6 Steps To Using An Employer Of Record In Mexico

An Employer of Record (EOR) is the legal employer for workers. It handles HR responsibilities like payroll, taxes, and compliance while the company directs the employees’ day-to-day tasks. This setup allows businesses to hire globally without establishing a local entity.

Hiring workers from Mexico offers numerous benefits due to their technical proficiency, strategic location, and growing economy. Mexico is recognized for its strong manufacturing, IT, and engineering talent, with a workforce known for adaptability and innovation.

Employment in Mexico has shown positive trends in recent years. According to the National Institute of Statistics and Geography (INEGI), the employed population increased from 55.2 million in Q4 2021 to 58.1 million in Q4 2022, representing a 5.3% growth. However, the country faces challenges in specific sectors, with skills shortages reported in industries like technology and advanced manufacturing.

To use an EOR in Mexico, there are 6 basic steps to follow to ensure proper setup:

1. Find talent to hire in Mexico
2. Compare using an EOR to setting up a legal entity in Mexico
3. Get the information needed from your talent
4. Choose an EOR provider with expertise in Mexico
5. Communicate your hiring needs to the EOR
6. Have the EOR set up the contracts and hiring procedure

An EOR manages payroll, taxes, and benefits administration, ensuring compliance with local laws and regulations, thus simplifying the employment process for companies.

1. Find talent to hire in Mexico

Finding talent in Mexico requires a multi-faceted approach, leveraging local and global platforms. Some of the most effective channels include:

• OCC Mundial: One of Mexico’s largest job boards, offering extensive listings across various industries.
• Indeed Mexico: Aggregates job listings from various sources and allows direct job postings.
• LinkedIn: Widely used by professionals in Mexico, crucial for networking and headhunting.
• Computrabajo: Popular among entry-level and mid-level job seekers, with a large database of resumes.
• Bumeran: Known for its wide range of listings across various industries and experience levels.

Specialized recruitment agencies like Michael Page and Adecco can provide tailored solutions for industries requiring specific expertise. Partnering with career centers at top Mexican universities like UNAM, Tec de Monterrey, or ITAM can be beneficial for entry-level positions or internships.

Employers should consider a multi-channel approach, combining these platforms with local networking events and industry-specific forums to maximize their reach in the Mexican talent market.

2. Compare using an EOR to setting up a legal entity in Mexico

When hiring employees in Mexico, companies must carefully weigh the options of using an Employer of Record (EOR) against setting up their legal entity. Each approach has its own set of advantages and considerations.

Using an EOR in Mexico offers several benefits:

• Rapid market entry (typically within days or weeks)
• No need to establish a local legal entity
• Reduced compliance risks
• Access to local expertise in labor laws and HR practices
• Flexibility for short-term projects or market testing

However, using an EOR may result in less direct control over some HR processes and potential limitations in customizing employment terms. For large-scale, long-term operations, it may prove more costly.

Setting up a legal entity in Mexico provides:

• Full control over all aspects of operations and employment
• Potentially more cost-effective for large-scale, long-term presence
• Ability to fully integrate into the local business environment
• Greater flexibility in structuring employment arrangements

The downsides include a time-consuming process (often taking several months), significant upfront costs and ongoing administrative expenses, and increased legal and compliance responsibilities.

The choice between an EOR and setting up a legal entity should be based on the company’s long-term strategy, resources, and the scale of its planned operations in Mexico.

Comparison Table: EOR vs. Setting Up a Legal Entity in Mexico

3. Get the information needed from your talent

To hire employees in Mexico, you must collect specific information to comply with local regulations and set up proper employment. Here’s a list of essential information to gather:

1. Personal Information:

• Full legal name
• Date and place of birth
• Gender
• Marital status
• Nationality
• Home address

2. Identification Numbers:

• Clave Única de Registro de Población (CURP) – Unique Population Registry Code
• Registro Federal de Contribuyentes (RFC) – Federal Taxpayer Registry number
• Número de Seguridad Social (NSS) – Social Security Number

3. Employment Details:

• Job title and description
• Start date
• Agreed salary and payment frequency
• Work schedule and location

4. Education and Qualifications:

• Highest level of education completed
• Professional certifications or licenses
• Relevant work experience

5. Banking Information:

• Bank name and account number for salary payments

7. Emergency Contact Information

8. Immigration Information (for foreign workers):

• Passport details
• Visa type and expiration date

9. Additional Documents:

• Copies of identification documents
• Proof of address
• Copies of educational certificates or professional licenses

Remember that collecting and processing personal data must comply with Mexico’s Federal Law on Protection of Personal Data Held by Private Parties. Ensure you have the employee’s consent to collect and process this information and communicate how the data will be used and protected.

4. Choose an EOR provider with expertise in Mexico

Selecting the right Employer of Record (EOR) provider in Mexico is crucial for ensuring compliance and smooth operations. When choosing an EOR provider, consider the following factors:

• Expertise in Mexican Labor Laws: Look for providers with in-depth knowledge of Mexican Federal Labor Law, social security regulations, and tax laws.
• Compliance Track Record: Check the provider’s compliance history with Mexican authorities like the Mexican Social Security Institute (IMSS) and the Tax Administration Service (SAT).
• Service Range: Ensure they offer comprehensive services, including payroll processing, tax withholding and reporting, benefits administration, and employee onboarding.
• Technology and Security: Evaluate their payroll and HR management systems for user-friendliness and security, ensuring compliance with Mexican data protection laws.
• Local Presence and Support: Providers with a physical presence in Mexico and bilingual (Spanish/English) support teams are preferred.
• Scalability: Assess their ability to support your growth, from hiring a few employees to potentially dozens or more.
• Industry Experience: Look for EORs with experience in your specific industry, as different sectors may have unique regulations or collective bargaining agreements.
• Transparency in Pricing: Understand their fee structure and clarify any additional service costs.

By thoroughly evaluating potential EOR providers based on these criteria, you can select a partner that ensures compliance and supports your business goals in the Mexican market.

What are the best EOR providers to use in Mexico?

5. Communicate your hiring needs to the EOR

Effectively communicating your hiring needs to the Employer of Record (EOR) in Mexico is crucial for ensuring they can accurately represent your company and find the right talent. When communicating with your chosen EOR, be sure to provide detailed information about:

• Job Description: Include the specific job title, key responsibilities, required skills and qualifications, and preferred experience level.
• Employment Terms: Specify the type of contract, expected start date, work schedule, location (office-based, remote, or hybrid), and any probationary period.
• Compensation Package: Detail the base salary range, any performance-based bonuses or commissions, overtime policy, and Aguinaldo (Christmas bonus) expectations.
• Benefits: Outline mandatory benefits per Mexican law and any additional benefits you wish to offer.
• Company Culture and Values: Briefly describe your company’s mission and values to help the EOR find candidates who align with your organization.
• Hiring Timeline: Share your expected timeframe for filling the position and any urgent deadlines or project start dates.
• Interview Process: Explain your preferred interview process, including the number of rounds and types of interviews or assessments required.

Providing this comprehensive information to your EOR enables them to accurately represent your company and position in the Mexican job market. This clarity helps attract the right candidates and ensures the hiring process aligns with your company’s needs and Mexican labor laws.

6. Have the EOR set up the contracts and hiring procedure

Once you’ve chosen an EOR provider and communicated your hiring needs, the EOR will handle the contracts and hiring procedure in compliance with Mexican labor laws. This process typically includes:

1. Contract Drafting: The EOR will draft employment contracts in Spanish that comply with the Federal Labor Law, including all mandatory elements such as job description, compensation, work schedule, and benefits.
2. Legal Compliance: Ensuring all contractual terms meet or exceed the minimum requirements set by Mexican labor laws.
3. Registration with Authorities: The EOR will register employment with relevant Mexican authorities, including the Mexican Social Security Institute (IMSS), Tax Administration Service (SAT), and the National Workers’ Housing Fund Institute (INFONAVIT).
4. Work Permits and Visas: The EOR will assist foreign employees with the necessary work permits and visa applications.
5. Payroll Setup: Setting up the payroll system in compliance with Mexican tax laws and social security contributions.
6. Benefits Enrollment: Enrolling employees in mandatory benefit programs and setting up any additional benefits you’ve offered.
7. Onboarding Documentation: Preparing all necessary onboarding documents, including employee handbooks, confidentiality agreements, and company policies.

By handling these aspects, the EOR ensures that the hiring process is compliant with Mexican laws and regulations, reducing your administrative burden and legal risks.

What help does an EOR provide in Mexican payroll, taxes, and benefits administration?

An Employer of Record in Mexico provides comprehensive support in managing payroll, taxes, and benefits administration. This includes:

• Payroll Processing: Calculating and disbursing salaries in compliance with Mexican labor laws.
• Tax Withholding and Reporting: Managing income tax withholdings, social security contributions, and other mandatory deductions.
• Benefits Administration: Enroll employees in mandatory benefits programs and manage any additional benefits offered.
• Compliance with Labor Laws: Ensuring adherence to Mexican labor regulations, including working hours, overtime, and leave entitlements.
• Reporting and Documentation: Providing regular reports on payroll, taxes, and other employment matters, as well as maintaining required documentation.

By leveraging an EOR’s expertise, companies can navigate the complexities of Mexican employment regulations while focusing on their core business operations.

What labor laws do you need to consider when hiring in Mexico?

When hiring in Mexico, several key labor laws must be considered. Mexico’s approach to labor laws is generally protective, offering extensive employee protections considered more stringent than those in many other countries. Here are the crucial areas to be aware of:

Employment Contracts

National labor laws govern employment contracts in Mexico and must be in writing. Key aspects include:

• Contracts must be in Spanish and specify job details, compensation, working hours, and termination conditions.
• Various contract types exist, including permanent, fixed-term, and apprenticeship contracts.
• Probationary periods are allowed but limited to 30 days for most positions or up to 180 days for management roles.

Working Hours and Paid Holidays

• The standard workweek is capped at 48 hours.
• Overtime is limited to 3 hours per day, no more than three times a week, and paid at 200% of the regular rate.
• Employees are entitled to at least 6 days of paid vacation after one year of service, with the number increasing with tenure.
• There are seven mandatory paid public holidays, with additional pay required if employees work on these days.

Compensation and Benefits

• Mexico has a minimum wage that varies by region, with a higher rate in the Northern Border Zone.
• Employers must pay an annual Christmas bonus (Aguinaldo) of at least 15 days’ salary by December 20th.
• Profit-sharing is mandatory for companies with annual income over 300,000 pesos.

Termination and Severance

• No at-will employment exists in Mexico; valid reasons are required for termination.
• Severance pay for unjustified dismissal includes three months’ salary, 20 days’ pay per year of service, and a seniority premium.
• Notice periods and procedures must be followed as per the Federal Labor Law.

Social Security and Healthcare

• Employers must register employees with the Mexican Social Security Institute (IMSS).
• Contributions cover health insurance, disability, retirement, and other social benefits.

Maternity and Paternity Leave

• Mothers are entitled to 12 weeks of paid maternity leave.
• Fathers receive five days of paid paternity leave.

Understanding and complying with these laws is crucial for any company hiring in Mexico. An EOR can provide invaluable assistance in navigating these complex regulations and ensuring full compliance.

How does the hiring process work in Mexico?

The hiring process in Mexico follows a structured approach that adheres to local labor laws and cultural norms. Here’s an overview of how it typically works:

1. Job Posting and Recruitment: Companies advertise positions through various channels, including online job boards, social media, and recruitment agencies.
2. Application Review: HR teams or recruiters review applications and resumes to shortlist candidates who meet the job requirements.
3. Initial Screening: This often involves a phone or video interview to assess basic qualifications and cultural fit.
4. In-depth Interviews: Qualified candidates are invited for more comprehensive interviews, which may include multiple rounds with different team members.
5. Skills Assessment: Depending on the role, candidates might be asked to complete tests or practical assignments to demonstrate their skills.
6. Reference Checks: Employers often contact previous employers or provide references to verify the candidate’s work history and performance.
7. Job Offer: A formal job offer is extended once a suitable candidate is selected, usually in writing.
8. Contract Negotiation: The terms of employment are discussed and finalized between the employer and the candidate.
9. Contract Signing: Both parties sign the employment contract, which must comply with Mexican labor laws.
10. Registration and Onboarding: The new employee is registered with relevant authorities (e.g., IMSS, SAT), and the onboarding process begins.

When hiring through an EOR in Mexico, many of these steps are managed or facilitated by the EOR provider, ensuring compliance with local regulations throughout the process.

Is Mexico a relatively easy country to hire employees remotely through an EOR?

Mexico is considered a moderately complex country for hiring employees remotely through an Employer of Record (EOR). While it’s not the most challenging market, several factors contribute to its complexity:

Mexico’s labor laws are more protective of employees compared to countries like the United States, which can make terminations and contract changes more challenging. The country also has specific requirements for employment contracts, working hours, and benefits that must be carefully navigated.

However, Mexico’s proximity to the United States and Canada, its participation in free trade agreements like USMCA, and its growing economy make it an attractive market for remote hiring. Many EOR providers have extensive experience in Mexico, which can help streamline the process for foreign companies.

While not the most accessible country for remote hiring, with the right EOR partner, companies can successfully navigate the complexities of employing workers in Mexico. The key is working with an EOR with deep local expertise and a strong track record of compliance with Mexican labor laws.

Conclusion

Employing workers in Mexico through an Employer of Record service offers a strategic way for companies to access the country’s talented workforce without the complexities of establishing a legal entity. While Mexico presents some challenges in terms of labor laws and compliance, the benefits of its skilled labor pool and growing economy make it an attractive market for global businesses.

By following the steps outlined in this guide and partnering with a knowledgeable EOR provider, companies can navigate the intricacies of Mexican employment laws, ensure compliance, and focus on growing their business. As with any international expansion, thorough research and expert guidance are key to success in the Mexican market.