Outsourcing your HR and payroll in Mexico with a local provider is very common among companies expanding their business in the country, especially during a period where international travel is restricted. It is the best way of delegating recruitment and payroll management activities through a third party, also known as a Professional Employer Organization (PEO) or Employer of Record in Mexico.
This process allows business owners to reduce costs, streamline incorporation processes, decrease the administrative burden, as well as increase profitability. In this article, we will describe the main advantages and compliance requirements when outsourcing your HR and Payroll in Mexico.
What are the benefits of outsourcing HR and payroll in Mexico?
The process of outsourcing HR and payroll in Mexico is regulated by the Federal Labor Law. This practice, usually conducted by a Professional Employer Organization (PEO), offers a specialized service, for which a commercial relationship is established between the expanding company and the PEO, through a formal contract.
Some of the benefits of outsourcing HR and payroll in Mexico are:
- The expanding company reduces costs and time for hiring its employees through a PEO
- The payroll service is 100% deductible for the local taxes calculation, as well as 100% of the value-added tax (VAT)
- The process of outsourcing is carried out by professionals who have an in-depth knowledge of local recruitment processes and employees’ expectations
- PEOs can recruit foreign staff if required.
Social security obligations when hiring in Mexico
All companies undertaking a process of outsourcing HR and payroll in Mexico must comply with social security and tax obligations towards their employees. In this way, employees are entitled to a monthly salary and other established social benefits, such as:
Social Security: employees must be affiliated with the Mexican Social Security Institute (IMSS), where they are granted access to free medical care and process disability due to illness or maternity.
Christmas bonus: employees are entitled to an annual amount of money that is equivalent to 15 days of salary.
Holidays: after one year, employees are granted 6 days off for vacation. For each subsequent year, they’ll have 2 more days of holidays, until reaching 12; after the fourth year, the vacation period will increase by 2 days for every 5 years of work.
Sunday premium: as stated by the Federal Labor Law, employees will enjoy 25% of their corresponding wages during the vacation period.
Weekly rest day: every employee has the right to have one day of rest, for every six days worked. Within these, there are mandatory breaks established by law.
Looking to outsource HR and Payroll in Mexico? We can help
Outsourcing human resources and payroll management can be a great strategy to obtain HR expertise and successfully manage your staff abroad. Additionally, you can obtain economic and fiscal benefits for your staff through a PEO organization, since the locally-based company is responsible for making the corresponding payments for expenses such as social security, pension funds, and tax returns.
Get in touch with us – our local experts support new and expanding businesses across Latin America. We have offices in 10 countries in the region and we are expanding each year. Having such localized expertise will ultimately advance your business needs, and at BLH, we will do everything in our power to establish fair, balanced, and compromised terms of agreement with our clients that seek PEO services.
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