An Employer of Record (EOR) in Mexico is a game-changing solution for companies looking to streamline employment, payroll and compliance while entering one of the world's fastest-growing nearshoring markets. With its strategic location, skilled workforce, and competitive operating costs, Mexico offers unparalleled opportunities for businesses seeking to expand efficiently and effectively.
An EOR is a third-party organization that acts as the legal employer for your workforce. While you manage day-to-day operations and your employees' tasks, the EOR handles compliance with local labor laws.
An Employer of Record service in Mexico is used by a variety of companies and industries, including:
By leveraging a local EOR in Mexico, these organizations gain flexibility, reduce risks and streamline their operations while maintaining compliance with Mexican laws.
There are a variety of benefits to companies that utilize a local EOR partner in Mexico, including:
These and many other benefits have driven a growth in Mexico's EOR providers.
There are also a number of challenges associated with the Employer of Record employment model, including:
Challenges like limited control and long-term scalability may also be challenges for certain business plans. Selecting a reputable and experienced EOR provider can help mitigate risks and ensure a seamless experience for supporting business operations in Mexico.
Mexico's labor laws are among the most comprehensive in Latin America. In fact, in the last 5 years, Mexico Federal Labor Law (LFT) has undergone the most comprehensive overhaul in recent history.
Download the free Mexico's Employment Law e-book for additional information
Mexico's labor framework is set forth in the Constitution and the Federal Labor Law (LFT). Mexico was the first country in the world to recognize and make provisions for labor rights in its constitution in 1917. The country's labor laws have inspired progressive reforms in other Latin American countries. Balancing worker protections with economic growth, the LFT strives for fair wages, safe workplaces and social justice in a dynamic globalized environment.
Employees are entitled to fundamental rights in Mexico, including:
En Employer of Record (EOR) service can help navigate these complexities, ensuring full compliance with labor laws while maintaining smooth operations.
Competitive compensation depends on the industry, location and skill set. Minimum wage in Mexico is not sufficient to attract and retain workers in most industries. There are certain minimum benefits required by law, and additional benefits are required to be competitive across many industries.
Required benefits by law in Mexico include:
Managing payroll and benefits in Mexico requires a deep understanding of local laws and regulations. Through an EOR, payroll is streamlined, ensuring accurate calculations.
Both employers and employees have responsibilities on a Mexican payroll. The most common concepts included on a Mexican payroll include:
Base Salary - negotiated in pesos per month in the labor contract, payments are calculated with a daily wage
Payroll Tax - state tax rate between 2 and 3%
Fringe Benefits - these vary according to industry, location and employee level. They can encompass cash benefits that are included in the payroll, or company benefits and different service perks that employees can enjoy.
Mexico's Social Security (IMSS) acts as a safety net, funded by both employer and employee. Expenditures or medical services in Mexico are primarily consolidated in a public health system called IMSS. It includes:
In addition to IMSS, employers are required to contribute to the INFONAVIT housing fund, which supports workers in obtaining affordable housing loads in Mexico, as well as a retirement savings (SAR) account.
An Employer of Record (EOR) in Mexico will typically include in the monthly invoice:
Communication and trust are crucial to effectively managing employee compensation in Mexico. Seeking transparency and clarification of payroll concepts is your right as a client of an EOR service provider.
Employers in Mexico face multiple tax obligations including income tax and payroll taxes. An EOR takes charge of tax filings and payments, ensuring compliance with deadlines and avoiding penalties. Their expertise ensures accurate reporting and adherence to ever-changing tax laws.
There are multiple payroll-related taxes in Mexico, including:
Although not exactly a tax, other obligations include the social charge (IMSS, INFONAVIT, SAR) and profit-sharing requirements.
The fiscal and tax obligations of a company are as follows:
Register with the Federal Taxpayer Registry (RFC).
Responsibly maintain their own accounting records.
Issue electronic invoices and avoid improper billing practices.
Keep their information updated with the RFC.
Submit monthly and annual tax returns as applicable.
An Employer of Record (EOR) provider in Mexico adds value by eliminating these compliance requirements and absorbing the risk and responsibility for correct payments.
There are no specific laws or rules applicable to recruiting employees in Mexico, but the Federal Labor Law as well as the USMCA stipulate certain standards for non-discrimination. There are a variety of pre-employment screening options that are common in the manufacturing industry. Promotion systems must be summarized in the collective bargaining agreement (if applicable) or in the internal work rules; promotions must take into consideration internal employees first, and be based on standard criteria, applicable to all. Employers are required to provide training and instruction for their employees, and ones with 50+ employees will need an official committee for that.
Employees are hired under strict employment contracts, either by a defined time and project (such as covering a maternity leave), or as a permanent employee after a defined "trial period". Employees are entitled to severance payments for unjust terminations.
Download the free e-book for more details and calculations for severance.
Employees enjoy 7 statutory holidays in Mexico, plus Election Day every 6 years. If employers require their employees to work on these holidays, they must pay them a 200% premium.
In Mexico, unions typically represent hourly employees. Strictly speaking, no one is forced to join a union, but if workers wish to do so, the company would be required to sign a Collective Bargaining Agreement following a labor procedure. There are many types of unions, and their dues typically include some combination of annual fee from the company plus employee quota deductions. Additionally, with the incorporation of the Annex 23-A into the USMCA, the Mexican government assumes obligations aligned with the freedom of association of workers and the Rapid Response Mechanism for reporting instances of non-compliance.
There are +40 official Mexican NOMs in health & safety material that companies must adhere to in the workplace. These surround topics like:
Each employer must create a Health & Safety Commission and large facilities with 100+ employees must have on-site EHS personnel and medical attention.
In Mexico, managing reimbursements for expenses incurred by employees on behalf of the company requires meticulous documentation and adherence to fiscal regulations to ensure compliance and maintain tax deductibility.
Here are the best practices for handling these reimbursements:
These best practices ensure deductibility of applicable expenses as well as compliance with fiscal regulations and anti-corruption laws in Mexico.
Foreign companies launching new operations in Mexico often consider different business structures as part of their business plan. While entities like SRLs (limited liability companies) or SAs (stock companies) are common, setting them up involves time and resources.
There are strategies and incentives that foreign service companies can leverage in Mexico, depending on their business plan and type of incorporation.
Any company that outsources services or provides labor that involves outsourcing staff to other entities will require a REPSE certification.
Visit the REPSE website for additional details.
Mexico is an attractive place for companies exporting services such as IT, customer support, engineering and even certain value-added services to manufacturing. The IMMEX regime contemplates an export-oriented service company, and provides tax benefits for service exporters. Consult Shelter Services and Other Types of IMMEX for additional details.
After choosing an operating structure, the new entity will need to be registered and incorporated with a deed in front of a notary public. This will include bylaws, shareholder structure, and business objectives. Lastly, the newly-incorporated entity will need to register with public authorities such as the Registry of Commerce, the Tax Administration Service (SAT) as well as comply with labor obligations and set up their employer profile.
Consult Forming a Mexican Entity for more information.
Importing equipment into Mexico involves several critical steps to ensure compliance with the country's customs regulations and facilitate a smooth import process.
Before initiating imports, your company must register with Mexico's Official Register of Importers. This registration is managed by the Tax Administration Service (SAT). The necessary documentation covers content details and compliance with regulations. Certain equipment may need to meet specific Mexican standards, known as NOMs. Applicable taxes, such as the Value-Added Tax (VAT) and any customs duties may apply, and certain goods may qualify for preferential tariff treatment. Consult a licensed customs broker.
An Importer of Record service could be another option. Read more in the e-commerce blog.
If importing equipment for a limited time, explore programs like the Manufacturing, Maquila, and Export Service Industry (IMMEX), which allows for duty-free temporary imports under specific conditions.
Partnering with an Employer of Record in Mexico can facilitate a smooth and compliant market entry, allowing your business to capitalize on growth opportunities while minimizing administrative burdens and legal risks.
A local partner ensures compliance in Mexico and alleviates the burden of navigating foreign regulations. They provide risk mitigation and experience-driven advice that can help you understand different opportunities and pitfalls with your business plan.
Additionally, a local partner should provide a reputable and trustworthy hiring entity for your potential candidates. If they have offices in different cities, a local partner could provide on-site management and flexibility in building different types of teams such as on-site, hybrid or completely remote. This flexibility adds value to your labor opportunity.
Software solution to hiring in Mexico are great options, but they often lack flexibility, and the personalized support on-site personnel can provide to your employees.
The most flexible EOR in Mexico, Mindfacturing® provides a local payroll and employee administration solution with hands-on leadership. Leveraging multiple trade programs and incentives, Mindfacturing® is a binational solution, hired in the United States with a service agreement. All cross-border and compliance risks are left to our professionals, and without a Permanent Establishment abroad, no need to worry about fiscal compliance like audits. For export or domestic services, Mindfacturing® solutions work with multiple business plans and stages of growth.
An EOR structure is best for companies seeking risk mitigation or rapid market entry in Mexico. Some of the ways in which Mindfacturing® is supporting foreign clients in Mexico:
With nearly 40 years of supporting foreign clients to operate manufacturing plants in Mexico, our team has supported a number of service companies establish or nearshore operations to the country as well.
I am Lucia Ibarra, Mindfacturing® Coordinator at Prodensa. I am located in Hermosillo, Mexico and have teammates in 11 different offices across the country.
I speak frequently with all the employees on our EOR and I also ensure that all my clients' questions are answered. I know they are not accustomed to the laws and regulations of hiring employees in Mexico, and I enjoy being the local partner they can rely on for transparency and a cost-effective payroll solution.