Hiring in Mexico without the hassle

Hiring employees in Mexico may seem like an easy solution for U.S. based companies looking to expand their talent pool while saving money. After all, we share a time zone and a border. But, as a US company hiring employees in Mexico requires an owned entity, it can be more expensive than you think. That’s where Gusto’s partnership with Remote’s EOR service comes in. Through our partnership, Remote becomes the Employer of Record, and you can hire across borders with ease knowing your business stays compliant.

Mexican employment law is employee-oriented and provides strong labor conditions and protections for employees, so hiring employees in Mexico is an important investment and commitment.

You can also pay contractors in Mexico through Gusto, but be sure to check out our section on contractor classification below.

Mexican labor law is determined by the “Ley Federal del Trabajo,” or Federal Labor Law (FLL), and the country has been significantly expanding worker protections in recent years. For any companies who want to hire in Mexico, you should be ready to continue to see additional statutory benefits, higher minimum wages, and higher taxes as well.

Let’s take a look at some of the most important things to consider before you hire Mexican workers.

Before you start interviewing, it’s important to know that Mexican work culture is more personal and friendlier than work culture in many other countries. This means it’s both appropriate and even welcomed to ask job candidates about their families, interests, and other personal aspects of their lives. You should conduct business meetings in person whenever possible and allow time for personal talk.

Mexico, like many other countries, treats self-employed individuals or contractors and full-time employees differently. Misclassification of contractors in Mexico can lead to serious fines and penalties. When considering hiring Mexican workers as employees or contractors, there are a few questions you should ask:

• Who decides where, when, and how the work is done?

• Is the work exclusive? Or can the worker perform duties for other companies?

• Who provides the equipment?

• Is the worker paid on a schedule or after invoicing?

Depending on how your worker is classified, there are some additional requirements from you, the employer.

• Statutory benefits are required for employees; benefits are not required for contractors

• Employers may not take disciplinary action against contractors (though they can terminate the relationship in accordance with the terms of the contract)

• Contractors must be allowed to engage in work with other clients

• Employers must pay taxes for employees; contractors are responsible for paying their own taxes throughout the year

Mexican employees are generally paid on the 15th and 30th of each month. An employee’s salary is subject to income tax (“ISR” is the Spanish acronym), and employers are obligated to withhold and pay this tax on the employee’s behalf.

The employer is also responsible for the following taxes, which are variable based on “UMA,” a set amount for measurement purposes that is MXN $3,300.53 monthly in 2024.

Local payroll taxes: 3% of worker’s salary, tax deductible

IMSS (social security): Varies based on worker’s salary as well as occupational hazard. You can see the breakdown here (Spanish only).

• Healthcare, sick leave and maternity:

  20.40% + 1.10% of the difference if your employee’s base salary is more than three times monthly UMA

• Disability & Life:

  1.75%

• Retirement:

  2%

• Unemployment & old age:

  3.15%–11.88%, depending on the employee's income bracket

• Occupational risk:

  0.54%–7.59% depending on hazards of the job

• Nursery & social benefits:

  1%

National Housing Fund for Workers (“INFONAVIT”): 5% of the worker’s salary.

Employers do not need to pay taxes for Independent contractors, but any work billed by contractors is subject to VAT tax of 16%, which is usually passed onto clients.

Mexican FLL provides for a handful of non-waivable benefits to all employees:

• A year-end bonus (Christmas Bonus) equivalent to at least 15 days of wages, payable prior to 20 December each year

• Annual vacation days, based on how long the employee has been with the company (see chart below)

• A vacation premium of 25% of the salary payable during the vacation period

• Profit-sharing in the form of a prorated portion of 10% of the employer’s taxable income from the previous fiscal year

• Register workers in INFONAVIT housing fund

In addition, it is mandatory for all employees to be registered in the social security system. The high taxes paid into social security by employees and employers cover a broad range of services including healthcare, sick leave, maternity leave, nursery and daycare services, disability, and pensions.

Pension

Pensions in Mexico are guaranteed for workers and are handled by IMSS. Employers can choose to add on private retirement benefits as an additional incentive.

Health Insurance

Health insurance, sick leave, and disability are all covered by IMSS but the public health system in Mexico has considerable gaps. Many employers choose to offer supplemental private healthcare as an additional incentive.

Paid time off is legally required by Mexican law and is based on how long you’ve worked for your employer. Statutory vacation starts at 12 working days, and generally increases by 2 days for each year worked up to 6 years, and then jumps up in 5-year increments.

Employees are entitled to sick leave based on the type of illness and degree of disability. IMSS, not the employer, pays the employee’s income during the leave.

After four days, sickness pay is reduced to 60 percent of the employee’s salary at the start of the disability. After one year, leave may be extended for another 26 weeks at the discretion of IMSS.

Pregnant employees can take up to 12 weeks of paid maternity leave in total. 6 weeks can be taken before the birth and 6 weeks after, but the mother can apply for approval from IMSS to move up to 4 weeks to after the birth. Maternity leave is paid for by the government through social security, and is not the employer’s responsibility. Mothers are also entitled to additional rest breaks in the six months after the birth (the nursing period).

Employees are entitled to 5 days of paid paternity leave.

Women are entitled to 6 weeks of paid maternity leave after the date of adoption. Fathers are entitled to 5 days following the adoption of the child.

Employees in Mexico receive 8 mandatory paid public holidays. January 1, the first Monday of February to commemorate February 5, the third Monday of March to commemorate March 21, as well as May 1, September 16, the third Monday of November to commemorate November 20, December 1 (every six years when a new President is elected), December 25, and any other holidays established by federal or state law.

Unlike in the US, where ‘at-will employment’ is the general rule, an employer in Mexico may only dismiss an employee without liability if there is a specific, documented cause for dismissal.

Within 5 days of the reason for dismissal occurring, the employer must notify the Labor Board in writing. The notification must include the employee’s current address so the Labor Board can officially inform the employee. If neither is done, the dismissal will be considered unjustified, and the employer will be responsible for severance (see below).

No notice period is required before termination, but the employer’s right to dismiss the employee without liability expires 30 days after the date on which the employer becomes aware of the statutory grounds for the dismissal.

If an employer doesn’t have statutory grounds for dismissal but still wants to terminate the employment relationship, they are required to make the following severance payments:

• Three months of total compensation that includes the base salary and all the benefits provided to the employee such as vacation pay, bonuses, and commissions

• A “seniority premium” consisting of 12 days of salary for each year of service, with a cap of twice the minimum wage

• Twenty days of total compensation for each year of service

• Accrued benefits earned during the last year of service, such as Christmas Bonus, vacation, vacation premium, savings fund, commissions, performance bonus, etc.

There are two types of minimum wage in Mexico: one for Mexico’s Free Zone of the Northern Border (Zona Libre de la Frontera Norte, ZLFN) that experiences higher costs of living, and another for the rest of the country. In 2024, the minimum wage was increased by 20%, the sixth-consecutive double-digit increase. The current minimum wage is:

• MXN $374.89 per day for workers in Mexico’s Free Zone (USD $20.59 per day)

• MXN $248.93 per day for the rest of the country (USD $13.67 per day)

Minimum wage also varies based on profession. You can find the full table from the National Minimum Wage Commission here (Spanish only).

Articles 59–62 of FLL set three daily shifts and determine maximum weekly working hours. Average working hours in Mexico vary, but the maximum workweek for a full-time employee in Mexico is 48 hours. The hours for each shift are spread over a six-day workweek that runs from Monday through Saturday. Workers are entitled to a thirty-minute meal break during each shift, and a 25% premium for working on a Sunday.

Generally speaking, FLL requires employees to be paid double the typical salary for the first additional nine hours of overtime, and triple the typical salary after that. However, in reality, the calculations are slightly more complex depending on which shifts an employee is working and on which days.

As of December 5, 2023, a Mexican law regulating standards for telework went into effect. If you have employees who perform their jobs from home or outside the office more than 40% of the time—and use information and communication technologies—you’ll be required to stay compliant. Here is an overview of requirements from the National Law Review:

1. At least once a year, verify that each teleworker’s workplace complies with occupational health and safety requirements through (i) a visit to the teleworker workplace, after receiving the employee’s authorization; or (ii) a checklist to be completed by the employee, and a remote visual inspection conducted by the employer.

2. At least once a year, conduct training for teleworkers related to health and safety conditions, telework policies, IT and communication tools management, and other policies required internally.

3. Include in internal telework policies rest periods for breastfeeding employees and the right to disconnection.

4. Ensure that teleworkers are using an ergonomic chair and other proper equipment.

5. Include in internal telework policies mechanisms for cases of family violence and educate employees on how to implement these mechanisms.