Human Resources in Mexico

ROADMAP to Hiring Employees in Mexico

Welcome to our roadmap for hiring employees in Mexico. This is meant to serve as a basic guide to those interested in contracting local employees in Mexico, and discussed aspects of compliance with local labor laws, initiating operations and general strategies concerning the labor market.

Basic Requirements to Employ Mexican Workers. Clients have two primary options to contract local employees domestically. Form a legal entity in Mexico to directly hire the employees or use a Professional Employment Organizer (PEO) service to contract employees on their behalf for a fee as the local Employer of Record.

Direct Hire Option

• Incorporate legal entity
• Contract registered address or registered office
• Register with SAT
• Obtain company electronic signature
• Obtain Mexican Social Security Institute Employer Number
• Obtain state payroll tax registration
• Create corporate bank account
• Register for private supplemental insurance and additional benefits

Or

PEO/Employer of Record Option

• Contract via local Professional Employment Organizer (PEO) to perform all payroll functions and act as employer of record for local employees

Choose the Best Option. You will have to decide which option is right for you. On the one hand, creating a Mexican-based legal entity will permit greater control over your operation and provide increased flexibility in terms of offering benefits and custom employment solutions for the retention of top talent. This is the best option if your company will employ a large number of employees as it can decrease costs by achieving economies of scale. However, this option initially is more expensive as legal entities in Mexico are somewhat costly in terms of start-up and registration costs, and monthly accounting and administrative fees.

One the other hand a local PEO Outsourcing Service is a good option for companies with only a handful of employees. Why? Initial investment in both terms of time and expense are minimal, and the administrative burden of maintaining compliance with local labor regulations is borne by the PEO service. However, on a long-term basis the expense of using a PEO may be greater when compared to the incorporation of a legal entity in Mexico in terms of accumulated fees as a percentage of employees’ salaries – which is the standard fee structure for PEO services.

Retain an accountant or HR firm to administer local benefits. Retaining a good accountant or HR firm is essential. All employers in Mexico provide basic benefits to employees as stated below – the basic “floor” of benefits. They are provided and administered under the umbrella of services referred to as seguro social by the Mexican Social Security Institute (“IMSS” or “Instituto Mexicano del Seguridad Social”).

• Work-place risk premium (workers compensation)
• Healthcare and maternity benefits
• Disability benefits
• Retirement
• Child-care and social benefits
• Public housing benefits

Finalize legal entity registrations to employ workers. Once the legal entity is created, as stated in the list above, it will need to be registered before the IMSS to receive a unique employer number (“registro patronal”), public housing fund, and state payroll registration. These registrations permit the company to provide these basic benefits. These benefits are deducted by way of both employee-side contributions and employer-side contributions in differing percentages that change year upon year – slightly.

Contract Employees. Draft labor agreements and retain employees. Employees should always, without exception, have an employment agreement. Temporary training contracts permitting employees to be terminated after a fixed trial period or other special employment arrangement should be considered and put in place where possible.

Perform On-Going Compliance. Compliance filings must be made and contributions must be paid on a monthly and bi-monthly basis by the 17th or 20th of the month following the month corresponding to the payroll period. Additionally, the company should also be registered for payment of local payroll taxes. Payments of these benefits and tax deductions are generally paid online in Mexico, exclusively. Therefore, you must have the corporate bank account finalized before providing these benefits.

• SAT employee and employer income tax filings
• SAT sales tax filings
• IMSS administrative filings
• State Payroll Tax Filings

A PEO outsourcing service can generally handle all of these aspects for you. Otherwise, incorporating a legal entity in Mexico might be a better option, but requires a higher initial investment and entails greater administrative responsibility. On the other hand, the latter may provide better levels of client-prestige, cost efficiency where a large number of employees are concerned, and flexibility.

Employee Benefits and Standards

Mexico requires monthly contributions and deductions covering social security, retirement plans, and public housing. The Mexican social security system is referred to collectively as IMSS. The Mexican public housing program or Housing Promotion Fund is referred to as INFONVAVIT (Instituto Nacional para el Fomento a la Vivienda para Trabajadores). The Mexican Retirement Savings System is referred to by the acronym SAR. These payments equate to about 15% to 20% of a given workers salary. The employer is primarily responsible for paying the contributions, with a lesser amount corresponding to the employee. The single largest deduction for which employees are responsible is their monthly personal income tax.

Employment Benefits

The employer has the obligation to retain government benefits from the employee’s salary and submit these contributions to the authorities directly. These are government sponsored public benefits. It is important to be aware that total employee related deductions may be shared between the Mexican company and the employee each party contributing to roughly 15% of the base salary and totaling approximately 30%. The contributions will be paid by the Mexican company from its corporate account to the authorities.

The following is a non-exhaustive list of the contributions the Mexican Company will pay on behalf of the employee.

Government Deductions:

• Life Insurance
• Unemployment
• Sick-Leave
• Retirement
• Gov’t Health Plan (IMSS)
• Public Housing Contribution (INFONAVIT)
• Public Child-Care Deduction
• State Wage Taxes Employee Benefits: Mexico has an extensive list of employment benefits required by law. These benefits need to be calculated and issued for each employee based primarily on length of employment and base salary. The Mexican company should pay to the employee the minimum of benefits that are established by the labor law. These are the following:

Vacations and Holidays:

Vacation per year

• 6 days for the first year
• 8 for the second year
• 10 for the third year
• 12 for the fourth.
• If the employee works for more time, the days of vacation should be 2 days… for every 5 years worked.

Employees are also entitled to one non-workday per week. In Mexico, the work week in many cases is considered up to 6 days as opposed to 5 in other jurisdictions.

Bonuses and Salary

• Vacation days are paid at a rate of the 25% of the employee normal wage.
• Christmas Bonus “Aguinaldo” of 15 days of salary per year paid prior to the 20th day of December annually.
• Mandatory severance pay of at least 3 months in case of dismissal without cause

Documentation of the Employment Relationship:

In general, labor laws in Mexico regarding Mexican companies should be considered “pro-employee”. It is very important that all major activities, actions and aspects of the employment relationship be documented. Our firm will assist the Mexican company in drafting the necessary documentation and undertake the required procedures to evidence the contractual relationship.

All agreements involving employment must be in writing. Special agreements can be drafted to provide for temporary labor arrangements, probationary contracts, and flexible training periods. Consideration should be made as to whether the employee is a confidential worker, a manager, or otherwise has specific technical or professional abilities. In cases of the latter, different employment standards may apply regarding length of temporary employment or training periods anywhere from 30 to 180 days.

Length of Employment

As a general rule, Mexican law considers individual employment relationship to be for an indefinite period, but the Labor Law gives the Mexican Company the option to enter into employment arrangements for specific periods. In most cases, the contract that we recommend to enter into is a training contract, in which the Mexican company and the employee enter into an employment arrangement on a provisional basis for a period of 90 days. The Mexican company can utilize this period to evaluate and consider whether to continue the labor relationship or to terminate it.

Upon termination of the evaluation period, the employment contract is signed for an indefinite period. This permanent contract will need to be drafted and entered into between the Mexican company and the employee only after the initial probationary period has ended. Otherwise, the contact during the evaluation period will convert into an indefinite employment agreement between the Mexican company and the employer on the same terms.

Severance Pay in Mexico

Termination of the Employment Relationship

A Mexican company may only terminate the employment relationship in a limited number of circumstance and with legal cause. Otherwise, the Mexican Company must pay to the employee a severance payment. The Mexican Federal Labor Law establishes the causes in which the Mexican company can dismiss an employee:

• 3 unjustified absences within 30 days.
• Submission of false documentation
• Threats or aggression toward the employer or coworkers.
• Sexual harassment.
• Violation of corporate trust or confidentiality
• Recklessness or negligence
• Drug use

Termination Condition 1: In the case of Justified Dismissal of the worker for legal causes listed above, the employer must pay:

• Severance Payment “Finiquito” (earned wages, pending benefits, pending vacations, premiums owed etc.)
• Seniority premium of 20 days per year

Termination Condition 2. In the case of Justified Dismissal of the worker, without legal cause, the employer must pay:

• Three months’ salary indemnification payment
• Severance Payment “Finiquito” (earned wages, pending benefits, pending vacations, premiums owed etc.)
• Seniority premium. “Prima de Antigüedad” The seniority premium consists of an award that the employer gives to the workers for the sole course of time in which they were serving the company.

Termination Condition 3: In the case of Unjustified dismissal without cause, the employer must pay:

• Three months’ salary indemnification payment
• Severance Payment “Finiquito” (Salaries earned, pending benefits, pending vacations, premiums owed, etc.)
• Seniority premium of 20 days per year
• Proportional parts of Christmas bonus; vacations and vacation bonus and current benefits that have been covere
• Penalization 20 days per year

PEO/Employer of Record in Mexico

The process of contracting employees in Mexico in presents several important points of consideration before choosing the best model that suits your needs. First, a company can elect to directly hire employees in Mexico by way of an incorporated company or subsidiary. Second, a company can utilize a third-party staffing or human capital management firm to act as a PEO (Professional Employment Organization). Under the latter, the PEO will act as the local employer of record. This article compares both models to assist potential clients to make informed decisions.

Is the employment temporary or indefinite?

Decide whether you project creates a long-term obligation for retaining employees in Mexico. This is really if you consider creating a permanent establishment or administrative office in country. Otherwise, consider with your project creates a short to mid-term obligation and may be linked to a specific project of a predicable start date and end date.

Will your company only need to employ local employees intermittently, periodically, or otherwise for a particular local project that requires specific staffing needs.

How many employees are being hired?

Start-up cost and administrative costs in Mexico can be high in terms of incorporating and maintaining a legal entity. These costs are not just financial, but exist in terms administration, compliance and management. This burden should be considered in terms of “spreading out” the administrative burden compared to cost per employee. This ultimately will be affected by the number of employees involved, especially where the client is attempting to achieve economies of scale and lower costs per employee.

Does your company need to engage, contract and bill clients locally in Mexico?

Consider what your desired level of involvement is? This point piggy backs of previous and first points made in this article. Does your company want to remain more hands off from payroll and local employment administration? There are many compliance requirements, regulations, and complexities when dealing with Mexican tax and employment laws, at severance, at-will employment, and social safety-net considerations. Do not ever assume that this learning curve is simple despite any lengthy attempts to understand on your own. Lawyers and accountants with years of experience are still surprised – including this author. There will be many “unknown unknowns” that your company will potentially fail to take into account and not realize it. The question is does your company have the capacity to have the management and administrative capacity to oversee these administrative considerations in Mexico, or do you plan to take a “hands off” approach?

What’s the verdict? Should you company choose a PEO model or a direct hire human capital management model?

Above, basically what we have done is to create a framework of analysis for evaluating this ultimate question. If you company has a small number of employees and who will only be involved in a project for a short or discernable period of time, it is likely that a PEO model will best suit your company’s needs. Your company will not have to jump through the hoops of incorporating a subsidiary, opening the necessary registrations, hiring an accountant and law firm to apply for employee, tax, and other payroll considerations. A PEO or human capital management company, like or firm MexInc, will handle all of this for you.

Indeed, even if your company will be hiring a large number of employees, a PEO model can still present some very attractive considerations. Your company can begin to contract employees almost immediately, sponsor work-visas, and continue to have the majority of the heavy administrative lifting handled completely by someone else in a consolidated and streamlined solution. Everything is taken care of for you. As most companies using a PEO model will charge a percentage fee per employee based on salary, you will need to consider if the efficiencies achieved by using a PEO out way the operational cost of incorporating a subsidiary entity and pursing a direct hire model. Remember, a direct hire model means paying accountants, lawyers and advisers to maintain operations and also requires more attention from your company to keep things going smoothly.

PEO services models also provide packaged solutions that may lower costs. For example, many will have standard employment contract models, benefits plans, employee compliance documentation, procedures, and software that you would otherwise have to contract, design and pay for. In our firm, we have use a highly advanced cloud-based human capital management system. Contracting this service locally on your own would require tens of thousands of dollars in investment. Our clients also may provide their employees through our PEO service advanced payroll benefits from private health insurance, life insurance, savings and retirement plans, and more.

Using a direct hire model, may offer certain flexibilities in designing a customs solution on your own, with particular benefits plans or providers of your company’s own choosing. Furthermore, a direct hire model offers advantages in relation to maintaining direct control of all aspects of human resources generally. However, a PEO model may be easier to use as a basis to write off labor costs more easily by the parent company as an all-in-one payment for everything HR related.

If your company does not have the need to bill or invoice in Mexico, or will not be serving a client in the local market specifically, than a PEO model is a great solution. Most companies come to Mexico for to reasons: complying with local taxation and contractual formalities (electronic invoicing, VAT, or income tax). Or on the other hand, take advantage of lower wages and employment costs. If your company does not have any specific local invoicing or other compliance needs, this weighs somewhat in favor of a PEO model. If your company, does have local tax or contractual compliance needs, you will have to go through the process of opening a corporate subsidiary anyway – there’s no way around this – and in such case a direct hire model might be more appropriate.

Employee Recruitment in Mexico

MexInc provides complete local employee and executive recruitment services, in addition to cutting-edge payroll administration solutions. Our human resources area is led by certified and licensed professionals, including a psychologist, approach the recruitment process in a systematic manner to achieve the client’s objectives.

Our staff trained to bridge the cultural divide. Many clients are not used to the many business and cultural differences in Mexico when evaluating candidates. The Mexican workforce has labor expectations and skill sets that are unique to this country.

• Mexico emphasizes more on professional experience
• Mexico’s education system is more technical rather than theoretical in nature compared to countries like the United States for example
• Expectations of benefits and salary vary greatly depending on the position, responsibilities, and duty expectations in ways that are unique to Mexico.

Recruitment Process Overview:

• Candidate profile development in consultation with the client. Taking into account the differences in local education standards, culture, and general practices, our team works with the client to “tweak” and enhance their candidate profile, to be adapted efficiently to the Mexican labor market.
• Identifying benchmarks. Our team performs a practical analysis of employment objectives, goals, and responsibilities. We, therefore, adopt the candidate’s profile specifically to these objectives – even where such objectives may not be obvious to the client.
• Salary and wage study. In consideration of education level, length of professional experience, and employment region, we provide a range of salary options that is a suitable balance between the candidate’s expertise and budget restrictions.
• Publication of vacancy. The vacancy is advertised on both public and proprietary platforms, and the search for a suitable applicant begins.

Applicant Screening and Filters:

• Employee screening and psychological evaluations (if requested). Our human resources professional design evaluations tailored to the position that characteristics like responsibility, honesty, criminality, emotional intelligence, and other factors that permit the employer to make an informed decision.
• Employee competence evaluation (if requested). Comparing the stated talents and experience of the applicant, against a custom competency examination.
• Background and security checks. We perform investigations of education, professional and criminal background.

Engagement:

• On-boarding and contract execution. Drafting of labor agreements and collection of the necessary documentation for payroll compliance. MexInc will also handle all matters of contracting and in-take.
• Capacitation. MexInc can work with clients to develop training programs for integrating new employees with the basic information and knowledge required to successfully execute their activities and responsibilities within the client’s organization.

ROADMAP to Obtaining a Mexican Work Visa – an overview for Foreign Employers

Welcome to our roadmap for bringing foreign workers to Mexico for purposes of employment. We will discuss various immigration options and strategies for this purpose. This roadmap is tailored specifically for companies that wish to sponsor employees to perform work-related activities in Mexico.

Basic Corporate Visa Roadmap

• Incorporate a legal entity
• Contract registered address or registered office
• Register with SAT
• Obtain company electronic signature
• Obtain Mexican Social Security Institute Employer Number
• Obtain Employer Registration from National Immigration Institute
• Submit employee visa authorization documentation
• Attend a consular interview
• Process employee’s residence card in-country

Step one, for companies that will need to bring foreign workers to Mexico for extended periods of time – generally for more than 6 months periods at a time or perhaps for several years – they will need to first incorporate a local legal entity for purposes of being able to sponsor employment visas and undertaking subsequent local immigration registrations. These particular steps regarding incorporation can be reviewed on our site in detail.

Contract Local Office Space and Local Representative. The company cannot proceed with the applicable registrations required to process employee work visas until it has secured office space and a local representative.

Process Employer Registration from the Mexican Immigration Institute. The company will need to submit an application in order to sponsor work visas for foreign workers. This can be processed at the local office of the National Immigration Institute (“Instituto Nacional de Migración”) corresponding to the registered tax address of the company. The process takes at least one month.

Attend On-Site Office Visit. The immigration authorities will perform an office visit at the address where the company is officially registered. This is known as a verification visit. A representative of the company should be present to answer questions about the company’s operations and activities, and the expected number of employees.

Submit Employment Offer and Work Visa Application. For each work visa, the company must submit individual work visa applications to the local immigration office. The application includes employment offer letters, copies of education documents, diplomas, and basic identification documents, among other documentary requirements based on the nature of the worker’s position. This process can take at least 2 weeks to complete or up to a month in practice.

Attend Consular Visit. Once the initial work visa application is approved, the employee will need to schedule and attend a visit with a consular officer at the nearest consulate – even if the consulate is not located in their country of citizenship. A third-country will suffice.

In-Country Processing of Residence Card. Within 6 months, the employee should enter Mexico with their work visa stamp in their passport and process their temporary residence card at the local immigration office. In most cases, this process takes 3 weeks to complete, during which time the employee is required to remain in Mexico.

Service Description – Payroll Administration

Overview of Service

MexInc provides a variety of payroll administration and human resources services. Our accountants prepare and calculate all tax related payroll deductions and contributions for all employees, perform on-boarding and off-boarding of local staff, administer employee benefits, vacation time, sick days, bonuses and general labor compliance. Our staff can even coordinate payroll deposits and local employment taxes.

MexInc will work with the client to develop a payroll solution that achieves the desired balance between outsourcing payroll process management in Mexico and the client’s retention of control over their employees.

You might also be interested in our: employee recruitment services.

Compliance Related Services
Calculation of IMSS Social Security contributions
Calculation of INFONAVIT contributions
Calculation of employee salaries for disbursement
Coordination of payment of employee of income tax retentions
Coordination of payment of IMSS social security monthly and bi-monthly payments

Administrative Related Services
Coordination of employee salary deposits
Health insurance administration
Retirement and savings administration
Employee contracting and on-boarding/off-boarding

Pricing :Request Quote

PEO/Employer of Record (Services/Pricing)

Service Description – PEO/Local Employer of Record

Overview of Service

MexInc may act as the local employer of record on your company’s behalf to facilitate the retention of local employees. In such case, it is not necessary to incorporate a local legal entity. MexInc handles all aspects of employee and human resources administration at no additional cost. Let us take care of the hard stuff.
Benefits
• Reduce setup cost. Using a PEO service can reduce the initial investment and set up cost associated with setting up your own operation from scratch and obtaining local registrations.
• Immediately retain employees. Beginning operations in any new country takes time. In Mexico, this can take as long as a month and a half. Using our MexInc PEO services allows you to retain employees immediately.
• No need to incorporate a legal entity. There are costs associated with incorporating a company and on-going maintenance that can make a PEO a better option than incorporating. This depends on individual circumstances and objectives
• Sub-contract administrative activities: Let MexInc handle payroll, administration, and routine matters saving you time.
• Payment of employee taxes, social security and payroll deductions. We process all tax payments and make all deductions automatically.
• Provide local employees with health care and benefits. MexInc makes it easy to provide employees with healthcare, savings, and retirement benefits easily – from day one.
Services Included
• Employer of record service
• Employee labor agreement drafting
• On-boarding
• Direct deposit of employee salaries
• Payment of employee taxes, social security and payroll deductions

Pricing: Request Quote

Service Description – Immigration and Work Visas

Overview of Service

MexInc has a team of professional who can attend to all immigration needs for both corporate clients and individuals. Immigration law in Mexico can be a complex mash up of practical considerations concerning, the conditions of employment, the applicant’s income, and experience.

Our number one concern is identifying the most practical means to achieving our client’s immigration objectives. MexInc prepares all preliminary paperwork, submits any visa pre-entry authorizations, submits filings to the consulate of applicant’s election, and process all in-country immigration paperwork with local immigration office in order for applicant to receive final residence card.

Services Provided

• Processing of newly issued residence visas
• Processing of newly issued work visas
• Change of employers
• Visa and residency renewals
• Company visa sponsorship registration
• Normalization of immigration status

Types Visas Issued

• Permanent Residence Visa: Provides the Client with the ability work and reside in Mexico indefinitely. If the Client or employee can demonstrate income of at least 2,400.00 USD per month or accumulated savings of 87,000.00 USD, he or she may apply for this visa.
• Temporary Residence Visa and Work Visa: Provides the Client with the ability work and reside in Mexico with a duration of validity of 1 year, renewable up to 4 years. If the Client or employee can demonstrate income of at least 1,300.00 USD per month. Visa is also available if new company registered and extends a valid job offer to employee, he or she may apply for this visa.
• Temporary Visa Based on Investment: Requires minimum investment of approximately $70,000.00 USD. The company sponsoring the visa also must employ at least 3 Mexicans. Furthermore, the company must provide detailed investment and business plans – or otherwise, evidence of on-going business in Mexico.

Procedure
• Submission of preliminary visa authorization**
• Employee meets with México Consulate in corresponding city in home country
• Employee arrives in Mexico
• Employee may begin work immediately
• Employee must appear before the immigration office corresponding to location of work to receive official residence card within 10 business days.

Pricing: Request Quote

Service Description – Employee Recruitment

Overview of Service

MexInc can locate and fulfill our client’s talent recruitment needs. Our human resources specialists which includes licensed psychologist, work with our clients to develop a candidate profile and qualifications skill-set that is customized to their needs but adapted to take into account particularities in the Mexican market. These included differences in education levels, professional skill sets, technical skills, and other factor according the common practices in the Mexican labor market.

In consultation with the client, we assign an appropriate salary window considering the job offer location, industry, and required skill sets.

Once a pool of potential candidates is identified, our team proceeds to first level screening. Thereafter, the candidate is presented to the client for preliminary interviews and secondary screening, filtering, and evaluation. MexInc will also attend to all on boarding and contracting needs, capacitation, and background checks.

Recruitment Services
• Candidate profile development in consultation with client
• Publication of vacancy
• Employee screening and psychological evaluations (if requested)
• Employee competence evaluation (if requested)
• Background checks
• On-boarding and contract execution
• Capacitation

Pricing: Request Quote

Beginning at one month of employee salary
Additional screening services available at additional cost