lengthy process that takes about four to eight weeks. Foreign employers must complete several steps, such as defining the company’s articles of association, formalizing the incorporation documents and registering with the Foreign Investment Registry.
What if you’re not ready to start a business in Mexico? A simpler option is to partner with an official employer.
Partner with an official employer in Mexico
The easiest way to hire employees in Mexico is through an Official Global Employer (EoR). An EoR allows foreign employers to unleash the power of global expansion without having to bear the burden of setting up a legal entity in the country. With an EoR, your business can kick-start its growth in Mexico rather than waiting 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 duties and commercial operations.
An EoR is also familiar with Mexican labor laws, ensuring your business complies with local laws.
Learn more: What is an employer of record?
Hire and Pay Contractors in Mexico
Some companies choose to hire contractors in mexico instead of hiring employees. This option allows for less commitment and more flexibility.
However, this route involves several risks, such as the establishment of compliant employment contracts and the correct classification of workers. While you classify your talents as entrepreneurs, local authorities may classify them as employees under local labor laws and impose heavy penalties on your business, such as back taxes and back taxes. ‘social advantages.
Mexican labor laws: what you need to know before hiring in Mexico
The Mexican government places great importance on employee rights. Before hiring employees in Mexico, companies should familiarize themselves with the main aspects of Mexican employment lawsuch as payroll, termination standards, unions and employment contracts.
Payroll in Mexico
Payroll in Mexico is relatively straightforward, with a few distinct nuances:
- Minimum wage: The general minimum wage (salario mínimo) is 207.44 Mexican pesos per day. In the free economic zone of the northern border, the minimum wage is MX$312.41 per day.
- Week of work: A standard work week is 48 hours for daytime work and 42 hours for nighttime work, with an eight-hour workday and a seven-hour nightwork.
- Over time: Mexican labor laws allow overtime. Employees receive 200% of their normal salary for the first nine overtime hours per week and 300% for any overtime hours.
- Bonuses: Employees are entitled to an annual Christmas bonus (aguinaldo) in mid-December worth 15 days of their salary, although many employers pay the equivalent of four weeks.
Employers must pay all salaries and statutory payments in pesos to a national bank account designated by the government. This rule is essential to keep in mind, as it can cause delays when setting up payroll in Mexico.
Dismissal of employees in Mexico
Under Mexican federal labor law, layoff and resignation notices are not mandatory. As soon as your employee has been working for one month in your company, he becomes an indefinite term employee and, barring gross negligence, is entitled to three months of severance pay.
Unions in Mexico
Mexican unions are democratic, enjoy broad political support and offer workers a range of protections and rights. Today there is over 6,000 active unions in Mexico, and all employees have the right to unionize or be represented by unions through collective agreements (CC).
When hiring employees in Mexico, the respective union and CBA regulations for your industry predetermine many of the terms and conditions of your employment agreement.
Work contracts in Mexico
Written employment contracts are mandatory in Mexico and must include a minimum set of conditionssuch as:
- Basic information (name, age, nationality)
- Description of services
- Duration of employment
- Work timetable
It should be noted that an employment contract in Mexico is automatically defined for an indefinite period, unless otherwise specified in its terms. Fixed-term contracts may apply in special circumstances, such as seasonal work, special projects, and trial and training arrangements.
Find lots of information about Mexican labor laws here.
Compliance Risks of Hiring Employees in Mexico
Misclassification, permanent establishment status, intellectual property and immigration requirements present compliance risks for foreign employers entering the Mexican market.
Before hiring employees in Mexico, a company should familiarize itself with each:
- Wrong classification. Many factors, such as subordination, expense reimbursement, and the ongoing nature of a relationship, determine how you should classify your workers in Mexico. If local authorities consider your employees to be contractors under local law, you will face misclassification penaltiessuch as fines, stricter tax controls and limited business opportunities.
- A permanent establishment. If you operate through a fixed entity, dependent agent, or third party that enters into agreements on your behalf, you will trigger permanent establishment status and create local tax liability for your business. Understand your a permanent establishment Status is essential to avoid non-compliance penalties such as back taxes and fines.
- Intellectual Property (IP). Intellectual property protection in Mexico is complex and involves numerous laws. Before hiring talent in Mexico, foreign employers should identify current and future intellectual property assets, including those that employees will create during their employment. Preparing detailed employment agreements and registering relevant copyrights, patents, and trademarks helps mitigate third-party abuse and ensures that you and your employees understand where proprietary 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. Get to know Mexico visa and immigration laws to ensure that your worker can reside and work in the country. In most cases, they will need a temporary or permanent resident visa.
Start hiring employees in Mexico with Velocity Global
Mexican employment laws can be overwhelming for many foreign employers considering expanding into this market. Fortunately, you don’t have to go it alone.
Velocity Global’s Employer of record (EoR) helps global companies build highly skilled teams in Mexico without creating a legal entity. With our global EoR solution, you can launch a job in Mexico rather than waiting weeks or months.
Our global EoR solution seamlessly connects employers to employees around the world. Rely on Velocity Global to manage everything from onboarding and payroll to immigration services and compliance, so you can focus on the day-to-day work of your employees.
Enter into a contract with Velocity Global today to learn how to hire compliant employees in Mexico.