Hire and pay employees in Mexico

Employer of Record (EOR) vs. entity

When you’re hiring in Mexico, you have two choices: You can either use an Employer of Record (EOR) or establish your own legal entity.

• Setting up your own Mexican entity. Business owners who choose to set up a legal entity from scratch need to take numerous steps to ensure they create a legitimate company. This includes selecting the right business structure, opening a business account with a bank in Mexico, registering with the Mexican Secretariat of the Economy, and paying the appropriate fees.
• Using a Mexican EOR. An Employer of Record (EOR) is a third-party service that takes care of all of these steps for you. In essence, they operate as the employer on your behalf, which means they’ll not only ensure the appropriate fees are paid, but that payroll, contracts, and benefits are taken care of for you as well.

The choice you make will depend on your company’s plans, resources, and other factors. Here are the pros and cons of an EOR vs. setting up your own legal entity in Mexico:

Understand the steps to hiring through an EOR in Mexico—and learn how Rippling can help you hire and onboard Mexican employees in 90 seconds—in our guide.

Classifying Mexican workers: employees vs. contractors

One of the first steps you’ll need to take when hiring a new team member in Mexico is classifying them as an employee or an independent contractor. It’s crucial you categorize each worker correctly, or you could find yourself facing fines, having to pay back taxes, and even being subject to legal action. 

The table below offers an overview of worker classification in Mexico:

Stay compliant with Mexican labor and employment laws by learning how to correctly classify your workers—in our classification guide.

Work permits for Mexican employees

Even if they’re already living there on a permanent resident visa, foreign nationals who wish to work in Mexico must possess a work visa.

To request working privileges, they must be issued with one of the following visas:

• Working visitor visa: This special type of visitor visa permits the holder to work in Mexico for 180 days or less. It cannot be extended.
• Temporary resident visa: This is the most common type of visa granted to people who receive a job offer in Mexico, whether it’s from a Mexican company or a company that’s expanding into Mexico. It permits them to work in the country for longer than 180 days but less than four years. It can eventually be converted to a permanent residence visa, provided the individual meets the criteria.
• Permanent resident visa: Foreign nationals holding this visa can apply for a work permit anywhere in Mexico and can eventually apply for citizenship if they wish.

Note: The tourist visa all travelers to Mexico receive doesn’t give the holder any rights to work in the country legally.
To learn more about the application process for a visa in Mexico and to get answers to frequently asked questions, check out our guide on work permits for employees in Mexico.

New hire onboarding checklist

Once your applicant has been officially verified to work in Mexico, it’s time to onboard them! The onboarding process is crucial to help them feel like part of the team, introduce them to your company’s mission, culture, and values—and ensure you create a successful employment relationship. 

An onboarding process done right starts before the employee’s actual first day and lasts for about 90 days. Here's a quick checklist for each stage of the onboarding process:

Before their first day

• Send an offer letter (more on that in the next section).
• Complete the necessary paperwork, like signing an NDA and tax withholding preparation.
• Enroll them in benefits and add them to payroll.
• Prepare resources they’ll need on their first day, like an employee handbook.
• Send them a welcome email that tells them when their orientation is.

On Day 1

• Make sure they have the devices, apps, and other equipment they need.
• Encourage the team to say hello with a “welcome to the team” email.
• Give them an agenda for the day.
• Schedule a meeting with their manager.
• Schedule a meeting with their onboarding buddy.

During their first 90 days

• Help them set goals for the first 30, 60, and 90 days.
• Schedule any role- or company-specific training they need.
• Set up regular meetings to ensure they are reaching their goals.
• Get their feedback on the onboarding process.
• Provide them with feedback on their progress.

Review our step-by-step guide to onboarding new employees in Mexico here.

What to include in an offer letter in Mexico

The official employment contract is a crucial part of hiring a new employee in Mexico. Below, we’ve provided a basic checklist of what should be included in all employment agreements (and, don’t forget, they must be translated into Spanish):

• Contact information, including the addresses of the employee and the employer
• Job title and duties
• Commencement date and length of probationary period, if any
• Compensation and benefits
• Working hours
• Vacation leave 
• Termination policy
• Confidentiality and non-disclosure agreements
• Place or places the employee will work

Learn more about sending a legally compliant offer letter in Mexico in our full guide.

NDAs and confidentiality agreements in Mexico

In Mexico, as is common in many other nations, non-disclosure agreements (NDAs) are generally included in the initial employment contract. They’re also commonly known as confidentiality agreements, proprietary information agreements (PIIAs), or even secret/secrecy agreements. 

Below are some examples of the types of information NDAs commonly protect in Mexico:

• Trade secrets
• Intellectual property
• Information related to marketing strategies, business plans, financial projections, and so on
• Sensitive client data
• Software codes, algorithms, and other technical data

Read about the different types of NDAs, and their essential components, in our guide to NDAs in Mexico.

Running background checks on Mexican employees

Running a background check on any new employee should be standard procedure, no matter how eager you are to hire them.

Mexico allows employers to run background checks on both full-time employees and independent contractors, so long as you have their consent. And you are permitted to collect any data about the worker you wish, so long as you follow Mexico’s strict data privacy laws.

Below is an overview of common and less common background checks in Mexico.

Paying employees in Mexico

Once you’ve chosen between an EOR or your own entity, it’s time to pick a global payroll solution. 

Once you have a global payroll provider, take the following steps: 

• Ensure your employees are correctly classified.
• Collect employee information, including name, date of birth, date of hire, contact and bank information, and Federal Taxpayer Registry Code.
• Input the payment amount in MXN—or get written permission from the employee if you’re planning to pay them in a different currency.
• Make sure you’re adhering to statutory requirements when calculating payroll deductions.
• Run payroll.

Keep the following costs in mind (since you’ll be responsible for payroll taxes and deductions):

Looking for more details on running payroll in Mexico, and potential employer costs? See our step-by-step guide.

Mandatory employee benefits in Mexico

By law, you are required to offer your Mexican employees certain statutory benefits. Of course, you can (and many companies do) provide supplementary benefits to remain competitive, retain top talent, and improve the employee experience.

The following are mandatory employee benefits in Mexico:

• Social Security. Mexican social security, administered by the Instituto Mexico del Social Seguro, or IMSS, covers everything from healthcare to pensions, sick leave, child care, work risk insurance, disability pay, and more. About 25-35% of an employee’s paycheck goes towards social security.
• Profit sharing. Within 60 days of filing their annual tax return, Mexican companies must, by law, share 10% of the profits they made that year with their employees.
• Severance pay. Employees receive severance pay instead of a mandatory notice period. The amount they are given depends on whether they resigned, were terminated without cause, or were dismissed with just cause.
• Vacation time. All employees who have worked for their employer for one year or longer receive mandatory vacation time. The amount depends on the length of their employment. They also receive a vacation premium—125% of their usual pay—while they are gone.
• Federal holidays: There are 10 official statutory holidays in Mexico; employees receive the day off to celebrate these.
• The Sunday policy: According to Mexican labor laws, employees should receive a mandatory day of rest for every six days they work. Usually, that day is Sunday. If they do not have Sunday off, however, they’re entitled to be paid their normal daily wage plus 25%.
• 13th-month salary: Also called the Christmas bonus or Aguinaldo, this is paid at the end of the year and is the equivalent of at least 15 days of an employee’s salary.

Check out our full guide for more information on statutory benefit requirements (and supplementary benefits you can offer in Mexico).

Managing remote employees’ computers and apps

Remote work has created some new logistical challenges with managing employee devices, apps, and tools from afar—whether you’re shipping someone a new laptop, giving them access to a program, or setting up their new accounts. Still, it’s your responsibility to ensure your Mexican employees have access to the software, apps, tools, and other equipment they need to perform their job duties.

With Rippling:

• You can quickly set up and secure employees’ accounts, ensuring all your employees have the access and permissions they need. 
• You can set up, manage, and disable all employee apps (like Slack) from a single place.

Learn more about managing your remote employees’ devices and apps from afar in our guide.

Protecting company IP in Mexico

Whether you’re discussing finances with a potential new business partner or allowing a new employee to access internal databases, you’re sharing confidential information—and its misuse could put your company at risk. To safeguard your company, make sure you protect your intellectual property in Mexico.

The nation takes IP ownership and protection seriously and has a series of agencies that protect different aspects of intellectual property. INDAUTOR, for instance, records copyrights, while the IMPI registers trademarks, patents, and industrial designs. The Mexican Customs Services (Aduanas) is responsible for stopping goods from illegally crossing Mexican borders.

Mexico also belongs to a number of international agreements that bolster cross-border intellectual property protection, such as the Madrid Protocol and the Patent Cooperation Treaty.

Read our primer on IP ownership and rights in Mexico for more details on intellectual property protections.

Complying with Mexican labor laws

Remaining legally compliant when expanding your operations to Mexico  will save you everything from headaches to legal action to hefty fines. Before you start hiring employees, make sure you’re fully aware of the complexity of Mexican employment and labor laws.

Our guide reviews some of the top things employers should know when hiring in Mexico, from overtime laws to minimum wage. Take note of the following:

• Companies are required to share profits with Mexican employees. At the end of each year—60 days after the company files their taxes—they are legally required to share 10% of their profits with their workers.
• Even if an employee quits, you have to pay them severance. Mexico doesn’t have any requirements about notice periods at all—whether it’s on the part of the employee or the employer. Instead, employees must receive severance (even if they choose to leave).
• “Employment laws” are not the same as “labor laws.” The former refers to the relationship between employee and employer, while the latter refers to the relationship between unions and employers.

Terminating employees in Mexico

At-will employment does not exist in Mexico. Should you wish to terminate an employee, you must be prepared to pay a substantial severance package. In fact, all Mexican employees must receive severance, whether they voluntarily quit or were terminated. Additionally, if you wish to terminate a team member, you must prove you have just cause, and you must also pay attention to the terms of the applicable collective bargaining agreement.

Find the mandatory notice periods and termination pay for Mexican employees below:

In certain cases, employees who have been terminated and have worked for the company for two years or more can sue to be reinstated. If they win, not only will you have to give them full back pay, but you may even have to pay punitive damages. To avoid costly scenarios like this one, read our guide to terminating employees in Mexico.

Disclaimer: Rippling and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.