Mexico is the second-largest economy in Latin America and is projected to be in the top 10 global economies by 2050. The opportunities for investment are endless, with an ever-growing selection of emerging industries offering good prospects for doing business. Depending on the nature of your business, you might find that hiring staff via a professional employer organization in Mexico is your best option.
Note that a law introduced in 2021 placed limits on some types of outsourcing in Mexico.
A professional employer organization (PEO) will hire overseas staff on behalf of a client, allowing that client to avoid establishing a local entity, while securing an international workforce in just the time it takes to find the right workers. The PEO firm will oversee all aspects of the onboarding and management of salaries, and as such will often be referred to as a PEO payroll company.
Mexico is one of the most popular destinations in Latin America for foreign investment, particularly from US investors. While the convenience of Mexico’s geographic proximity is one reason for that, the scale of its economy is another.
With a gross domestic product (GDP) exceeding $1 trillion (all figures in USD), Mexico has the second-largest economy in Latin America behind only Brazil and in 2019 attracted more than $29 billion in foreign direct investment (FDI) inflows.
Mexico is known as a major trade hub, with more than $1.7 billion in goods crossing its border with the United States each day, while major ports serve both the Pacific and Atlantic oceans, giving easy access to US ports on its west and east coasts, as well as to Asia-Pacific and Europe.
While Mexico is well-known for its large agricultural sector and industrial output, with a heavy concentration of manufacturing facilities along the border with the United States, the country is also home to a growing services industry, as well as hosting an increasingly influencial tech and innovation sector.
As such, whatever type of business you are doing, Mexico has the human capital available. However partnering up with a local provider with a good understanding of the market and all aspects of employment law in Mexico will help you secure the best talent while remaining in full compliance with the law. For that reason, hiring via a professional employer organization in Mexico might be your best option.
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How to use a payroll calculator
If you are keen to get an idea of the possible costs involved in payroll outsourcing in Mexico, using a payroll calculator is one way to get a very good estimate.
Because while a payroll calculator won’t be completely accurate, it will give you the opportunity to search according to the salary, the number of employees, the country you want to enter, and the currency you wish to work in. As such, you will be able to understand your likely costs across a range of salaries, while also being able to compare other countries as potential alternative destinations.
You can find the BLH payroll calculator at the bottom of our Hiring & PEO Services page. The calculator will allow you to make good estimations of the costs involved in hiring in Latin America and the Caribbean based on country, currency, and salary, with the calculator factoring in local statutory deductions.
To use the BLH payroll calculator, you will need to undertake the following steps:
Step 1: Select the country
Choose the country where you are doing business, or planning to launch. This feature will be useful when it comes to comparing potential alternative markets.
Step 2: Select the currency you wish to deal in
You can choose between US dollars (USD), British Sterling (GBP) and Euros, as well as the local currency for the country you are looking at, based on that which is most convenient to you. Note that for Ecuador, El Salvador, and Panama, the local currency is also USD, as they have dollarized economies.
Step 3: Indicate an employees monthly income
Here you can indicate the expected salary you will be paying an employee, in the currency of your choice.
Step 4: Calculate your estimated costs
Based on all of the information you have provided, you will receive results indicating your estimated costs, including a breakdown for estimated statutory benefits you will be liable for.
Step 5: Compare your costs to other options
With a good estimate at hand of how much your staff in Mexico would be, if you are flexible about your expansion into Latin America and the Caribbean, you can use the BLH payroll calculator to compare those costs to other jurisdictions.
Why hire through a PEO in Mexico?
When you hire through a PEO in Mexico, you hand over responsibility for the management of the salaries and benefits of those workers, with the PEO firm also able to assist with their recruitment and drawing up and processing all legal documentation, such as contracts.
That is an attractive arrangement for anyone who only needs a small number of local respresentatives, handling sales or overseeing operations. It can also be a good arrangement when hiring a team for a short-term project — such as software developers delivering an individual project.
Hiring through a professional employer organziation in Mexico is also a good way of getting to know the market before making a deeper commitment through full company incorporation.
As well as the advantages in terms of time-saving and guaranteed compliance that come with hiring though a PEO firm in Mexico, another major bonus is the fact that the provider will have a well-established recruitment network and a good understanding of the local job market in terms of the best educational institutions and former employers to look for on candidate profiles.
Among the responsibilities that a PEO payroll company in Mexico will fulfill include:
- Drafting and executing employment contracts for hired employees
- Management of the whole hiring process, including initial interviews of candidates, onboarding, and managing all related documentation
- Calculating and paying salaries
- Guaranteeing all statutory benefits and leave
Real Life Example: A French company has three clients located in Mexico, and have been outsourcing this work to a Mexican service provider. Now, they are interested in expanding their operations by setting up a local legal entity. The company are looking to hire a local lawyer to work directly with the company’s clients, rather than outsource their work. Instead of establishing the local company straight away, they decide to work with a PEO service provider for six months while their client base is relatively small. The Mexican PEO service provider incorporates this Mexican lawyer onto their payroll, providing a ‘risk-free’ solution for the French company in regards to employment obligations. The employee is legally and officially registered by the PEO service provider whilst receiving instructions and reporting to the French Company. Once the company has a better understanding of the local market and has expanded their client base, they will set-up a local company and employee the lawyer with this newly formed company.
Key advantages of working with an Employer of Record in Mexico
Hiring local staff through an employer of record in Mexico will avoid the pressure of going through a company incorporation process when developing commercial activities for a short period of time and will assist you with time-consuming HR tasks. This includes recruiting, hiring, firing, managing employee payroll, and paying all taxes and social benefits to local employees, ensuring your business is fully compliant with local regulations at all times.
Moreover, with a broad knowledge of labor and tax regulations, an employer of record in Mexico will hire the most suitable and qualified personnel for your company and ensure all employee contracts comply with current legislation. Some of the main benefits of working with an employer of record in Mexico include:
Employee management: An employer of record will be capable of recruiting the most suitable and adequate employees for your organization based on your needs and resources.
Legal advice and representation: Any claim related to your company’s employees will be directed to the employer of record, who is capable of representing your business and resolving many legal issues that you may encounter in relation to employees.
Time-saving: Working with an employer of record in Mexico saves you from having to deal with bureaucratic processes and reduces administrative obligations.
Migration advice: An employer of record will guide you through the local migration system and will oversee the process of acquiring business visas or residency permits for foreign employees if needed.
Regulations handled by a professional employer organization in Mexico
As part of PEO payroll company services, your professional employer organization in Mexico will oversee the following regulations and employee benefits:
- Working hours: Under Mexican law, the working week is a maximum of 48 hours long, with at least one full day of rest.
- Minium wage: Mexico has two minimum wages, based on geography, with a higher minimum wage in the northern region.
- Bonuses: Mexican employees are entitled to a ‘13th-month bonus’ known as ‘’Aguinaldo’, this must be paid by 20 December.
- Profit sharing: Companies in Mexico are obliged to share 10% of their net annual profits with their employees.
- Vacation: Employees are entitled to six days of paid vacation after one year of service, with that allowance increasing by two days per year up until the fifth year.
- Sick Leave: An employee receives 60% of their salary if they are unable to attend work for more than 3 days due to illness.
- Parenthood leave: Paid maternity leave in Mexico totals 12 weeks, starting six weeks before the due date. Paternity leave totals five days.
Common FAQs when hiring through an Employer of Record (EOR) in Mexico
Based on our experience these are the common questions and doubts of our clients.
You can hire an employee by incorporating your own legal entity in Mexico, and then using your own entity to hire employees or you can hire through an Employer of Record (EOR), which is a third party organization that allows you to hire employees in Mexicoby acting as the legal employer. Meaning you do not need a Mexican legal entity to hire local employees.
A standard Mexican employment contract should be written in Spanish (and can also be in English) and must contain the following information:
-ID and address of the employer and employee
-City and date
-The location where the service will be provided.
-Type of tasks to be carried out
-Remuneration and bonifications/commissions (if applicable)
-Method payment frequency
-Duration of the contract.
-Additional benefits (if applicable)
The mandatory employment benefits in Mexico are the following:
-Paid time-off for national holidays
For more information on mandatory employment benefits read our recent article on Employment laws in Mexico
The total cost for an employer to hire an employee in Mexico can vary depending on the salary; however, as an indication, the cost to the employer for mandatory employment benefits is 40% to 50% on top of the employee’s gross salary, although this can vary depending on specific conditions and agreements.
Please use our Payroll Calculator to calculate employment costs.
Biz Latin Hub can be your PEO / Employer of Record firm in Mexico
At Biz Latin Hub, we provide market entry and back-office services throughout Latin America and the Caribbean, with offices in 17 key cities around the region, meaning we are ideally placed to support multi-jurisdiction market entries.
Contact us today to find out more about how we can assist you.
If you found this article on finding a professional employer organization in Mexico of interest, you may want to check out the rest of our coverage of this North American country Or read about our team and expert authors.
The information provided here within should not be construed as formal guidance or advice. Please consult a professional for your specific situation. Information provided is for informative purposes only and may not capture all pertinent laws, standards, and best practices. The regulatory landscape is continually evolving; information mentioned may be outdated and/or could undergo changes. The interpretations presented are not official. Some sections are based on the interpretations or views of relevant authorities, but we cannot ensure that these perspectives will be supported in all professional settings.