Blogs

Mexico – Employer of Record

EWS helps you to hire an international workforce quickly and compliantly, without setting up a legal entity locally. If you’d like to get in touch about our employer of record solution in Mexico, click here

Country Introduction – Mexico

Capital –  Mexico City
Currency –  Mexican Nuevo Peso (MXN)
GDP –  $ 2.47 Trillion (estimated for 2022)
People/Nationality- Mexican
Language – Spanish
Major Religion – Roman Catholic
Population – estimated 127,500 Million as of January 2023

Mexico, officially known as the United Mexican States, is a federal constitutional republic in North America. It is bordered on the north by the United States of America; on the south and west by the Pacific Ocean; on the southeast by Guatemala, Belize, and the Caribbean Sea; and on the east by the Gulf of Mexico.

Mexico sets an open economy that guarantees access to international businesses, trade and markets through a network of free trade agreements (FTAs). This country takes pride on its strategic geographical positioning and competitive costs to service global markets, as well as a highly skilled and competent workforce.

Mexico is one of the most competitive countries in the world having big industries of Automotive, Tobacco, Aerospace, Petroleum, Electronics, Mining and IT. It is widely known for its productive investment due to macroeconomic stability, strong and wide domestic market, low inflation, good economic growth rate and capacity to produce high-technology innovation.

Culture taken into business perspective, Mexicans prefer to negotiate in a social environment and usually opt for business lunches or dinners over a formal boardroom meetings. They believe that setting a strong foot forward in building relationships also help build strong business partnerships.

Contract of Employment

Companies globally expanding and hiring employees in Mexico must comply with extensive tax, employment, and social insurance regulations. Failure to comply risks fines and sanctions. The employer-employee relationship is governed by the Mexican Federal Labour Law and other laws and statutes. In drawing up their agreement, the parties cannot ‘contract out’ and must adhere to mandatory requirements of the law.

In accordance with the Mexican Labour Law, all employees must have a written and duly signed contract. This document covers an employee’s statutory rights under the Labour Code.

Below are the major types of contracts applicable in Mexico:

–  Fixed-term employment contract
–  Open-ended ‘indefinite’ employment contract
–  Trial period or probationary employment contract
–  Temporary employment contract
–  Youth employment contract

Probation Period

The common standard probationary period in Mexico is 90 days. Some companies may also opt for a minimum 30-day probationary period to evaluate employees before bringing them on full-time status.

Termination

The termination process in Mexico is a delicate topic, it’s important that all local labour laws are adhered to avoid penalties, legal suits and reputational damage. At-will termination clauses are only applicable to the employee which means employers may not terminate employment relationships without just cause.

Mexico’s Federal Labour Law stipulates a closed list of causes to support termination stated below:

–  Vandalism
–  Sexual harassment
–  Revealing company secrets
–  Alcohol intake in the workplace
–  False statements about work qualifications
–  Consecutive unexcused absences in 30 days
–  Breach to the disobedience or honesty principles
–  Non-compliance with safety and security procedures

Working Hours

Legally, employees’ working hours is 48 hours for a maximum of six days a week (Monday to Saturday) and must be supported by their agreement with the employer. All employees in Mexico are entitled to one full day of rest per week (Sunday).

Overtime

Rendering overtime is legal under Mexican labour law, as long as it does not occur more than 3 times per week, or last for more than 3hours per day. For the first 9 hours of overtime, an employee receives their regular wages, plus 100% of their hourly wages for every hour of overtime worked.

13^th Month Pay

 The 13th-month salary payment is a bonus payment given to employees every December and is referred to as the “Aguinaldo”. The Aguinaldo is mandatory in Mexico and is calculated as 15 working days of salary, plus allowance, based on a 365-day working calendar.

Annual Leave

Employees with more than one year of service will be entitled to not less than 12 working days of annual paid vacation, increasing by 2 working days, until reaching 20 days, for each subsequent year of service.

Sick leave

Employees may receive sick pay for up to 52 weeks if their illness or disability is certified by a medical certificate authenticated by medical authorities and the social security system in Mexico, known as the Mexican Social Security Institute (IMSS).

Maternity and Paternity Leave

Working mothers are entitled to a maternity leave consisting of 6 weeks paid leave before the estimated due date, and another 6 weeks paid leave after birth. IMSS will be paying their complete salary in this duration. The statutory maternity leave may be extended as necessary if work is not possible because delicate cases brought by the pregnancy or the delivery.

On the other hand, fathers are entitled to 5 paid days of paternity leave.

VAT / GST:

The tax is generally levied at a rate of 16% on the value of goods. Although there are some instances where products or services can have a VAT rate of 8%, 0%, or even be exempt.

Income Tax

The tax rate will base on the amount of the employee’s earnings, deductions and other factors. The individual income tax rates in Mexico range from 1.92% to 35%.

Non-residents (those staying in Mexico on a work visa/permit) pay 15% to 30%. While Mexico’s corporate tax rate is 30%.

Employer payroll tax in Mexico is a state-level tax, and it’s made clear and straightforward. It is charged as a percentage of the entire payroll and is the employer’s duty to pay it. The rate ranges between 1% and 3% of salaries, depending on the state your business is located.

Employer/ Employee Contributions

Employer Contributions:

Social Security – 26.54-33.58%
Retirement – 5.15%
National Housing Fund – 5%

Employee Contributions:

Social Security – 1.65%
Retirement – 1.13%

Public Holidays

January 1 – New Year’s Day
February 5 – Constitution Day
March 20 – Benito Juarez’ Day
April – Semana Santa and Pascua
May 1 – Labor Day
May 5 – Cinco De Mayo
September 16 – Mexican Independence Day
October 31 – November 2- Dia De Muertos
November 20 – Revolution Day
December 25 – Christmas Day

Severance Pay

Employees hired for an undetermined period who are dismissed without just cause are entitled to receive a mandatory severance package comprised of the amounts stated below. The “daily wage” must include the daily proportion of all the employment benefits paid on a regular basis such as private medical insurance, performance bonuses, etc. and should amount to:

–  20 days of daily wage for each worked year
–  90 days of daily wage as Constitutional Indemnification
–  12 days of daily wage as Seniority Bonus for each year of service that the employee has worked. For purposes of this concept, the daily wage is capped at twice the amount of the minimum daily wage.

Any accrued salaries and pro-rated benefits (including unused vacation leaves plus its vacation premium, Christmas bonus and any other accrued benefits).

On the other hand, employees dismissed due to a just cause under the Mexican Federal Labour Law will only be entitled to the payment of accrued salary and benefits and will not be entitled to any of the other statutory severance payments outlined above.

Work and Residence Permits (Expatriates)

Staying on top of employment legalities can be extra challenging, especially when compliance varies from one country to the other and the laws themselves are complex. EWS will assist you in processing all necessary permits to onboard your employees, our team will also make sure your employees are well-guided in the process.

To work legally in Mexico, one must either have a temporary residency visa with work permissions, or permanent residency. It takes approximately 30-45 days to get the approval status. After getting the approval, a letter is sent to the foreign employee and the employer. 4. After the work permit is approved, the employee will be required to submit the necessary documents and the visa application to the consulate.

All foreigners who want to work in Mexico should apply for at least one kind of work visa. Those who are working for Mexican companies need a residency visa with a permission to work. Foreigners opting for a Mexico temporary resident visa will get a work permit along with it.