Employer of Record (EOR) Mexico - Hire & Pay Employees & Contractors with a Global PEO | Employer of Record (EOR)

An Employer of Record (EOR) in Mexico acts as the legal employer for workers, handling payroll, benefits, and other employment tasks on behalf of the actual employer. Also known as a Global PEO, it simplifies hiring without the need for entity setup.

Discover the key considerations and essential details you should be aware of before you hire your remote team in Mexico.

Minimum Wages

As of February 2024, Mexico maintains two minimum wage structures.

Standard Minimum Wage: Applicable to the majority of workers nationwide, excluding those in the Free Trade Zone of the Northern Border (ZLFN). The existing rate is: MXN $248.93 per day (roughly USD $14.50)
Minimum Wage in the Northern Border Free Trade Zone (ZLFN): Pertaining to workers in designated municipalities along the US-Mexico border. The current rate is: MXN $374.89 per day (approximately USD $21.83)

Working Hours

Legal Guidelines:

The Mexican Federal Labor Law dictates maximum working hours, contingent on the shift type:

Day shift: 8 hours daily, 48 hours weekly.
Night shift: 7 hours daily, 42 hours weekly.
Mixed shift: 7.5 hours daily, 45 hours weekly.

Overtime, though regulated, is permissible with due compensation. Employers are obligated to provide adequate rest intervals between shifts and within the workday.

Common Work Schedules:

Predominant Schedule: Monday-Saturday, from 8:00 AM to 5:00 PM (day shift) with a one-hour lunch break.
Diverse Structures: Variations may include alternate working days (e.g.Sundays) or flexible hours, influenced by industry, company size, and employee agreements.

Payroll Cycle

The standard payroll cycle in Mexico adheres to a bi-weekly structure, where employees receive their payments every two weeks. Nevertheless, certain nuances may arise depending on industry specifics, company regulations, and individual employment contracts. Here's a closer look:

Payment Frequency:

Common Practice: Bi-weekly intervals (every 14 days), often resulting in payments on the 15th and 30th of each month.
Industry Variances: Weekly payouts might be prevalent in sectors like manufacturing, whereas monthly cycles are less frequent.

Overtime Pay

Overtime pay in Mexico is intricately regulated to ensure fair compensation for employees exceeding standard work hours. As outlined by the Federal Labor Law, the maximum work hours vary based on the shift type. Day shifts permit 8 hours per day and 48 hours per week, night shifts allow 7 hours per day and 42 hours per week, and mixed shifts encompass 7.5 hours per day and 45 hours per week. Overtime work, surpassing these limits, necessitates authorization and requires additional pay at specific rates.

The compensation rates include double the regular hourly wage for the first 9 hours, triple for hours beyond 9, and at least triple for work on Sundays and holidays, regardless of the hours worked. Importantly, overtime is capped at 3 hours per day or 3 days per week. Certain groups, such as those under 16, pregnant women, and individuals with health concerns, are exempt from overtime. Additionally, specific agreements or industry norms may introduce variations in overtime provisions. Employers must meticulously maintain records of overtime hours and the corresponding compensation to ensure compliance with regulations.

Probation Period

The probation period in Mexico, guided by the Federal Labor Law, has specific durations based on employment types. For indefinite-term or fixed-term relationships over 180 days, the default duration is 30 days. Certain positions, like directors or managers, can have a probation period of up to 180 days.

Variations are possible through collective bargaining agreements or individual contracts, ensuring flexibility within legal limits. Initial training periods of up to 3 months, termed "capacitación inicial," are allowed and don't count toward the probation period.

Importantly, the probation duration can't be extended beyond the initially agreed-upon period. Employees have the right to know the probation terms before starting employment. Even in cases of termination without cause during probation, employees are entitled to partial severance pay, providing a legal framework that balances employer and employee rights.

Notice Period

In Mexico, the notice period for employment termination depends on whether it's initiated by the employee or the employer.

For Employees:

No Mandatory Notice: Mexican law doesn't mandate a notice period for employees resigning, allowing for immediate departure.
Courtesy Notice: Providing at least two weeks' notice is considered professional and aids in a smooth transition.
Contractual Agreements: Employment contracts may stipulate a notice period that employees must follow.

For Employers:

Legal Obligation: Employers must give notice when terminating employees, with a minimum of 30 days for indefinite-term contracts.
Contractual Considerations: Fixed-term contracts may have shorter notice periods, not exceeding the remaining contract duration.
Seniority Impact: Longer seniority might extend the notice period, determined by agreements or contracts.
Severance Pay: Besides notice, employers must pay severance based on salary and service duration. This legal framework ensures a fair and regulated employment termination process in Mexico.

Termination and Severance Pay

When it comes to severance pay in Mexico, the landscape differs for voluntary and involuntary terminations. In the case of voluntary terminations, the specifics are often outlined in the employment contract. Generally, employees do not receive severance pay upon voluntary resignation.

For involuntary terminations, the reasons behind the termination significantly impact the severance pay. If termination is without cause, employees can expect more substantial severance, covering three months' salary, a seniority bonus, and accrued wages. On the other hand, termination with cause results in less generous severance, usually encompassing accrued wages and a negotiable proportion of the seniority bonus.

Several factors, including salary and seniority, play a role in determining the amount of severance pay. Higher salaries and longer periods of service lead to increased severance payments. Additionally, collective bargaining agreements may introduce specific provisions that alter the standard severance pay conditions.

13th Month Salary

In Mexico, understanding aguinaldo, the 13th-month salary, is key for employers. This mandatory bonus applies to all formal employees, irrespective of their role or salary level.

Calculation is straightforward — it's a minimum of 15 days' worth of the employee's salary, considering base pay and regular allowances. For those not working the entire year, it's prorated based on their duration of employment.

By law, employers must pay aguinaldo by December 20th annually. There's flexibility to split it into two payments — half by December 20th and the remainder by June 15th of the following year, provided it's agreed upon in the employment contract.

It's essential to note that aguinaldo is taxable, and taxes are deducted before payment. While some companies may choose to pay more than the mandated 15 days, it's not obligatory. Employers should be aware of their responsibilities to ensure a smooth and compliant aguinaldo process for employees.

Personal Income Tax

Mexico's personal income tax is progressive, meaning tax rates increase as income levels rise. Here's a breakdown of the current tax brackets and rates:

**Taxable Income (MXN)	Tax Rate (%)**
0.01 - 6,942.20	1.92
6,942.21 - 58,922.16	6.4
58,922.17 - 103,550.44	10.88
103,550.45 - 120,372.83	16
120,372.84 - 144,119.23	17.92
144,119.24 - 290,667.75	21.36
290,667.76 - 458,132.29	23.52
458,132.30 - 625,596.82	25.85
625,596.83 - 816,721.35	30
816,721.36 - 1,127,926.84	32
1,127,926.85 - 1,503,902.46	34
1,503,902.47 - 2,702,780.79	35
2,702,780.80 and above	37

Work Permits

Securing a work permit for foreign employees in Mexico involves specific steps and employer responsibilities. Here's a guide to help streamline the process:

Understanding the Need:

Not all foreign employees require work permits; exceptions exist for short-term business visits (<180 days) for certain nationalities.
Evaluate the employee's situation to confirm the need for a work permit.

Types of Work Permits:

Temporary Resident Visa with work permit: Ideal for fixed-term contracts or employees transitioning to permanent residency.
Permanent Resident Visa with work permit: Grants indefinite work authorization for long-term employees.

Employer Responsibilities:

Initiate the application process by registering with the National Migration Institute (INM) in Mexico.
Obtain a Unique Processing Number (NUT) from the INM.
Submit a comprehensive application on behalf of the employee to the Mexican consulate in their home country.
Provide supporting documents, including a job offer, company registration, CV, qualifications, and financial details.
Cover applicable fees for the application process.

Processing and Costs:

Processing times vary based on the embassy, permit type, and individual circumstances.
Anticipate costs for application fees, translations, medical exams, and potential legal or immigration professional services.

Important Considerations:

Labor Market Test (Prueba de Mercado Laboral) may be required, depending on the occupation and employee's nationality, demonstrating attempts to recruit Mexican citizens first.
Some professions might require advertising the position in Mexico before hiring a foreign employee.

Leave Entitlements

In Mexico, employees benefit from a comprehensive set of paid leave days as outlined in the Federal Labor Law and other regulations. Here's an overview of key leave entitlements:

Vacation:

Employees with more than a year of service enjoy paid annual vacation, ranging from 6 to 12 working days, increasing with each year of service. An additional 2 days are granted every five years, up to a maximum of 30 days. Vacation must be taken within six months of completing the service year, with a mandated vacation premium of at least 25% of their salary.

Sick Leave:

Employees are entitled to paid sick leave of up to 3 days per year with a doctor's note from the Mexican Social Security Institute (IMSS). Beyond 3 days, IMSS covers additional paid sick leave, extending up to 52 weeks.

Maternity Leave:

Female employees are entitled to 84 days of paid maternity leave, covering both pre and post-childbirth periods, with the full salary provided during this duration.

Paternity Leave:

Male employees receive 5 days of paid paternity leave following childbirth, with their full salary maintained during this period.

Other Leave:

Other leaves include 5 working days for marriage, 3 working days for bereavement of a close family member (more for a spouse or child), and time off for necessary medical appointments. Union representatives are entitled to paid leave for attending union meetings or activities.

This comprehensive approach to leave reflects Mexico's commitment to supporting employee well-being and recognizing significant life events.

Employment/ Hiring Options in Mexico

Employees

When it comes to employment options in Mexico, employees can choose from a range of arrangements including indefinite, fixed-term, training, part-time, and seasonal or intermittent contracts. These contracts offer flexibility and cater to different employment needs, ensuring fair treatment and non-discrimination for part-time and fixed-term employees.

Independent Contractors

On the other hand, independent contractors have the opportunity to engage directly with companies or through personal services companies, although it is crucial to follow specific rules and judicial criteria to minimize misclassification risks. Independent contractors provide their services independently and may have more autonomy in managing their work, but they must adhere to the legal requirements to ensure proper classification.

Agency Workers

However, it's important to note that agency workers are no longer permitted in Mexico. Instead, companies can hire specialized service providers for activities unrelated to their core business, provided they are registered with the Ministry of Labor. This restriction aims to ensure that companies focus on their main operations while outsourcing specialized tasks to registered service providers. Failure to comply with this regulation may result in monetary sanctions for the company receiving the services.

Distinguishing Employees from Independent Contractors: Legal Framework Explained

When engaging workers in Mexico, it's crucial to distinguish between employees and independent contractors. Employees, who work under an employer's control, receive a salary and have tax obligations managed by the employer. In contrast, independent contractors, operating more independently, handle their own taxes.

Tax Responsibilities: Employees vs. Independent Contractors

Employees have taxes, including income tax and social security, managed by their employer. Employers also contribute to the National Housing Fund and handle local payroll taxes. Independent contractors manage their income tax but may have provisional withholdings by service recipients. They're subject to Value Added Tax (VAT) payment.

Employee Benefits and Entitlements in Mexico

Employees enjoy non-waivable benefits under the Federal Labor Law (FLL). These include a year-end bonus, annual vacation with a 25% salary supplement, paid holidays, and profit sharing. Social security registration is mandatory, providing coverage for various aspects.

Independent contractors, however, don't have these entitlements and negotiate benefits within their contracts.

Employment Termination Protections: Employees vs. Independent Contractors

In Mexico, employee terminations are governed by the Federal Labor Law, emphasizing job stability. Employers must have valid reasons for termination, and specific conditions apply for different categories of employees. Failure to follow proper termination procedures can result in unjustified dismissal claims and additional payments.

For independent contractors, termination terms are based on the agreement outlined in their contract, covering factors like expiration, mutual agreement, or breaches.

In essence, understanding these distinctions is crucial for employers in Mexico to ensure compliance and foster positive working relationships.

Overview
Continent	Americas
Country	Mexico
Capital	Mexico City
Time zone	UTC−08:00 (Zone 4 or Northwest Zone) — the state of Baja California
Total Time zones	4
Working hours per week	40
Working week	Monday–Friday
Typical hours worked	8
Personal Tax filing deadline	30th April
Financial Year	1st January to 31st December
Date format	dd/mm/yyyy
Currency	Mexican Peso (MXN)
VAT	the standard rate is 16%

For businesses entering the dynamic employment scene in the Mexico, engaging the services of an Employer of Record (EOR) is a strategic move. The EOR assumes responsibility for intricate compliance matters, manages payroll complexities, and handles administrative intricacies, allowing companies to concentrate on core objectives free from regulatory entanglements. This collaborative partnership ensures that employees are onboarded with contracts aligning seamlessly with the labor laws and practices of the Mexico. As the Mexico business landscape evolves, the role of an EOR becomes increasingly pivotal, providing businesses a streamlined entry and growth trajectory while upholding compliance standards and fostering a conducive work environment.

Benefit	Employer Contribution (%)	Employee Contribution (%)	Notes
Social Insurance:
- Sickness & Maternity	7.65	3.15
- Disability & Life Insurance	2.50 (combined)	1.75 (combined)	1.05% for Life Insurance, 1.45% for Retirement
- Work-Related Accidents	0.50 - 3.50	N/A	Varies based on occupational risk level
Retirement Savings:	2	2
Housing Fund:	5	1.16
Unemployment:	0.625	N/A
Payroll State Tax:	0.25 - 2.00	N/A	Varies depending on the state
Total:	22.875 - 26.375	10.15