Hiring Employees in Mexico: US Guide

As remote work becomes more popular, more US companies are hiring employees in Mexico. Its proximity to the US, favorable exchange rate, and rapidly growing tech workforce make it an attractive starting point for international recruitment.

Mexico is home to the “Silicon Valley of Latin America” and its Science, Technology, Engineering, and Math (STEM) workforce is growing rapidly, with over 110,000 engineers graduating from Mexican universities each year and accounting for over 20% of all graduates.¹

But navigating the intricacies of Mexican labor laws and tax regulations can be daunting. In this article, we'll explore the various options and considerations for a US company hiring employees in Mexico.

💡 If you have remote employees, consider using a Wise Business account as a convenient way to pay them. Wise can help you save money and take the hassle out of international transactions.

Is Hiring Employees in Mexico Possible from the US?

Before delving into the specifics of hiring in Mexico, it's important to understand the legal framework and regulations governing employment in the country. To answer the question, yes, US employers can hire employees in Mexico, as long as they comply with Mexican labor laws.

The Mexican Constitution regulates the country’s labor law in Mexico. The Ley Federal del Trabajo (FLL) defines the relationship between employers and employees and requires all employers to provide workers with written individual employment agreements.²

Mexican labor laws tend to favor workers more than US laws. For instance, employer requirements to provide benefits, overtime pay, termination procedures, and dispute resolution methods differ. All employment contracts in Mexico are assumed to be indefinite unless they specify that the worker is a temporary employee. Fixed-term contracts can apply in certain circumstances.

Mexico’s employer taxes are among the highest in the world. Employers are obligated to pay Social Security, retirement, and National Housing Fund contributions for each employee.

How to Hire Employees in Mexico as a US Employer

There are two primary ways for US employers to hire employees in Mexico – opening a legal business entity in the country or using an Employer of Record (EOR) service.

Open a Legal Entity in Mexico

If you want to establish a presence for your business in Mexico beyond hiring one or two remote employees, you might consider opening a legal entity. This involves registering your business with the appropriate authorities, such as the Mexican Tax Administration Service (Servicio de Administración Tributaria or SAT) and the National Registry of Foreign Investments (Registro Nacional de Inversión Extranjera or RNIE), the Mexican Social Security Institute (IMSS) and the National Workers Housing Fund (INFONAVIT).

Having your own local branch has its advantages when it comes to control over the hiring process and establishing a presence close to customers and clients. But it does mean dealing with administrative work, compliance responsibilities and the cost of setting up and running a separate entity.

If you opt to go this route you should seek legal advice to ensure you fully comply with labor laws and tax requirements for hiring new employees in Mexico to avoid penalties down the line.

Use an Employer of Record

As an alternative to opening your own branch, you can use an Employer of Record (EOR) or Professional Employer Organization (PEO) to manage hiring in Mexico on your behalf. These are third-party service providers that can handle payroll, tax withholding, and other HR functions. They will have an in-depth knowledge of the local laws, helping you navigate differences between Mexican and US labor laws and ensuring you remain compliant.

This can save you money compared with setting up a local entity and allows you to focus on running your business while the administrative tasks of registration, hiring and payroll are managed for you. However, you’ll have less control over the process and you’ll be reliant on the service provider’s understanding of local regulations.

Hiring Mexican Employees vs Contractors

Rather than hiring full-time or part-time employees, you could opt to work with independent contractors based in Mexico.

• Employees typically work under the direct supervision and control of the employer, receive regular salary or wages with taxes withheld, and are entitled to benefits.

• Independent contractors have more autonomy over their work, can work for multiple clients, receive payments based on contracts or projects, are responsible for their own benefits and taxes, and may not receive the same legal protections as employees.

Distinguishing between employees and independent contractors is crucial to avoid misclassification, which could result in your company receiving penalties from the authorities.

In recent years, the Mexican government has introduced new penalties for employers who attempt to classify employees as contractors to avoid giving them certain benefits and legal protections.

If you choose to hire contractors, you should ensure that they are classified correctly and check that they register with the local tax authorities. You should also avoid clauses in their contract that give instructions on how and when to work or require exclusivity, as the authorities could interpret this as an employment relationship.

How Can You Pay Employees in Mexico?

When it comes to paying employees in Mexico, US employers have several options to consider. You should look for the most convenient and cost-effective option for your business operations.

Wise Business

Wise is a Money Services Business (MSB) provider and a smart alternative to banks that offers an online account for businesses with multiple currencies.

A Wise Business account is a smart online solution that helps small businesses save money on international payments. Features like batch payments and the ability to handle multiple currencies in one place take the hassle out of making transfers to other countries in foreign currencies such as the Mexican peso.

Wise provides transparent fees and uses the mid-market exchange rate without hidden charges, saving you money on USD to MXN payments. It’s also convenient, as recipients don’t need a Wise account to receive payments, but if they have one then It's free to send the same currency from one Wise Account to another!

These features not only save your business money, but can help to build your relationship with employees in Mexico by getting them paid on time and in their preferred currency.

🗝️ Some key features of Wise Business include:

Major local account details to receive international payments with ease No monthly account fees just a simple one-off fee for account details Receive payments from e-commerce platforms (such as Amazon or via Stripe). Create invoices using the Wise invoice generator or invoice templates. Accounting integrations, including a QuickBooks Bill Pay connection. Bill payments will be synced, matched, and categorized in QuickBooks for simple reconciliation. Batch payment options. Fast payment of up to 1,000 people.

Open a Wise Business account online

Payment Providers

Online payment providers such as Payoneer or PayPal Business also offer convenient ways to pay employees abroad. They make it easy to send payments to employees who have existing accounts, helping them to manage their money efficiently.

Payoneer provides flexible solutions for salaries, hourly wages, or contracts and invoices. It is widely used by freelancers, online retailers and platform users to send and receive payments from clients, companies and businesses in other countries.

However, it charges exchange rate markups and additional fees that can increase the total cost of any payments you make to remote employees. PayPal Business is another popular option, but it also charges additional fees to both senders and recipients.

Bank Transfer

If you want to pay employees in Mexico directly from your business checking account, you’ll first need to check that your bank supports international payments. If it does, watch out for foreign currency fees and exchange rate markups on payments to Mexico in Mexican pesos – banks may charge high fees for foreign currency transfers to banks abroad.

Keep in mind that bank transfers can take several business days to clear, whereas online service providers typically make clear payments faster.

💡 Use Wise Business to get the mid-market exchange rate for US dollar (USD) to Mexican peso (MXN) transfers and save on unnecessary currency conversion fees.

What Benefits Do You Need to Pay to Employees in Mexico?

If you employ remote workers in Mexico, it’s important to understand that they are entitled tostatutory employee benefits that are unfamiliar to US companies.³ These benefits are comparatively generous, but you may still want to offer additional benefits to attract the best talent.

Benefits include:

• Vacation: Employees are entitled to at least 12 days of paid vacation per year after the first year of employment, which rises each year by two days until they reach 20 days, and then increases by 2 days for every 5 years of service. Employees are also entitled to a premium of 25% of their wages in addition to their base salary during their vacation.

• Profit sharing: Employees are entitled to receive a 10% share of their company’s annual profits, which the employer must pay within 60 days of filing their tax returns. The distribution is divided into two equal parts – one based on the number of days each employee worked during the year and the other in proportion to the wages earned during the year.

• Weekly day off: All workers in Mexico should receive a minimum of one paid day off for every six days worked. Where possible, employers should give workers Sunday off, otherwise they are entitled to a 25% premium on top of their full pay.

• Christmas bonus: All Mexican employees are entitled to an annual Christmas bonus equivalent to at least 15 days’ pay, regardless of how long they’ve worked. The bonus must be paid by December 20 each year.

• National holidays: In addition to Mexico’s seven annual national holidays, employees are also entitled to paid days off for Election Day, depending on local laws, as well as December 1 every six years if the president changes. If an employee has to work on a national holiday, they must receive triple their wages.

• Social Security: Employers and employees must make contributions to the Instituto Mexicano del Seguro Social (IMSS). The IMSS provides various social and healthcare benefits, including sick leave, healthcare, parental leave, employment insurance and life insurance. This means that in many cases an employer doesn’t have to make extra payments, such as sick pay.

• Severance pay: If it is established that an employee’s contract is terminated without just cause, employers may be liable to pay them a certain amount based on their wages or salary and seniority.

• Other benefits: In addition to the statutory benefits employers are required to pay, many employers offer additional benefits such as private health insurance, savings plans, transportation reimbursement, and productivity bonuses.

Employee benefits play a significant role in attracting and retaining talent in Mexico. From healthcare and retirement plans to vacation days and bonuses, offering competitive benefits is essential for maintaining a satisfied and productive workforce.

🔍 You can also read the full guide to employee benefits in Mexico

What Currency Should You Use to Pay Employees in Mexico?

Mexican law requires that all employees be paid in pesos from Mexican bank accounts. The government has designated a list of acceptable financial institutions, so you need to ensure you choose one that is approved. The Mexican Tax Administration Service (SAT) must approve employees’ pay stubs before they can receive official documentation of their pay from their employer.

It’s important to consider how the USD to MXN conversion rate will affect your payment costs and how much money your employees will receive. Transferring money from your USD bank account to an approved Mexican account can end up costing money in fees and exchange rate markups. Exchange rate volatility could also result in employees receiving less money than expected once the conversion is made.

One solution is to open a Wise Business account. You can exchange USD to MXN at the mid-market rate, and transfer funds to your approved Mexican account just like a local payment – helping your money go further.

Discover Wise Business: The Simple Way to Pay Employees in Mexico

Expanding your business into Mexico offers exciting opportunities for growth and expansion, but you should be mindful of currency conversion rates and associated fees when transferring funds to Mexican accounts. It’s also importan to use a payment provider that offers fast transfers, so your employees can get paid on time.

A Wise Business account is designed to help businesses save money and take the hassle out of international payments. If you have remote employees in Mexico, you can benefit from:

• No monthly fees or minimum balance requirements
• International payments at the mid-market exchange rate
• The ability to hold over 40 currencies and manage multiple currencies all in one place
• Rate alerts for conversion rates
• Easy batch payments
• QuickBooks and other accounting software connections to track payments

You can find out more about the features of a Wise Business account and how it can help you save money on international payments here.

Or simply
open an account online

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Sources:

¹IT Industry In Mexico | Move IT Operations To Mexico
²Mexican Federal Labor Law In English
³Employee benefits in Mexico | L&E Global

All sources checked March 2024.