Mexico PEO & Employer of Record Services
Capital
Mexico City
Official Language
Spanish
Currency
Mexican Peso
Payroll cycle
Bi-monthly
Quick facts about Mexico
Located at the southern end of North America, Mexico is one of the most important economic partners to the United States and Canada. Mexico’s rich history and its ever growing economy has turned the country into an appealing destination for digital nomads. The country’s strong university system also makes Mexico one of the best places to recruit developers, marketers, and other knowledge workers.
Following new Mexican labor laws that were passed in April of 2020, Mexico PEO and global employer of record partnerships have some limitations on what they can do within the country.
The new labor reforms still allow businesses to outsource benefits, but with limitations on the type of services employees can provide. The aim of the new laws is to protect workers and subtractors who previously didn’t have adequate protection by the regulations.
The good news is that there are still options for hiring employees in Mexico and building your international team.
Mexico EOR and PEO services
Employer of record partnerships are legal in Mexico, but they can only be used to outsource certain employees under these new reforms. Global EOR and PEO services handle the HR process such as payroll and benefits, as well as ensuring that your company is following all of the legal and compliance obligations that are necessary in Mexico. In general, a global EOR or PEO services in Mexico works alongside your company to ensure that all legal responsibilities are met.
Opening an entity or subsidiary
If you’re looking to build out your team in Mexico, it might be advantageous to open an entity or subsidiary.
Setting up a local branch in Mexico means opening a local bank account, registering with Mexican institutions like the IMSS, and maintaining a local presence in the country.
Mexico at a glance: Key facts about Mexico
Capital city: Mexico City
Largest city by population: Mexico City
Currency: Mexican peso
Population: 128.9 million
Languages: Spanish
Mexico GDP: 1.076 trillion
Payroll frequency: Bi-Monthly
Federal Minimum wage: The federal minimum wage in Mexico is 178.87 pesos per day. Closer to the Northern Mexico border, the minimum wage is 260.34 pesos per day.
Paid Leave in Mexico
As an employer-of-record in Mexico, you are required to provide your workers with paid time off, vacation, holiday leave, and sick leave.
Personal leave
In Mexico, employees are not entitled to personal leave. They can use their vacation time for personal leave.
Medical leave
There is no mandated amount of time that an employee is allowed medical leave in Mexico. They are entitled to 1-52 days of medical leave for illness and after 52 weeks it falls into the disability category and varies based on the degree of time off. Medical leave is paid directly to the employee through their social security.
Holidays
In Mexico, full-time workers are entitled to 10 paid holidays each year. All employees are eligible as soon as they begin. The 10 holidays that garner paid time off are:
New Years Day
Anniversary of Constitution 1917
Benito Juarez Day
Maundry Thursday
Good Friday
Labor Day
Independence Day
Revolution Day
Day of the Virgin of Guadalupe
Christmas Day
Vacation/Paid time off (PTO)
Mexico determines the minimum number of days you must grant employees based on years of service.
Within the first year of employment, workers are entitled to at least 6 days of vacation time. After the first year, vacation time increases by 2 per year until the employee's 4th year with the company. After that, vacation time increases by 2 per year for every 5 years of service to the company.
For startups and tech companies hiring in Mexico, it is common practice to offer more flexible and competitive vacation policies to stay competitive.
Employers must write out the vacation policy in their employee contracts.
Sick leave
Full-time workers are entitled to sick leave, depending on the circumstances surrounding the illness. Employers must pay 60% of their employees wage after the 4th day of illness
Employers might require documentation signed by a health care provider (e.g., a doctor or a nurse).
Unpaid time off
Unpaid time off might be required depending on the circumstances surrounding why the employee requests the time off. Some instances of the employee being protected for unpaid time off are:
Has a disability that prevents them from working
Is in custody but is acquitted of the crime(s)
Is arrested
Serving jury duty or has other public service duties
Maternity and paternity leave
For maternity leave in Mexico, women are entitled to up to 12 weeks–6 weeks paid before the due date, as well as 6 weeks after the child’s birth.
Paternity leave covers 5 days of paid rest for fathers.
Unlike the United States, IMSS (or Social Security) pays for maternity leave. Because the government pays for the maternity leave, total payment is limited to 25 times the federal minimum wage.
Adoption Leave is also covered following an adoption. Women are able to have 6 weeks of leave and fathers are allowed 5 days of leave after the adoption.
Marriage leave
Paid leave is also covered following a marriage. An employee is entitled to 3 days of paid time off following the ceremony.
Employment contracts in Mexico for employers of record
As an employer-of-record in Mexico, you will be responsible for creating contracts for your employees.
In Mexico, there are three major types of employment contracts that must be specifically specified when drafted. Specifics in employment contracts are of the utmost importance–not only to protect the employee but also to protect the employer.
Types of employment contracts in Mexico
The main employment contract when hiring employees in Mexico is the definite employment contract, or the contracto de determinado. This contract is outlined for permanent workers and defines the stipulations and expectations of full-time workers.
Next, you can onboard temporary workers, consultants, or freelancers as independent contractors or honorarios. Businesses need to make sure they don’t accidentally classify full-time employees as contractors.
Finally, there are indefinite employment contracts, or contracto por tiempo indeterminado. This is for employees who are working for an unspecified period of time.
The fine print
As an employer, your contracts need to comply with labor laws. In Mexico, working hours are normally from 8am to 6pm. Overtime includes anything over 12 hours per day or over 48 hours in 1 week. Overtime in Mexico is twice the normal rate, and any overtime over 9 hours is triple the employees normal pay. Further, employees are legally entitled to at least a 30 minute rest each day, with one rest day after 6 days.
Health Insurance
The employer must register with the IMMS (Mexican Social Security) to ensure that health insurance is provided to full-time workers via taxes. This health insurance covers out-patient treatment, maternity care, disability, and injury to employees.
Many companies also offer additional private healthcare plans that offer better infrastructure, shorter wait times, and more specialists. Many private healthcare plans also come with the option to add dental, vision, life insurance, a gym membership, and mental health support.
Probationary periods
Probationary periods are not as common in Mexico as they are in the United States.
For managerial, technical and other sought after positions, employers can include a probationary period in the contract ranging anywhere from 30-180 days to monitor progress.
Termination
To terminate an employee in Mexico, employers need to provide a justification. If your business does not have a justified cause when terminating the employee, the company must compensate the unfairly terminated employee.
Severance for indefinite contract employees
Severance pay is required for terminated employees. However, the amount of severance offered varies based on the contract agreement of the employee. Independent contracts are not entitled to severance pay.
If an indefinite contract employee voluntarily resigns, the employer must pay all the fringe benefits such as vacations, vacation premium, and their Christmas bonus. If the employee is terminated with a cause, the employer must pay all of the employee’s severance. However, if an employee is terminated without a cause, the severance payout is a bit more complicated.
Workers terminated without cause are entitled to the following severance:
Three months of the employee’s daily aggregated salary as Constitutional Indemnification
Twenty days of the employee’s daily aggregated salary for each year with the company
Seniority premium
Fringe benefits, including vacations, vacation premium, and Christmas bonus
Definite employee severance
For definite contract employees, the severance is more extensive. If an employee voluntarily resigns, they are entitled to all of their vacation, fringe and Christmas bonus. An employee terminated for a cause is still entitled to all of their fringe benefits.
Definite contract employees terminated without cause are entitled to the following severance:
50% of wages paid if contract duration lasted for less than a year OR six months of wages for the first year and twenty days of the employee’s daily aggregated salary for each following year if contract duration last for more than a year
Fringe benefits, including vacations, vacation premium, and Christmas bonus
Trial period employee severance
Finally, severance is also an option for trial period employees. For a voluntary resignation, employers again must pay all of the fringe pay, vacation, and Christmas bonus. Employees terminated with a cause are still entitled to their fringe benefits.
Employees terminated without cause are entitled to the following severance:
50% of wages paid if contract duration lasted for less than a year OR six months of wages for the first year and twenty days of the employee’s daily aggregated salary for each following year if contract duration last for more than a year
Fringe benefits, including vacations, vacation premium, and Christmas bonus
Thirteen-month salary(Aguinaldo)
Employers must pay each employee a Christmas bonus, also known as thirteen-month salary or Aguinaldo. The bonus must be paid in full by December 20th, or your business risks heavy fines.
The payment is equivalent to at least 15 days worth of wages, though the amount can be prorated for employees that have been with the company for fewer than 12 months.
Employees are exempt from paying taxes on their aguinaldo if the amount is equal to or less than 30 days worth of minimum wage. Any amount higher than 30 days worth of minimum wage is taxable, so your business must withhold payroll taxes.
Payroll taxes in Mexico
Employer taxes are divided into four main categories throughout Mexico. Social Security (IMSS), Housing (INFONAVIT), Pension, (AFORE) and Income Tax. Social Security and payroll taxes are paid by the employer monthly. Housing and Pension are paid bi-montly.
To calculate payroll taxes, the base salary for employment is used to calculate employment costs. Many states in the country charge a low interest rate on base salaries, paid by the employer. Payroll taxes are charged as a percentage of the entire payroll and range between 1% and 3% depending on the state the business is located in.
Employers pay into the employees social security, housing and retirement, however, the employee usually pays around 5% of their base salary for social security and pension. The employer normally pays up to 25% of the employees base salary for social security and pension.
The employer cost is the percentage over the gross monthly salary. To calculate the percentage, you use the employment cost percentage over the gross monthly salary.
For example, for salaries under $60,000 MX, the gross salary per month is 21%.
However, once the base for employee costs are higher than 25 UMAs (Unidad de Medida Actualizada) or 25 * 86.88 = 2,172, the costs max out and all employer costs remain the same. So, the higher salary the candidate has, the lower the percentage of employer costs.
Why companies partner with Via to go global
Many companies based in Mexico want to recruit talent in different countries, but aren’t exactly sure how to go about onboarding and paying employees across borders compliantly. Maybe you want to hire a software engineer based in Colombia, or a designer living in Canada.
With Via, we help you hire and onboard remote employees across the world. As your global employer-of-record, we take care of the local HR logistics, such as payroll, benefits, taxes, and obtaining work permits. Maintaining global compliance is our responsibility. You simply focus on building your team and running your global business.
