EMPLOY IN MEXICO WITH EASE
- Access and hire global talent & deploy them anywhere in the world
- Remove restriction from only hiring from local markets
- Enter any international market without the requirement of opening a local entity
Global expansion is a step to make for any business, regardless of what you wish to achieve. The opportunities that can come with an expansion can be both incredibly exciting as well as intimidating and confusing, especially when you consider all of the registration procedures that needs to be done and documentation required.
Expanding to countries such as Mexico – which is characterized by a well-educated and talented workforce, multifaceted employment and tax laws, a robust infrastructure network linking to the rest of the Americas and beyond, and leading sectors in industry, manufacturing, and services – can bring both excitement to the possibilities, but also significant stress to ensuring the entity with the country’s rigorous legal structures and laws.
Ensuring compliance without the sufficient knowledge of the country’s laws also adds to the stress of getting your new entity off the ground and ready to test new markets. Going at it without the proper support can increase the costs, time and risks involved.
Each new markets bring new challenges, and these can be worked through more efficiently and cost-effectively with the support of an International Professional Employer Organization (PEO) such as Bradford Jacobs, especially through our Employer of Record (EOR) framework. This can be best utilized when businesses are just beginning their expansion process and require more information before committing to incorporating an entity and fully establishing themselves in that market.
Mexico – The Economy
The economy of Mexico is a developing market economy. It is the 15th largest in the world in nominal GDP terms and the 12th largest by purchasing power parity, according to the International Monetary Fund. Since the 1994 crisis, administrations have improved the country’s macroeconomic fundamentals.
Mexico was not significantly influenced by the 2002 South American crisis, and maintained positive, although low, rates of growth after a brief period of stagnation in 2001. However, Mexico was one of the Latin American nations most affected by the 2008 recession with its gross domestic product contracting by more than 6% in that year.
The Mexican economy has had unprecedented macroeconomic stability, which has reduced inflation and interest rates to record lows and has increased per capita income. In spite of this, enormous gaps remain between the urban and the rural population, the northern and southern states, and the rich and the poor. Some of the unresolved issues include the upgrade of infrastructure, the modernization of the tax system and labor laws, and the reduction of income inequality.
Tax revenues, altogether 19.6 percent of GDP in 2013, were the lowest among the then 34 OECD countries. As of 2020, the OECD has 37 members.
The economy contains rapidly developing modern industrial and service sectors, with increasing private ownership. Recent administrations have expanded competition in ports, railroads, telecommunications, electricity generation, natural gas distribution and airports, with the aim of upgrading infrastructure.
As an export-oriented economy, more than 90% of Mexican trade is under free trade agreements (FTAs) with more than 40 countries, including the European Union, Japan, Israel, and much of Central and South America. The most influential FTA is the United States-Mexico-Canada Agreement (USMCA), which came into effect in 2020, and was signed in 2018 by the governments of the United States, Canada, and Mexico.
Recently, the Congress of the Union approved important tax, pension, and judicial reforms. Reform to the oil industry is currently being debated. In 2016, Mexico had 16 companies in the Forbes Global 2000 list of the world’s largest companies.
The OECD and WTO both rank Mexican workers as the hardest working in the world in terms of the number of hours worked yearly – but pay per hours worked remains very low.
Small and Medium-Sized Companies
There were 4.9 million MSMEs registered in Mexico at the beginning of 2020, accounting for 78% of private-sector employment and 52% of total gross production. 96.6% of them were micro-enterprises.
Less than 10% of SMEs export to the international market, and 80.5% of SMEs exports’ value belongs to the manufacturing sectors, representing a 4.3% of the total value of manufacturing exports. Moreover, only 0.1% of SMEs are direct suppliers for multinational foreign corporations. SMEs participation in international trade has been limited by:
- the lack of specialized and necessary knowledge and capabilities on entrepreneurship
- the lack of knowledge on international trade and markets
- non – tariff barriers, regulations, and cross-border trade procedures
- the limited access to finance, specially trade finance
The smaller the company is, the more difficult it is for them to participate in international trade. Less than 2% of SMEs invest in innovation which leads to patent or brand registration.
Information on SMEs is primarily generated through the National Survey of Productivity and Competitiveness for Micro, Small and Medium Enterprises (ENAPROCE), which is conducted by the National Institute of Statistics and Geography (INEGI).
|No. of States/Provinces||32 states|
|Principal Cities||Mexico City, Iztapalapa, Ecatepec, Guadalajara, Puebla City, Ciudad Juárez, Tijuana, León, Gustavo Adolfo Madero, Zapopan, Monterrey, & Ciudad Netzahualcoyotl|
|Local Currency||Mexican peso (MXN)|
|Major Religion||Roman Catholic|
|Time Zone||4 standard time zones, like the US – Pacific Time (UTC -8/-7), Mountain Time (UTC -7/-6), Central Time (UTC-6/-5), & Eastern Standard Time (UTC-5)|
|Country Dial Code||+52|
|Border Countries||Land borders with Guatemala, Belize and the US, maritime borders with Cuba and Honduras|
|Tax Year||1 January to 31 December (calendar year)|
|Minimum Wage||$172.87 Mexican pesos per day, and $260.34 Mexican pesos per day in the Free Economic Zone (Northern Border)|
|Taxpayer Identification Numbers||Tax ID Number (RFC – Registro Federal de Contribuyentes), Personal & Business|
Social Security Number (NSS)
Cédula de identification fiscal con clave única de registro de población (CURP)
VAT Number (IVA – Impuesto al valor agregado)
|Leading Sectors||food processing, beer, soft drinks, auto components, automobiles, electronics chemicals, iron, steel, petroleum, mining, textiles, clothing, motor vehicles, consumer durables, tourism|
|Main imports||integrated circuits, vehicle parts, refined petroleum, office machine parts, and telephones|
|Main exports||cars, computers, vehicle parts, delivery trucks, and crude petroleum|
|Main trading partners||United States, China, Germany, South Korea, Malaysia, and Canada (2021)|
|Government Type||Federal presidential republic|
|Current Prime Minister/President||Andrés Manuel López Obrador (President)|
The Main Sectors of the Mexican Economy
Mexico focuses on the following key sectors, which all have a significant impact on the country’s economy:
- Services – In the past few decades the services sector has gained a more important role and has now become a dominant force for the Mexican economy. The services sector, or tertiary sector, employs 62% of the nation’s labor force and contributes a significant 60% to the GDP.
- Industry – As a whole, Mexico’s industrial sector has benefited from the liberalization of trade. The industrial sector, which includes manufacturing, mining, oil, and gas, has contributes approximately 25% to 35% of Mexico’s GDP. The numbers have hovered around the same percentage for the past 35 years. From 2000 to 2020, industry averaged about 34% of Mexico’s GDP. Industry employs 26% of the nation’s labor force.
One of the country’s most significant manufacturers includes the automotive industry, as well as food, electronics, and oil.
- Agriculture – Agriculture, which includes forestry, fishing, hunting, livestock production, and cultivation of crops, contributes a mere 3.9% to Mexico’s GDP.5 The share has remained below 4% for over 20 years. Nevertheless, agriculture, or the primary sector, plays a crucial role in indirect ways for the Mexican economy.
The primary sector has helped in strengthening trade ties with the United States as well as in alleviating poverty and creating jobs.
Agriculture provides employment to about 12% of the nation’s labor force. However, in rural areas, more than half of the population might be involved in agricultural activities.
- Manufacturing – In manufacturing, Mexico has the advantage of high labor productivity and free trade agreements with multiple nations. Rising wages in China also make Mexico a more attractive destination for manufacturing – and natural gas prices (tied to the U.S.) are helping the country boost its manufacturing. Manufacturing contributes 17.2% to the country’s GDP.
- Electronics – The countries electronic industry has experienced tremendous growth within the last ten years with the country having the world’s sixth largest electronics industry behind China, the US, Japan, South Korea, and Taiwan. The country is North America’s second-largest exporter of electronics, particularly to the US, having exported electronics worth approximately US$87.12 billion in 2021.
- Automotive Industry – Although it serves mainly as an assembly manufacturer, in recent years the automotive industry has advanced to conducting independent research and development. Some of the most well-known car manufacturers like General Motors Co (GM), Ford Motor Co (F), Toyota Motor Corp (TM), Mercedes Benz (a subsidiary of Daimler AG), Honda Motor LTD (HMC), and Volkswagen Group have set up operations in Mexico.
- Tax Administration Service (Servicio de Administration Tributaria, SAT) – the revenue service of the Mexican federal government.
The government agency is a decentralized bureau of the Secretariat of Finance and Public Credit, Mexico’s cabinet-level finance ministry, and is under the immediate direction of the Chief of the Tax Administration Service. The SAT is responsible for collecting taxes, as well as applying fiscal and customs law, with the purpose of funding public spending in a proportional and equitable manner.
Additionally, it is the bureau’s responsibility to generate and collect information necessary for the formation and evaluation of fiscal policy.
- The Secretariat of Labor and Social Welfare – a Federal Government Department in charge of all social health services in the Mexican Republic. The Secretary is a member of the federal executive cabinet and is appointed by the President of Mexico. The Secretariat is in charge of:
- Supervising the implementation of the regulations in Article 123 concerning labor
- Achieving a balance between production factors and keeping with the appropriate legal regulations
Labor Contracts Law
By law, all employees must have a written contract. If the employee begins work before the contract is formally concluded they are considered to be working under the contract and cannot be deprived of statutory rights under the Labor Code. Employee contracts are usually indefinite and open-ended. Fixed-term contracts cannot exceed five years and can only be implemented in circumstances allowed by law.
When hiring new staff and drawing up their contracts, specific requirements from the Labor Code apply and must be considered:
- Type of contract – fixed term or indefinite
- Full contact and personal details of the employee
- Indication whether the contract includes a trial or probationary period and any training programs
- Type and location of work, hours, vacation allowance
- Amount and frequency of salary payments, bonuses, holiday pay and any fringe benefits
- Working hours and if they include shift work
- Mandatory confirmation of the employee’s rights under privacy rules
- Whether it is a ‘training contract’ to give the employee time to acquire required skills for the job
- Contracts are usually drawn up in Mexico’s official language, Spanish, before any translation into the employee’s native language or one they understand
- All contractual agreements between employer and employee must fall within provisions of the Federal Labor Law
Written contracts have been mandatory since 2012 when the Federal Labor Law was amended to also specify the types of contracts. The main types include:
- Fixed-term employment contracts: These are for a defined time or project and apply only when the nature of the work demands. They can also be applied when an employee is being temporarily replaced by another worker.
- Open-ended ‘indefinite’ employment contracts: Where they last more than 180 days, they can include a probationary trial period to assess the suitability of the employee for the role. If a contract does not specify a specific term, it is considered legally to be open-ended.
- Trial period or probationary employment contracts: These can be a maximum of 180 days for management, technical or specialized professional positions and up to 100 days for technical roles. Employees at lower levels can be offered a 30-day probationary period. Probation periods for trainees cannot exceed 180 days for management, technical or specialized roles or 90 days for trainees at a lower level. The employer must apply to Mexico’s Training and Productivity Commission to dismiss the probationer if they are considered unsuitable. Consecutive training contracts are not allowed.
- Temporary employment: There cannot be consecutive periods of temporary employment, which in any case cannot exceed 12 months.
- Youth employment: The minimum legal employment age is 14 years. 14- to 18-year-olds cannot be employed where jobs include alcohol, electrics, power tools or heavy lifting. Employees aged between 14 and 16 years are monitored by the Labor Inspectorate, must have a medical certificate for clean health, they must not work more than six hours a day in two three-hour shifts. Minors cannot work on Sundays or public holidays.
- Collective and trade union agreements: Close to 90% of Mexican production or industrial workers in enterprises of at least 25 people are members of trade unions. The majority of labor unions belong to the Confederation of Mexican Workers (Confederación de Trabajadores Mexicanos, CTM), which has around 11,000 member unions. Employers’ unions or associations are organized either by particular regions where employers are involved in more than one activity, or federally where a number of employers in different regions are involved in the same activity.
Payroll – Tax Contributions and Benefits
Mexico residents pay tax on the worldwide income they earn in a calendar year, which is the same as the tax year, January 1 until December 31. Returns should be filed and any due tax paid by April 30 of the following year. Most tax residents are required to file electronically after first obtaining their Advanced Electronic Signature (Registro Federal de Contribuyentes). Married couples do not file joint returns, but the highest earner can declare all their income.
Where residents or non-residents are paid by non-resident foreign companies, they must file a provisional monthly return with a payment equal to the withheld amount for that month. Payment must be made by the 17th of the following month.
Income taxes withheld by employers are remitted to the Tax Administration Service (SAT) at the Ministry of Finance and Credit (Secretaria de Hacienda et Credito Publico).
Health & Social Insurance: Registered employers must contribute a percentage of their individual employees’ salaries and percentage of their total payroll towards social security funds. Employers withhold contributions to the Mexican Social Security Institute (Instituto Mexicano del Segura Social IMSS), to a maximum of MXN 138,479 (US$6,840) annually.
Employers remit amount equal to 23% of an employee’s salary to the Mexican Social Security Ministry, with employees contributing an extra 3%. Employers also contribute 5% of the employee’s salary to the Housing Fund. Employers add 3.15% of employees pay to the Retirement Fund, with the employee adding 1.125%
Employers may also contribute an ‘occupational risk premium’ depending on the role of the employee.
Sick Pay: Once illness or injury is certified by the medical authorities of the Mexican Social Insurance Institute (Instituto Mexicano de Seguridad, IMSS), the employee is entitled to a maximum of 52 weeks’ paid sickness leave, at 60% of their regular wage from the fourth day of incapacity.
Paid Vacations: Minimum paid vacations depend on the basis of years of service qualifying for days of paid leave:
There are also seven paid national holidays. Vacation premiums are paid to employees at the rate of an extra 25% of their daily wage for each vacation day. Employees also receive 15 days salary for their Christmas bonus (‘aguinaldo’), or pro rata for the number of days worked in that year.
Public Holidays: National Holidays in Mexico fall into two categories. Mandatory Holidays (mandatory rest) and Usually granted Holidays (commonly granted). Mexico observes the following national holidays:
- January 1st – New Year
- February 5th – Constitution Day (Moved to the first Monday of February)
- March 21st – Benito Juarez Day/President’s Day (Moved to the third Monday of March)
- May 1st – Labor Day
- September 16th – Independence Day
- November 20th – Revolution Day (Moved to the third Monday of November)
- December 25th – Christmas Day
Holy Thursday and Good Friday are not federal holidays, but it is common for a lot of employers to give Friday or both off.
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