Mexico PEO & Employer of Record

WeHG provides an International PEO and Global Employer of Record service in Mexico to companies willing to enter the Mexico market or hire local/expat employees in this country.

The traditional approach requires establishing a subsidiary in Mexico.  However, our solution allows you to start the operations in Mexico within days, therefore, saving time and money.  WeHG would hire candidates on your behalf while you maintain full operational control of their work. So legally they would be our employees, on our local payroll, 100% compliant but will work on your behalf. 

Mexico fast facts

Population, million: 129,150,971 (2022)
Land area: 1,972,552 km²
Capital: Mexico City
Local currency: Mexican Nuevo Peso (MXN)

GDP per capita: $10,045.68
GDP in currency: $1272.84 billion
Economic growth percentage: 3.7%
Inflation rate (consumer prices): 7.619%
The volume of export: $522.53 billion
Import of goods and services: $ 677.3 billion
Total population: 28,932,753
The population of working age (15-64): 67.4%

Mexico is a sizable country of contrasts, contradictions and rich culture. It’s 761,603 square miles (1,972,552 sq. km) are roughly triangular in shape, with two jutting peninsulas – Baja (Lower) California and the Yucatan. It is slightly less than three times the size of Texas, to give you a comparative sense of its size.

A federal republic made up of 31 states and one Federal District (Mexico City), Mexico shares a border with the United States to the north, Belize and Guatemala to the south, and is bounded on two sides by expanses of water—on the west, the Pacific Ocean and to the east, the Gulf of Mexico. Mexico lies in both the Temperate and Torrid Zones, with towering mountains alternating with broad plateaus, and scenic highlands giving way to untouched jungles. Its highest point is Volcan Pico de Orizaba, at 5,700 meters high.

Hiring, Negotiating and Doing Business in Mexico

Necessity of written employment contract

Under Mexican Labor Law, an individual employment contract (Contrato de Trabajo) allows an individual to engage in subordinated personnel services for an employer in exchange for a salary.  The contract covers the obligations that bind both the employee and the employer for the duration of the employment relationship. The employment contract may be verbal or written, and while there is no prejudice against the employee if there is no signed agreement, a written one is highly advised for issues arising in litigation.

Mexico Employment Contract

Types of employment agreements

Under the Federal Labour Law, fixed-term employment agreements can be validly entered into only when:

• the temporary and extraordinary nature of a job requires it; or
• an employer must temporarily replace an employee.

As such, there is no legal basis for an employer to execute a fixed-term employment agreement when it needs to hire a permanent, rather than a temporary, employee.

Fixed-term employment agreements are not agreements for probationary purposes, although they have been erroneously used across Mexico for the initial hiring of personnel as a means to evaluate if they will be offered a permanent position.

Failure to apply fixed-term agreements in accordance with the Federal Labour Law may result in a temporary employment relationship being classified as an employment relationship for an indefinite term.

Mexico working hours

The day shift in Mexico is eight hours long. These hours can fit flexibly between 6:00 a.m. and 8:00 p.m. A full-time Mexican day shift worker spends 48 total hours on the job during the workweek.

The night shift in Mexico occurs during a seven-hour period between 8:00 p.m. and 6:00 a.m. Full-time night shift workers in Mexico spend a total of 42 hours on the job during their workweek.

The mixed shift in Mexico is 7.5 hours long, and can consist of hours considered partly day and partly night shift. The night shift component of a mixed shift is limited to 3.5 hours. Full-time mixed shift workers spend a total of 45 hours on the job during their workweek.

Overtime

An employee can work up to three hours of overtime per day for up to nine hours per week at double the standard hourly rate. Employers must compensate employees who work more than nine overtime hours at three times their regular hourly rate.

The law prohibits overtime work for anyone under the age of 16, and pregnant or nursing mothers if it endangers the worker’s or the child’s life.

Vacation leave in Mexico

Workers are entitled to 6 vacation days after being employed for one year, and to 2 additional days for each subsequent year, up to a maximum of 12 days. As of the fifth year, the worker is entitled to 14 workdays’ vacation; for each additional group of five years, two more vacation days are added. Employers must pay workers a vacation premium equivalent to 25 per cent of the salary earned during the vacation days. Vacations must be taken on the date indicated by the employer, within 6 months following the worker’s anniversary with the employer.

Sick leave: 

An employee is entitled to sick leave depending on the type of illness and degree of disability. The IMSS, not the employer, pays the employee’s income during the leave. There is no mandatory unpaid medical leave of absence in Mexico. If the employee needs an unpaid medical leave of absence due to a condition not recognised by the IMSS, then the employer has the discretion to grant the leave.

The FLL provides leave due to: Occupational Injuries: defined as any accident or disease to which the employees are exposed in the course of their employment, or any consequences thereof; Industrial Accident: defined as any organic injury, functional disturbance (whether immediate or subsequent) or death, occurring suddenly in the course of the employment or as a result thereof (i.e., the place where or the time when the accident occurs is related to the employment); or Occupational Diseases: defined as any pathological condition arising out of the continued action of a cause that has its origin or motive in the employment or in the environment in which the employee is obliged to render his services.

Mexico Maternity Leave

Employed women have a right to maternity leave for 42 days following delivery, during which time the IMSS will pay them 100 percent of their reported wage. If working is impossible due to pregnancy or delivery, statutory maternity leave may be extended as needed. The employee continues to earn her usual pay while on maternity leave. The new mother is entitled to two additional thirty-minute rest times per day during the first six months of breastfeeding at a suitable and hygienic location designated by the employer.

When returning from maternity leave, the employee is entitled to reinstatement, provided that not more than one year has passed since the date of delivery. Maternity leave is included in the length of service. Moreover, working mothers may request the employer transfer up to four weeks of pregnancy leave in order to enjoy themselves after childbirth. Male employees are entitled to enjoy a paid paternity leave of five days when the child is born or in case of adoption, as of the placement of the child.

Mexico Severance Laws

Employment agreements may be terminated through several methods, including:

• Mutual agreement
• Death of the employee
• Incapacity of the employee to continue work
• With cause termination
• Termination upon end of project or fixed-term contract

Mexican legislation requires that for the employer to terminate the employment contract, a “just cause” (causa justificada) must be provided for any behavior of an employee that may warrant termination. Employees with more than 20 years of service with one employer may only be terminated if the just cause is particularly serious and renders the employment relationship impossible to continue. Some examples of “just cause” termination reasons include:

• Use of false documentation to secure employment
• Lack of honesty or demonstrating violence, threats or injury towards another employee
• Acts of harassment or sexual harassment
• Intentional damage of employers’ property
• Negligence that causes damage to property
• Immoral acts in the workplace
• Disclosure of trade secrets or confidential information
• Termination due to Collective Redundancies

There is no obligation under the law for either employers or employees to notify the other party in advance of a dismissal or resignation. Notice obligations for employees are not recognisable or enforceable under local law. Only notice obligations for employers can be enforced if they have been agreed to: however, it is not common for employers in Mexico to agree to notify employees in advance of their employment termination.

Mexico Tax

Individuals are generally liable to income tax at the rate of 25% on their chargeable income (not exceeding 6 million Jamaican dollars [JMD] per annum) less an annual tax-free threshold (where applicable). Chargeable income derived in excess of JMD 6 million per annum is subject to income tax at a rate of 30%.
Pension – employer voluntary contribution up to 20% of salary. This is additional to 2.5% compulsory for NIS.

The AFOREs, which is the administrator of Retirement Funds (Administradora de Fondos para el Retiro in Spanish), are financial institutions that administer retirement savings accounts on behalf of the employee. All employees associated with the IMSS, ISSTE (applies to government employees) as well as independent employees are eligible to open an AFORE account. An AFORE account consists of the following three subaccounts:

• RCV (Retirement, and Unemployment as a result of old Age or subcuenta de Retiro, Cesantia en edad avanzada y vejez in Spanish):
  • Retirement: 2% employer contribution
  • Unemployment due to old age: 3.15% employer contribution, 1.125% employee contribution, 0.255% federal government contribution. Additionally, the federal government contributes $1.45 Mexican pesos daily.
• Housing (this is administered by Infonavit, Mexico’s federal institute for worker’s housing and AFORE only registers and controls the funds): 5% employer contribution
• Voluntary Contributions: Voluntary contributions made by the employee to increase their retirement savings.

Please note the above contribution rates vary for government workers.

The employee has to specify which AFORE they have selected to set aside their retirement funds. If after one year of service the employee hasn’t selected an AFORE, CONSAR (Mexican Commission of Retirement Savings) will assign the employee’s account to the AFORE charging the lowest commissions and the funds contributed during that year will be transferred to the selected AFORE account. The employee will have the option to change their AFORE if they decide.

Health Insurance Benefits in Mexico

The Mexican Social Security Institute (Instituto Mexicano del Seguro Social, IMSS), a governmental organization in Mexico, mandates coverage of public health care for all employees. However, given some of the disadvantages of the public health care system such as lengthy wait times to see a doctor or specialist, shortage of doctors, lack of flexibility, etc., many employers provide supplemental private medical insurance to their employees.

Some companies offer their employees a private insurance scheme as part of their employment remuneration. Although less than 3% of Mexicans possess a private medical insurance policy, 52% of the country’s total medical expenditures are for private medical services. Private insurance is often preferred as it covers more expensive treatments.

Additional Benefits in Mexico

Employees in Mexico have a right to receive a year-end bonus known as Aguinaldo. The bonus is distributed in December and equates to at least 15 days’ wages if the team member worked for a complete year. If the employee worked for less than a year, the employer distributes a bonus equaling a proportional percentage of their earnings.

Mexico Holidays

Here are the public holidays for Mexico in 2023;

• New Year’s Day – January, 1
• Constitution Day – February, 5
• Benito Juárez’s Birthday – March, 20
• Good Friday – April, 7
• Labour Day/May Day – May, 1
• Grito de Dolores (Independence Day) – September, 16
• Revolution Day – November, 20
• Christmas Day – December, 25

Why Choose WeHireGlobally

WeHG takes care of all the onboarding hurdles, payroll, compensation and benefits, tax filing, and termination of employment. Our Employer of Record solution allows you to manage your overseas teams efficiently while minimizing cost and risk.