Employer of Record Mexico
Infotree Global Solutions assists organizations planning for expansion in Mexico by providing employer of record services in Mexico. If you wish to recruit professionals in Mexico, you can easily accomplish it with us without even having an establishment in Mexico. Our team of dedicated professionals would take up all the recruitment and payroll management responsibilities for your organization. From searching for ideal employees to hiring and onboarding them, we take every step on your behalf in total compliance.
Our Mexico employer of record would give you insights into the compensation, benefits, and facilities required for your employees in Mexico. Here are some of the important factors you need to know before you start hiring in Mexico:
Table of Contents
What is an Employer of Record (EOR) in Mexico?
An Employer of Record (EOR) in Mexico also known as a “Professional Employer Organization” (PEO) or “Administradora de Nómina” in Spanish is a third-party company that acts as the legal employer of employees in Mexico. When a company wants to expand in Mexico dealing with complex labor and legal requirements can be challenging. Instead of establishing a separate legal entity in Mexico, the foreign company can engage an Employer of Record to handle payroll, taxes, benefits, and legal aspects of employing workers in compliance with Mexican labor laws. By using an Employer of Record companies can enter the Mexican market faster and with less administrative burden, making it a convenient solution for international expansion.
How does an EOR work in Mexico?
In Mexico, an Employer of Record works as a professional service provider acting as a legal employer of your employees. This means that the EOR is responsible for complying with all in-country legal regulations, payroll, taxes, and benefits. The EOR also helps companies to identify the right talent in Mexico and prepare employment contracts in accordance with Mexican law. As an employer, you are still responsible for managing employees’ day-to-day activities and assigning them. However, the EOR takes care of all of the legal and administrative aspects of employment, so you can only focus on running your business.
Hiring in Mexico
Before you start your business operations in Mexico, it is important to go through the recruitment laws of the country. Having knowledge of the Spanish language is vital to carrying out the hiring process. Besides, it is good to be familiar with the cultural norms of the country to avoid unforeseen issues. Since 1917, Federal labor law is an integral part of the Mexican Constitution. It describes all the legal considerations for work hours, employee discrimination, minimum salary, and workplace safety along with labor unions. Mexico is consistently adding flexibility to its labor laws to make them more adaptive for varied business needs. The 2017 initiative has encouraged a digital-based system to facilitate organizations with self-report administrative activities. It has further assisted in bringing more transparency and compliance.
One prime factor of transparency lies in the written contract with clear terms and conditions for all employees. Being associated as your Mexico employer of record, we take charge of the employee contract and ensure to meet all the legal requirements. Be it cultural norms or best practices of hiring, we keep you updated on all the employment laws as and when they change.
Mexico’s Employment law has few legal obligations which every employer needs to abide by. They should provide formal written employment letters for all employees. An Employer of Record Mexico assists you to learn about the contract. Every contract must include all required details like remuneration, job title, termination policy, and others. Contracts should be in the Spanish language using the Mexican peso currency.
Wages – The minimum wage of the employees is 141.70 pesos per working day set by the Mexican authorities. Every employer is obligated to pay the basic amount to their employees and the additional amount for overtime. If an employee works on public holidays and weekends, he is entitled to get a premium of 25% above what they are paid on other days.
Working Hours – National employment terms are governed by Mexico’s labor law including workweek, mandatory pay, and holidays. Employment contracts in Mexico define working hours for employees. Offices in Mexico operate between 8 am to 6 pm from Monday to Friday. An average workweek may not exceed 48 hours for an employee. Operating hours are limited to 11 hours per day and 50 hours per week, each employee must be given a day off as a rest period each week. Overtime in Mexico is capped at 9 hours per week, employers are obliged to pay 100% of the normal rate. If overtime exceeds 9 weekly hours then each hour needs to be paid at 200% of the regular hourly rate.
Probation Period – If an employment contract in Mexico is for more than 180 days or an infinite period, an employer may include a probation period of three months for employees and six months for managerial positions. An employer can terminate employee services after a trial period if skills are found not suitable for the job without severance.
Termination and Severance – A company can terminate employment on multiple grounds such as violence towards staff, sexual assault to the opposite gender, dishonesty, threats, misrepresentation, and absence from work without intimation or permission more than three times in 30 days, and many others. Employers should notify employees in writing regarding dismissal from duties with proper reason. If termination happens without cause then the employer is obligated to pay three months of pay, 20 days’ salary for each year of service, and a seniority premium. Infotree Global as your employer of record in Mexico will take care of these unforeseen events making your operations smooth to operate.
Employment Contracts in Mexico
Every employee you hire for your corporate office in Mexico has to be handed an employment contract in the country’s local language. A Mexico Employer of Record will provide you with all the details you need to prepare the contract while ensuring your complete confidentiality. You will be able to get actionable insights about the clauses specifying benefits and entitlements for the employees. An employee contract should mention the date of commencement, job location, job description, job role, the list of holidays and leaves, etc. Apart from this, you might also have to carry out the procedures for other legal contracts like collective bargaining contracts facilitated mostly by trade unions. There are individual, specific terms and trial period contracts that bring flexible opportunities for foreign employees and enable them to hire according to their project preferences.
Type of Employment Contracts:
There are different types of contracts and you can find more about them with Employer of Record Mexico assistance.
Individual Contacts – This type of employment engages an individual in subordinated personnel services for a business on a salary basis. The contract includes the obligations of both parties during the project duration. Although not a mandate a written contract is highly recommended to avoid any legal issues.
Specific Project Contract – The contract comes with a timeline to complete a certain project. Under this contract, the term is specified as per the nature of the work. Another type of contract is an indefinite-term contract, which is set for any going on project that needs an uncertain period of time.
Trial Period Contract – It has been added in Article 39-A to dismiss the worker if the owner does not wish to garner the employment relationship in the trial period. The employee can be dismissed by seeking the consent of Mexico’s Training and Productivity Commission. This law also assures that consecutive contracts should not be used for training to safeguard labor benefits.
Seasonal Contracts – In article 39-F, it is stated that under seasonal contracts, workers possess the same rights as individuals that are hired for indefinite contracts. While starting business operations in Mexico, the companies should clearly understand different labor contracts to manage their staff effectively. Take the help of a Mexico Employer of Record to learn more about labor rights and regulations.
Collective Labor Contracts – Collective bargaining agreements may be existed by the employee and usually, this kind of agreement is made by labor unions to establish the work conditions. The contract mentions all the compulsory terms for the specific industry. It encompasses all the details like benefits, work shifts, compensation, and positions.
Foreign Employees Contract – There are certain terms for companies willing to initiate employment contracts with international employees. It outlines that 90% of the company’s employees must be Mexican residents. Besides, all employees in positions that require technical skills must be Mexicans until the position needs very specific knowledge that is available to foreigners only.
The employer is obligated to submit employee benefit contributions to the authorities directly. Contributions need to be done both from the employer’s and the employee’s part, amounting to around 30% of the base salary. These are among the benefits the company will pay for the employee: Life insurance, retirement, Govt. health plan (IMSS), Public Housing Contribution, Public Child-Care deduction, and Stage wage taxes.
Compensation – The company needs to pay the benefits outlined by the labor law to the employees. These benefits include minimum wage (per day), one non-work day per week, a vacation bonus of 25% of the wages for the vacations accrued, severance pay for dismissal without cause, etc. The severance pay will include 90 days of salary as legal compensation, a seniority bonus, and all the fringe benefits owed till the date of dismissal. Termination needs to always follow legal notice in writing, otherwise, it can be deemed illegal. Consider taking the assistance of an Employer of Record Mexico to have a clear understanding of the same.
Maternity Leaves – The company should grant maternity leave of around 42 days (a total of 84 days) to pregnant women employees both before and after delivery. In case of the child’s health-related complications, the company needs to provide another 2 weeks. Maternity leave is paid for by Social Security, not the employer.
Vacation – A 1-year service with any Mexican company provides the employees with an earned leave of 6 days, which should be used for the vacation only. It adds two days of additional leaves with every passing year of service. After five years, when the leaves amount to 14 days, employees are benefitted to avail two additional paid leaves.
Sick Leave – Employees who are unable to perform duties due to illness or injury whether or not they are related to work are entitled to paid sick leaves through Social Security Institute. This applies to employees who contributed to the social security system for at least 4 weeks before getting unfit to work. The injury or illness must be verified by medical authorities of the IMSS for paid time off. The employee must submit a leave certificate issued by IMSS as proof. The employee will receive 60% of the regular wage from the fourth day of illness for up to 52 weeks depending upon the severity of the illness.
Bonus – There are different types of bonuses in Mexico as per Article 87 LFT. The Christmas bonus is similar to 15 days which is paid before 20th December every year. If a worker continues to work on the seventh day, he is eligible for a Sunday bonus which is 25% of the salary of the day as per Article 71 LFT. In addition, workers are eligible for sharing the employer’s annual profits under Federal Labor Law.
Health Insurance – The Mexico public health care system is governed by the Mexican Social Security Institute (Instituto Mexicano del Seguro Social, IMSS) a government organization. It’s required by an employer and employee to contribute towards IMSS to avail of medical benefits. There are some drawbacks of the public healthcare system in Mexico due to which some companies do offer their employees a private insurance scheme as part of their remuneration as it covers more expensive treatments. As your employer of record in Mexico, we can arrange private medical insurance at affordable costs for your employees.
Payroll and Tax in Mexico
Mexico has a progressive income rate but certain areas of taxation including payroll depend on the employee’s salary. Mexico’s individual income tax rates range between 1.92% and 35%. Non-residents (on work permits/visas) pay 15% to 30%. To manage taxation and legal activities, most companies usually hire services from the Employer of Record Mexico for better management.
In addition to this, here are some other taxes that constitute an important part of the Mexican taxation system –
Federal and Payroll Tax – A federal tax of around 30% is levied on vacation premium exemptions, grocery coupons, and Christmas bonuses. The taxation system also consists of a payroll tax, which ranges between 1% and 3% of the salaries withheld by the employer.
Withholding Tax – The system also imposes a withholding tax on certain categories of income from state to non-residents, which has entered the economy into double tax treaties with several nations that can lessen the tax liability on the income generated by foreigners.
Corporate Tax – Companies registered in Mexico are subjected to the Federal corporate income tax at a rate of a flat 30% which generally aligns with the calendar year. To manage all these taxes, a lot of businesses usually hire Mexico Payroll Services to address all the legal requirements.
Social Security Tax – In Mexico, the social security rate is levied on employers at 7.58 % and 1.65% on employees. These amounts are contributed towards retirement pension, Life Insurance, and other contributions.
VAT – The rate for Value Added Tax in Mexico is classified into three categories, namely Standard (16%) Reduced (8%), and Zero (0%).
Municipal Tax – In Mexico, the municipal tax, also known as the property tax, is levied on the assessed value of the real estate. The tax rate is between 0.05% to 1.2%, depending on the property location, and is payable to the state government on an annual basis.
Challenges When Expanding into Mexico
It is important for business owners to get familiar with the country’s norms and laws as income tax rules, corporate tax, and insurance rules may vary. The company’s name needs to be registered with approval from the Ministry of Foreign Affairs. Then the setting up procedure needs to go through the process of obtaining a Tax ID number, which requires signing the incorporation deed, obtaining tax registration, and submitting the incorporation deed to the Public Register of Commerce. After these steps, the Tax ID number will be available after registering with the Ministry of Finance and Credit. Then the business needs to be legalized by registering with and paying taxes to various local authorities. It needs to be registered with Mexican Social Security, SIEM, and the National Institute of Statistics. Payroll tax needs to be paid to the local tax authority.
Services Offered By an EOR in Mexico
An Employer of Record in Mexico offers a varied range of services soothing the needs of the firm keeping the human resources, payroll, and other employment-related concerns into the frame.
In general, some services successfully rendered by an EOR in Mexico are –
HR and Payroll – The EOR manages HR tasks like file processing, employee records, leaves, and other day-to-day administrative responsibilities. It also handles payroll responsibilities, including calculating salaries, tax withholdings, and deductions following the country’s labor laws.
Employment Contracts -The EOR also supports drafting employment contracts for client companies. It ensures that the terms stated in the contracts are compliant with local regulations and customized to the specific needs of the organization.
Compliance and Legal Support – EOR ensures adherence to the local employment laws, regulations, and statutory requirements in Mexico. They keep track and stay updated on the changes in labor legislation and guide firms to minimize risks.
Tax and Social Security – EOR handles tax registration, filing of tax returns, and adherence to the other social security obligations on behalf of both the employer and employee, setting the firm free from the complexity of tax administration.
Employee Onboarding & Offboarding – The EOR manages the onboarding process of new employees and takes care of the documentation, orientation, etc. They also handle the off-boarding when a staff leaves the organization.
Risk Management – The EOR assists in mitigating employment-related risks. It includes managing labor disputes, and employee concerns and ensuring compliance at every step is in sync with local labor regulations.
Benefits of Engaging an Employer of Record in Mexico
To simplify your expansion process let Infotree Global assist you to deal with all the complexities. Be it hiring employees or distributing payroll or taking care of expenses, we are there to assist you at every step. Partner with us and start your global business without worries.
Market Access – Relying on the professional expertise of an Employer of Record is the best way to enter an unknown market quickly. By using EOR services, an international organization can avail the expertise of a Mexican employee to work for its company. Besides quick access to the Mexico market, the employer of record also enables the client to ease off worries related to payroll and HR.
In-Country Laws – It is hard to ignore the importance of regulations and compliance in a foreign country. If you are operating a business in Mexico, you need to be well aware of the payroll and taxation rules. With Mexico Employer of Record services, a company can hire a foreign individual or local employees and deal with the complexities of the country’s rules. Be it income tax, social security contribution, expanse management, withholding charges, or business tax, an EOR or PEO company takes care of it all with total compliance.
Diverse Solutions – No matter whether you already have a company in an international location or you are going to establish one, an employer of record can help you significantly. The employer of record Company can hire staff on your behalf without setting up a subsidiary in Mexico. If your firm is already operating, using EOR for managing payroll tasks can be a great idea as it can present an effective solution to tax and accounting responsibilities in the country.
Why Infotree Global Solutions?
Companies should focus more on growing the business instead of spending time with legal formalities, different tax structures, and other employment-related issues. We at Infotree Global Solutions will help you set up your business in Mexico by managing payroll services and other legal formalities within the shortest possible time. Our employer of record services is designed to best suit the interests of employees and employers. Our experienced in-territory experts will be constantly present to supervise and regulate your business endeavor in Mexico. We are committed to providing the best result to our customers and will make your company’s task our priority.
Make the most of our professional services and overcome the challenges associated with international hiring. For Mexico Employer of Record details and demo contact us today!