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Mexico PEO & Employer of Record Services

All Countries > Mexico
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Capital

Mexico City

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Official Language

Spanish

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Currency

Mexican Peso

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Payroll cycle

Bi-monthly

Via offers complete payroll, EOR and contractor mangement services for Mexico
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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.

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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

An employer of record (EOR) in Mexico allows companies without a local entity to hire full-time workers in minutes. An EOR acts as the legal employer on paper and helps businesses manage payroll, statutory benefits, employment contracts, taxes, and other HR processes.

Employer-of-record (EOR) vs. 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.

PTO

Paid Leave in Mexico

Mexican employers 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 continuous service. 

In 2023, the President signed a labor reform bill, Vacaciones Dignas, into law. This is the first bill to change rules regarding vacation time in Mexico in over 50 years.

To qualify for vacation days, employees must have been employed by a company continuously for at least 1 year. Workers who have been employed continuously for 1 year will now receive 12 vacation days, as opposed to 6. 

For the first 5 years of employment, the number of vacation days increases by 2 for each year of continuous service. So employees with 2 years of service will receive 14 vacations, and so on.

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.

Maternity & paternity leave

Employment contracts in Mexico for employers

As an employer 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: 

  1. Three months of the employee’s daily aggregated salary as Constitutional Indemnification

  2. Twenty days of the employee’s daily aggregated salary for each year with the company

  3. Seniority premium 

  4. 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: 

  1. 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

  2. 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:

  1. 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

  2. Fringe benefits, including vacations, vacation premium, and Christmas bonus  

Thirteen-month salary(Aguinaldo)

Employers must pay each employee a Christmas bonus, also known as 13th-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 provider, 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.

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    Set up Your Subsidiary in Mexico
    Mexico Employee Compensation & Benefits
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Frequently asked questions

  • Is PEO legal in Mexico?

    Yes, international PEO is legal in Mexico. Mexico PEO services help hire in Mexico specifically without establishing a legal entity so that they can go global.

  • What’s the difference between a PEO and employer-of-record in Mexico?

    Mexico PEO services help onboard workers in Mexico without having to establish an entity within the country and helps outsource part of the HR process. EOR’s services handle the entire process of hiring and establishing an entity and take full responsibility for maintaining compliance within Mexico.

  • What is a professional employer organization in Mexico?

    A professional employer organization (Mexico PEO) helps onboard workers in Mexico without having to establish a legal entity. With new labor and tax laws, international PEO services are a bit more complicated to use.

  • How do I hire a foreign employee in Mexico?

    To hire a foreign employee in Mexico, you must ensure that the employee applies for a work visa and that you provide a work permit for the employee. The employee will need to show a number of documents to qualify for and receive a work visa in Mexico.

  • Do you need a work permit in Mexico?

    Yes, a work permit is required for a foreign national to work in Mexico. The work permit must be applied for from the employer trying to onboard a foreign worker and help begin the work visa process for the employee.

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