Employer of Record in Mexico

Mexico offers lots of opportunities as the country is the third largest trading partner of the United States. Further, the land serves as a bridge between Latin America and North America. Thus, the position is strategic and favorable for business owners. If you are a business owner and want to hire employees from Mexico, you must know about the Employer of Record in Mexico.

This blog is a guide to hiring in Mexico with an Employer of Record to help you understand EOR’s usefulness and effectiveness.

Global companies try to hire employees from Mexico to diversify their workforce, as Mexican employees are talented and skilled. But they need to establish their entity in Mexico, which is a complex and time-consuming process.

Alternatively, you can use Employer of Record services to avoid the entity setup and lengthy process. Mexico Employer of Record (EOR) services simplifies the hiring process along with compliance and payroll.

Let’s learn more about it!

What is an Employer of Record (EOR)?

Suppose you want to hire global employees for your organization to fill the positions. You need a local entity that is aware of the local labor laws and regulations to start the process. But if you partner with an Employer of Record (EOR), it helps you to find global talent and recruit the employees for your company. With an EOR you do not need to set up your business presence in that country.

The EOR solutions also help you to comply with local labor laws and regulations and complete HR and administrative assistance to perform international hiring and manage the payroll.

When do you need Employer of Record in Mexico services?

There are specific scenarios that you need Employer of Record services, including:

• Hire Mexican employees to diversify your workforce
• Local entity setup takes time
• Cost-saving and simple operation
• Risk-free compliance with local labor laws’ guidelines
• Faster and more accurate hiring and payroll process

Benefits of using Mexico EOR solutions?

There are multiple benefits of using Mexico EOR solutions, including

• Compliance with local laws: Mexico has complex labor and tax laws that can be challenging for foreign companies to navigate. An EOR ensures compliance with these regulations, reducing the risk of legal issues or penalties.
• Quick market entry: An EOR can significantly speed up the process of entering the Mexican market by eliminating the need for companies to set up a local entity, which can be time-consuming and costly. It allows businesses to start operations more quickly.
• Cost savings: By using an EOR, companies can save on establishing and maintaining a legal entity in Mexico, including legal fees, incorporation costs, and ongoing administrative expenses.
• HR and payroll management: EORs handle all aspects of HR and payroll for the employees they hire on behalf of companies, including recruitment support, employment contracts, payroll, taxes, and benefits administration. It can relieve companies of these administrative burdens.
• Risk mitigation: Employing staff in a foreign country comes with risks, particularly in areas related to employment law and regulations. An EOR mitigates these risks by ensuring employment practices align with local laws and best practices.
• Local expertise: EOR providers have local knowledge and expertise, which can be invaluable for companies unfamiliar with the Mexican market. They can provide guidance on best practices for hiring, compensation, and managing employees in Mexico.
• Flexibility: Companies can scale their operations up or down more efficiently with an EOR, as they can hire or release employees through the EOR without the complexities and commitments of having a local entity.
• Focus on core business: By outsourcing employment responsibilities to an EOR, companies can focus more on their core business activities and strategic initiatives rather than getting bogged down in administrative tasks and compliance issues.
• Benefits administration: EORs can offer employees access to better benefits than a small or medium-sized foreign company might be able to provide on its own, contributing to higher employee satisfaction and retention.
• Cultural insights: EORs can also provide valuable insights into the local work culture, helping companies better understand and engage with their employees in Mexico improving team cohesion and productivity.

Mexico Employer of Record (EOR) Services is an effective solution for global employers, mainly when you target Mexico country to hire employees from there.
Let’s understand the measures involved in the hiring, compliance, and payroll process.

Hire in Mexico

There are various processes involved in hiring employees from Mexico. Before starting the process, you must understand a few measures directly connecting with hiring in Mexico. Let’s learn those components and act accordingly.

Employment contracts and agreements in Mexico

Employment contracts and agreement copies are important documents that display the company, rules, the position offered to employees, benefits, and many others that are essential for organizations to follow to avoid consequences. Here’s the list of key points for your consideration:

Mandatory elements

• Written document: All employment contracts and agreements in Mexico must be written in Spanish to be understood by the employees and signed by both employer and employee.
• Personal information: Every document must show the employee’s personal information, like name, permanent address, mailing address, nationality, and social security number.
• Job description: Mention the employee’s duties, responsibilities, work location, working hours, etc.
• Start date and duration: In every document, it’s compulsory to mention whether the contract is for a short-term, long-term or contractual, etc. For the contractual and short-term duration, employers must mention the contract’s end date.
• Compensation: Employers need to mention the compensation details fixed with the employee during the final round of the interview.
• Working hours and schedule: Employers must mention working time, weekly off days, leaves, and overtime in detail.
• Vacation and leave entitlements: Employers must mention the paid and non-paid eligibility in detail.
• Termination clauses: Employers must mention the termination ground and notice period serving duration.

Additional considerations

• Probationary period: There are 30 days for permanent positions and 180 days for senior positions.
• Training and development: Employers must mention the training and skill development program in the agreement documents.

Labor law compliance in Mexico

The Federal Labour Law and the Federal Law for Civil Servants govern Mexico’s Labor and employment laws. Before hiring Mexican employees for your organization, you must understand the provisions and regulations. Here’s a detailed description to understand and ensure compliance with key components of Mexican labor laws:

Foundational principles

• Federal labor law (Ley Federal del Trabajo): This essential document shows the framework for individual and collective labor relations in the Mexican job market.
• Constitution of Mexico: This document displays the fundamental and constitutional rights applicable to all workers, including non-discrimination in the workplace and freedom of association.

Core compliance areas

• Employment contracts: All contracts must be written in Spanish, signed by both parties, and display compulsory elements like job description, compensation, benefits, and termination clauses.
• Minimum wage: Regularly update the minimum wage to ensure fair compensation for employees.
• Working hours: A 48-hour per week with compulsory rest days and overtime provisions.
• Social Security and benefits: Compulsory contributions to Social Security (IMSS) and other benefits include health insurance and retirement plans.
• Vacation and leave entitlements: Annual, sick, and other legal leave provisions ensure employee well-being and compliance.
• Termination: Termination cases follow proper procedures and provide legal notice periods to address several termination scenarios.
• Discrimination and harassment: There are strict prohibitions against discrimination based on various measures and requirements for a respectful and safe work environment.
• Unionization and collective bargaining: There is a provision to keep employees’ right to organize and be involved in collective bargaining activities.

Payroll and payroll taxes in Mexico

Mexico’s payroll structure and taxes are complex, but understanding the core elements is important for your business. Below are the keynotes to help you manage payroll and ensure compliance:

Key players

• Employer: Organizations are responsible for calculating and managing taxes, contributing to compulsory benefits, and paying net salary to employees.
• Employee: Candidates pay income tax and contributions to social security, healthcare, and housing programs.
• Mexican social security institute (IMSS): This organization manages employees’ social security contributions and other benefits.
• Servicio de administración tributaria (SAT): This government agency manages income tax collection and compliance.
• Instituto del fondo nacional de la vivienda para los trabajadores (INFONAVIT): This Federal institute administers employee housing and savings programs.

Payroll components

• Gross salary: An employee’s basic salary, including benefits, before deductions.

Mandatory deductions

• Income tax (ISR): Calculated based on a progressive tax bracket system.
• Social security (IMSS): Shared contributions between employer and employee. The contribution covers healthcare, retirement, maternity, and other benefits.
• Housing contribution (INFONAVIT): Mutual contribution between employer and employee. It also funds employee housing savings and benefits.

Optional deductions

• It is an employee contribution for personal benefit through company loans.

Taxes and contributions

Employer responsibilities

• Deduct income tax from employee salaries.
• Pay employer share to IMSS and INFONAVIT based on fixed rates.
• File and pay taxes and contributions to IMSS, SAT, and INFONAVIT on deadlines.

Employee responsibilities

• Pay income tax after annual adjustments.
• Pay employee share to IMSS and INFONAVIT.

Additional considerations

• 13th-month pay: 13th-month pay a compulsory bonus equivalent to one month’s basic salary, paid before Christmas.
• Overtime pay: Employees need to pay higher tax rates.
• Benefits: It can be taxable or non-taxable.
• Recordkeeping: You must record accurate payroll calculations, deductions, and tax payment records.
• Compliance: Failed tax payments can attract penalties and fines for non-compliance with tax and contribution regulations.

Employee’s benefits and compensations in Mexico

Employers must offer attractive packages to hire and retain employees in the Mexican job world. Here’s the list of key elements:

Mandatory benefits

• Social security (IMSS): It’s for healthcare, disability, retirement, maternity, and other benefits. Both parties contribute shares.
• PhilHealth (Seguro Popular): It covers additional medical expenses.
• Pag-IBIG fund (INFONAVIT): It offers housing and savings benefits.
• 13th-month pay (Aguinaldo): Bonus pay by employers equivalent to one month’s basic salary.
• Leave entitlements: Compulsory leaves are Annual (15 days), Sick (10 days), and other special leaves.

Commonly offered benefits

• Health insurance: It covers additional medical expenses beyond PhilHealth.
• Life insurance: It provides financial security in case of death.
• Retirement plan: It’s a supplement to IMSS benefits for comfortable retirement.
• Performance bonuses: These are given for outstanding employee performance.
• Training and development: Invests in employee skills and growth.

Compensation

• Minimum wage: It depends on region and industry.
• Basic salary: The main part of employee compensation.
• Overtime pay: Compensates for extra work
• Allowances and bonuses: Additional income on top of the basic salary.

Severance pay and employee termination in Mexico

Terminating an employee in Mexico has specific legal requirements and regulations called severance pay. Understanding these is important for employers and employees to ensure a smooth and compliant process.

Core principles

• All employees will receive severance pay if terminated. This includes voluntary resignations, dismissals with and without cause, and layoffs.
• The amount of severance pay depends on the reason for termination and the employee’s duration of service.
• Employers must follow proper termination procedures, including providing written notice and paying all final wages and benefits.

Types of severance pay

• Indemnity (Indemnización): Paid when an employee is dismissed without cause. The amount will be three months plus 12 days’ salary for each year of service, covering twice the minimum wage in the region.
• Proportionality (Proporcionalidad): Paid when an employee is dismissed and the cause is listed in the Federal Labor Law or a collective bargaining agreement. The amount is calculated based on the portion of the unused vacation period and seniority premium earned.
• Seniority premium (Prima de Antigüedad): Paid for voluntary resignation or retirement. Equal to 12 days’ salary for each year of service, covered twice the minimum wage in the region.

Termination procedures

• Provide written notice: Inform the employee of the termination in writing, briefing the reason and effective date.
• Final wages and benefits include earned salary, unused vacation pay, and bonuses.
• Issue termination document: Provide a document mentioning the reason for termination and the severance pay amount.
• Comply with union agreements: If applicable, follow procedures described in collective bargaining agreements.

What is the risk of employee misclassifications in Mexico?

Employee misclassification in Mexico is highly risky. The misclassification risks depend on the industry, the type of work, and the circumstances of each case.

Here is the potential consequences of risk associated with employers:

• Financial penalties: Misclassifying employees as independent contractors can lead to penalties from the Mexican government. It includes back taxes, social security contributions, and other liabilities.
• Legal action: Misclassified employees can sue employers for unpaid wages, benefits, and other entitlements. The process involves significant legal costs and damage to goodwill.
• Compliance issues: Misclassification can lead to problems with other government agencies, such as the Labor Ministry. It can further impact business operations and partially impose additional penalties.
• Loss of intellectual property: If misclassified employees create intellectual property for the company, the employer may not legally own it. It will be a massive financial loss, especially for startup companies.
• Reputational damage: News of employee misclassification can destroy your company’s reputation and make hiring and retaining top candidates challenging.

Cost of using EOR in Mexico

An Employer Of Record in Mexico is expensive, and the cost depends on several factors, including:
1. The EOR you select: Several EORs have different pricing models and fee structures. A few may charge a monthly subscription, while others have a base fee plus additional charges for certain services.
2. The number of hired employees: Most EORs’ charges vary based on different numbers of employees.
3. The type of services you required: Some EORs offer mandatory services like payroll processing and compliance, while others charge more comprehensive packages based on needs.
4. The complexity of your needs: Unique requirements charges comparatively high, including compliance with industry-specific labor laws.

Here’s a market range of the costs:

• Flat monthly fee per employee: $50 – $500+
• Base fee: $200 – $1,000+
• Additional fees: $50 – $200+ per service

Here are some additional measures to consider when checking the expenses of using an EOR:

• Hidden fees: Make sure there are no hidden costs
• Currency fluctuations: Verify currency rate
• Taxes: Understand the tax you need to pay on EOR’s fees

You can consider a cost-effective EOR to avail of the assistance based on your needs – Global Squirrels.

How does Global Squirrels help in Mexico Employer of Record (EOR) Services

Global Squirrels is one of the leading EOR service providers in this industry. The platform will help you find the best Mexican talent and hire and onboard them per your requirements.

The best part is that the platform offers a flat license fee, only $199/employee per month. There are no markups or agency fees.

Sign up with Global Squirrels as your Mexico EOR solutions and expand your business beyond boundaries.

If you want to discuss more on how Global Squirrels EOR platform can help with your organization’s expansion plans and hire Mexican employees, talk to our expert today!

In conclusion

Mexico stands firm as an essential location between the two American countries. The fifteenth largest economy expands business globally. With Employer of Record in Mexico, you can add skilled Mexican professionals to your team to grow your organization globally. Consider Global Squirrels the most cost-effective platform to provide your EOR partner in Mexico.