Hiring in Mexico

Challenges of Hiring in Mexico

Mexico remains an attractive market for international expansion, yet here’s a breakdown of challenges you might encounter: 

1) Employment Laws

Mexico’s employment laws prescribe a well-compensated and secure workforce, yet extending the same can be challenging, even for remote employees. It could prove to be a significant hurdle for hiring in Mexico because

• Employees can resign without notice, leaving you short-staffed and recruiting in Mexico.  
• You must factor in generous paid time off benefits and reduced work time.
• You must learn about workers’ right to organize and potentially face collective bargaining agreements. 

2) Payroll

Here's why global payroll presents a challenge and what specific aspects demand your attention to hire employees in Mexico:

• You must plan a compensation package based on statutory minimum wage requirements, which vary between MXN 374.89/day and MXN 248.93/day as per location. Companies must distribute about 10% of their annual profits to employees. Additionally, employees must receive a mandatory Christmas bonus. 

• Mexican law mandates severance pay for all departing employees, regardless of the reason for leaving. 
• You may incur about 27% on an annual salary of USD 60,000 for every employee.  

3) Competitive Talent Landscape

Businesses may face the following challenges while hiring workers in Mexico: 

• Skills mismatch: There is a mismatch between the skills of the Mexican workforce and the needs of industry. Several studies have reported shortages of skilled workers and engineers in Mexico.
• Labor shortages: Labor shortages exist in some sectors, such as manufacturing, particularly along the U.S.-Mexico border. This is primarily due to higher wages in the informal economy.‍
• Informality: Many workers in Mexico prefer informal jobs over formal jobs. It makes it difficult for businesses to hire reliable workers. You can utilize this comprehensive guide on global talent acquisition for strategic hiring in Mexico.

How to Hire in Mexico

Here's your roadmap to successfully hire employees from Mexico: 

• Research salary trends for your target positions and local regions, or even apply for work visas for foreign hires to prepare a pre-hiring strategy. 
• Post job openings on popular Mexican job boards like Indeed Mexico, OCC Mundial, Elempleos, Bumeran, Feufo, etc.
• Invest in Spanish language resources to foster better communication and cultural understanding.
• You can showcase attractive benefits packages that align with labor laws' statutory requirements. These include healthcare contributions, social security contributions, and more.

Let’s now discuss the three best options required to hire Mexican workers:

Setting up a local entity

This involves registering a legal entity in Mexico. 

• Sociedad Anónima de Capital Variable (S.A. de C.V.) is a corporate structure similar to the US, with limited liability, variable capital, and broad ownership options. 
• Sociedad de Responsabilidad Limitada de Capital Variable (S. de R.L. de C.V.) is an LLC-like structure with limited liability, variable capital, and member-driven management.
• Sociedad Anónima Promotora de Inversión de Capital Variable (S.A.P.I de C.V.) is designed to attract investment. It offers a simplified structure, flexible security issuance, and access to specialized investment benefits.

You can choose between these entities depending on the business's specific needs and objectives. Moreover, whichever legal entity you choose, you will have significant control over hiring in Mexico, payroll, employment contracts, and employee relations.

However, the process of setting up a legal entity to hire staff in Mexico can be time-consuming and expensive, as it requires navigating complex Mexican bureaucracy and legalities. Further, more hidden challenges and costs could be associated with establishing an entity in Mexico.

Thankfully, Skuad offers a great solution to simplify your hiring in Mexico by making it more resource-efficient and cost-effective. 

Hiring employees via EOR

You can partner with Employer-of-Record (EOR) solutions specializing in Mexican labor laws, payroll compliance, and benefits administrations to ensure hiring compliance with unique local regulations. 

Skuad is one such EOR provider that can act as the legal employer on your behalf and help you hire in Mexico. You will have specialists handle legalities, making your hiring process faster and easier. 

However, you will have less control over employee relations, and EOR fees add to your overall labor costs. 

Hiring contractors through AOR

Mexican labor laws strictly define "employee" vs. "independent contractor." Correctly classifying workers is important to avoid legal issues. To hire independent contractors in Mexico, you can utilize specialized services from an Agent-of-Record (AOR) like Skuad. 

AOR solutions cater specifically to managing the unique requirements of independent contractors. They work exceptionally well to hire contractors in Mexico for temporary or project-based work while lowering costs compared to full-time employees.

Cost of Hiring in Mexico

Hiring in Mexico involves additional costs compared to some countries. We will list the most common expenses to consider. You can also utilize our cost calculator to consider specific expenses. 

• Salary and benefits: This includes the base salary you offer, mandatory profit-sharing, a Christmas bonus, paid time off benefits, severance pay, and end-of-service benefits. 
• Payroll taxes and Social Security: You are responsible for withholding a portion of the employee's salary for Social Security and other programs. The employer’s annual contribution is limited to MXN 188,657.
• Recruitment costs: This may include advertising fees, job board postings, recruitment agency fees, and interview travel expenses.
• Onboarding costs: These cover expenses related to training new hires, providing them with the necessary equipment, and integrating them into the team. 

The table below summarizes the cost structures of setting up a local entity versus using an EOR or AOR.

A Brief About Employment Laws in Mexico

Here’s a breakdown of Mexico’s legal framework shaping employer-employee relations. It will give you an overview of compliance before hiring in Mexico. 

• Mexican Federal Labor Law (Ley Federal del Trabajo) outlines core principles, worker rights, and employer obligations. 
• National Minimum Wage Laws (Salarios Mínimos): These laws ensure a baseline income level for workers in various geographic zones in Mexico. 
• Collective Bargaining Agreements: Industry-specific negotiations to improve employment conditions.
• Social Security Law (Ley del Seguro Social): It outlines social security contributions for employees and employers, covering healthcare, disability, and retirement benefits. 
• Profit-Sharing Law (Ley de Reparto de Utilidades a los Trabajadores): This law mandates that companies distribute a portion of their annual profits to employees as a bonus.

Additionally, there may be state-specific labor laws that address specific regional considerations. 

Hiring in Mexico is Better with Skuad

Skuad can step in as your strategic hiring partner.

Skuad's EOR/AOR handles all the legalities, payroll processing, and tax filings, ensuring complete compliance with Mexican employment regulations. This frees you to focus on recruiting exceptional talent and other business operations. 

Skuad’s expertise helps you build a globally distributed team in Mexico and over 160 other countries without the complexities of setting up local entities. This also allows you to scale your team efficiently and confidently.

Let Skuad be your guide to a successful and compliant international expansion. Book your free demo today! 

FAQs

Q1. How do I employ someone from Mexico?

To employ someone from Mexico, choose between setting up your local entity or partnering with a third-party company that offers employer-of-record or agent-of-record solutions. The difference is in administration and compliance costs and the degree of control over employees.   

Q2. Can I hire a contractor from Mexico?

Yes, you can hire a contractor from Mexico. Various reports have reported Mexico’s growing informal economy and workforce preference to work remotely or on a contract basis. You can partner with an Agency of Record (AOR) to streamline the process of hiring contractors and ensure compliance with Mexican labor laws.

Q3. How do I pay an employee in Mexico?

Mexican law mandates payment in Mexican pesos. Further, you must adhere to the prescribed date for payment:  

• Pay date: 13th of the Month / Last day of the month 
• Expenses/adjustment cut off: Last day of the month/ 15th of the month
• Onboarding cut off: 5th & 20th of the month

Don’t forget to factor in mandatory benefits like social security and profit-sharing and bonuses like Christmas pay. You can simplify the process by partnering with a payroll service provider.

Q4. What are the obligations of employers in Mexico?

Employers in Mexico must comply with labor laws prescribing minimum wage, employment agreements, and statutory employee benefits, including holidays, leave, social security, severance pay, payroll requirements, and workplace safety regulations. Partnering with an HR compliance expert can simplify the process.