The influx of foreign investment and international companies moving into Mexico reflects its growth into becoming the world’s 15th largest economy with a GDP of US$1.27 trillion. Mexico is the major player in Central America with an ideal geographic location for trade and commerce and land borders with the USA and South America and Pacific and Atlantic coastlines.
Foreign Direct Investment (FDI) into Mexico increased by over US$2,500 million in the final quarter of 2020. The United Nations’ 2020 World Investment Report ranked Mexico 14th in the world for attracting FDI and 6th among developing economies.
But there are still bureaucratic barriers to be dealt with. Companies targeting Mexico for their next global move face unravelling the red tape surrounding work permit, visa, and immigration laws if they intend moving existing staff into any of Mexico’s cities or provincial states. Organizing documentation and dealing with the many layers of Mexican bureaucracy, coupled with migrating staff across the world, needs a designated in-house department. Few companies have the time and resources or want to invest in such an operation.
What Types of Work Visas, and Permits for Mexico are there?
The type of visa required to visit Mexico for work or pleasure depends on nationality, duration of stay and for what purpose.
Tourist Visa: Some nationalities are exempt for short stays of either 180 days, for tourism or business purposes (not paid work) or 30 days for those in transit. Those who are not exempt must obtain a Mexico Tourist Visa (and maybe other approvals) and should contact their local embassy or consulate.
The Permanent Residence Visa: This is for people who want to settle in Mexico for an extended period:
Those who have relatives in Mexico
Retirees (also known as the Mexican Retirement Visa)
Those who have been living in Mexico for some years under a Temporary Residence Visa
Temporary Residence Visa: For foreign nationals who wish to live in Mexico for longer than 180 days (from one to four years). The main categories are:
Mexico Work Visa: Required for employment. However, first a Work Permit must be obtained by the prospective employer from the National Immigration Institute (NII) on behalf of the employee
Mexico Student Visa
Mexico Family Visa
Working Tourist Visa: Allows paid work for up to 180 days but this cannot be renewed and costs around MXN3,314 (US$165). Ideal for seasonal workers, students, and short-term contracts.
All foreign nationals require a Forma Migratoria Multiple (FMM) electronic authority or tourist card i.e., a tourist fee. This is not a visa and is required as well as a visa for some nationalities. The FMM can be obtained online for around MXN594 (US$30).
With more than 20 years’ experience in the front rank of international payroll providers, Bradford Jacobs ensures our clients comply with every level of tax and employment law worldwide. Our ‘know-how’ is vital for foreign companies expanding into Mexico.
Dealing with tax, payroll, and employment regulations for your staff from overseas is a tricky process. It poses major issues for companies seeking to develop their international profile. Mexico is no exception. An already cumbersome and multi-layered income tax regime became more complicated with miscellaneous changes to the tax laws from January 2021. Incoming companies also must beware of variations in the rules between Mexico’s provinces.
Overview of Taxes in Mexico
Tax Type | Percentages
Residents’ Individual Income Tax:
Up to MXN 7,735 (US$384) | Exempt
Excess up to MXN 65,651 (US$ 3,270) | 6.60%
Nine further tax bands up to
MXN 3,498,600 (US$ 174,293) | 35.0%
Value Added Tax: Federal Value Added Tax is 16%.
Corporate Income Tax (CIT): CIT is levied at 30% on a company’s worldwide income, which includes revenue from such as cash, goods, services, or credit.
Withholding Tax: Mexican companies generally withhold taxes from payments to foreign companies or individuals, but rates will depend on the countries involved. Typically, withholding taxes would be in the range of up to MXN 125,900 (US$ 6,272) exempt; excess up to MXN 1,000,000 (US$ 49,820) 15%; above MXN 1,000,000 30%.
Social Security Taxes: Employers remit an amount equal to roughly 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%.
Other Taxes: Wage payroll taxes are levied by most Mexican states at rates between 1% and 3%.
Luxembourg Individual Tax – Single, Married
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).
Establishing a subsidiary overseas is a potentially expensive and time-consuming venture without any guarantee of success. Mexico is no exception. Incoming companies would typically choose to set up a Limited Liability Company (Sociedad de Responsabilidad Limitada, SRL).
After the initial step of registering a unique company name with the Ministry of Foreign Affairs there follows a raft of registration procedures for onboarding and putting staff on the payroll. Procedures may also vary between Mexico’s 31 regional states.
Expanding overseas is a major step. If the move fails companies face the extra expenditure and stress of closing the company, selling property, and paying off employees. It is easy to stumble while trying to fulfil two objectives – advancing your company at home while moving into a new territory, maybe thousands of miles overseas.
Once the subsidiary is legally established, other crucial factors must be dealt with. Tax processing, filing accounts, legal compliance, workforce management, payroll and recruitment add up to a hefty workload.
How to set up a Mexican Subsidiary
Most legal entities in Mexico are incorporated under the General Law of Commercial Companies (Ley General de Sociedades Mercantiles, LGSM).
The subsidiary must register the authorized company name with the Ministry of Foreign Affairs (Secretara de Rellaciones Exteriores) and obtain the tax ID number (Registro Federal de Contribuyentes, RFC) after signing deeds of incorporation with a notary. The deed must then be registered with the Public Commerce Register (Registro Publico de Comercio).
Once obtained, the tax ID number must be registered with the Ministry of Finance and Credit (Secretaria de Hacienda y Credito Publico). The next step is to register with the Mexican Social Security Institute (Instituto Mexicano del Segura Social) andthe relevant local tax administration for payroll (Secretaria de Finanzas del Gobierno de Distrito Federal).
Finally, register with the Sistema de Informacion Empresarial Mexicano (SIEM), which keeps a register of all Mexican businesses.
Once ‘up and running’, other procedures include:
Remitting withheld taxes to the Tax Administration Service (SAT). Thresholds and rates may vary between states
Remitting required deductions to the Mexican Social Security Institute
Filing returns for the tax year, which runs from January 1 to December 31, although for foreign employees their tax year can start from their day of arrival
Creating employment contracts
Creating pay slips and calculating monthly salary and income tax contributions to be remitted
Benefits of setting up a Subsidiary in Mexico
A subsidiary incorporated in Mexico, typically as a Limited Liability Company (Sociedad de Responsabilidad Limitada, SRL), is a separate legal entity. The foreign parent company has no responsibility for its debts or liabilities beyond their own share capital invested in the subsidiary.
The subsidiary can follow its business opportunities independently of the parent company, which has the advantage of exploring the potential of the Mexican market without committing to major capital investment. There is also the opportunity to move further afield into the north and south American markets.
Further benefits of taking this route include:
The subsidiary is an independent legal entity to the parent company
The subsidiary has the flexibility to operate under its own business name and pursue independent business activities once it has obtained any necessary licenses
The subsidiary will boost the international profile of the parent company
The subsidiary has the same legal standing as local companies and can be eligible for government tax incentives and benefits
The parent company is not liable for the obligations and debts of the subsidiary
Mexico is the world’s 15th largest economy with a GDP of US$1.27 trillion and is the major player in Central America. In an ideal geographic location for trade and commerce, Mexico has land borders with the USA and South America plus Pacific and Atlantic coastlines. These trading routes by land and sea give access to over 50% of the world’s leading GDP economies.
Foreign Direct Investment (FDI) into Mexico increased by over US$2,500 million in the final quarter of 2020. The United Nations’ 2020 World Investment Report placed Mexico 14th in the world for attracting FDI and 6th among developing economies.
However, the World Bank placed Mexico 60th out of 190 nations in ‘Ease of Doing Business’ and outside the top 100 for starting a business, connecting electricity supplies and registering properties. These are among the considerations that should make foreign companies cautious when planning an international expansion into Mexico.
Registering businesses is a long process, complicated by Mexico having 31 federal states plus Mexico City. All businesses are governed by the General Law of Commercial Companies, and although employment laws are codified by the Mexican Constitution and Federal Labor Law (FLL), the states can apply their own rules.
Starting a business in Mexico
International companies establishing their presence in Mexico generally select a limited liability subsidiary (Sociedad de Responsabilidad Limitada, SRL). After the initial step of registering with the Ministry of Foreign Affairs they must complete a string of procedures. These include:
Register authorized company name with the Ministry of Foreign Affairs (Secretaria de Rellaciones Exteriores)
Obtain an RFC (Registro Federal de Contribuyentes) tax number/ID after signing deeds of incorporation with a notary and registering the deed with the Public Commerce Register (Registro Publico de Comercio)
Register tax ID number with the Ministry of Finance and Credit (Secretaria de Hacienda y Credito Publico)
Register with the Mexican Social Security Institute (Instituto Mexicano del Segura Social)
Register with theirrelevant local tax administration for payroll (Secretaria de Finanzas del Gobierno de Distrito Federal).
Finally, register with the Sistema de Informacion Empresarial Mexicano (SIEM), which keeps a register of all Mexican businesses
Other requirements include:
Draft Power of Attorney (POA) for Mexican representative to act on your behalf where required
Provide passports of directors/shareholders, a minimum of two, who will sign for the proposed company and proof of their addresses
Certificate of directors, detailing their responsibilities
Confirmed amount of share capital, minimum of MXN 50,000 (US$2,500)
Additionally, to payroll staff and remit taxes to the authorities the company must:
Register with the Mexican Social Security Institute (Instituto Mexicano del Segura Social, IMSS), andthe relevant local tax administration (Secretaria de Finanzas del Gobierno de Distrito Federal)
Expanding Business into Mexico
The rapidly developing Mexican economy poses many questions to be considered alongside the attractions of entering the world’s 15th largest economy and the largest in Central America. Mexico has borders with South America and the USA, plus Pacific and Atlantic coastlines that give maritime access to over 50% of global markets.
Questions include, will staff be migrated across the world or recruited in-country? Who will handle payroll? How will your company deal with regulations surrounding taxation, entitlements and benefits, severance, and termination?
Decisions must be based on exhaustive research before drawing up a blueprint for the new territory and the business plan will have to answer these questions.
In Mexico, issues surround not just business culture, but also the stringent application of taxation and employment laws which can vary between the 31 federal states as well as the capital, Mexico City. In this complex geographical and economic landscape where will you find distributors, manufacturers, and offices?
Mexican Business Facts
Capital– Mexico City
Population – 130 million
States – 31 federal states plus Mexico City
Official Language – Spanish
Economy and world ranking – US$1.27 trillion GDP; 15th largest economy; economic freedom 66th
Leading sectors – Service sector, hi-tech and software, oil and minerals, manufacturing, agriculture, beverages, animal husbandry
Main exports – Manufactured products, vehicles, electrical machinery, computers, vehicle parts, oil and fuels, food, and beverages
Main imports – Metalworking machinery, electrical equipment, steel and refined oil, vehicle parts, aircraft, and parts
Main trading partners – USA, Canada, Germany, China, S. Korea, and Japan
Government – Federal and constitutional republic with a Presidential system
Currency – Mexico peso MXN
Advantages and Challenges of the Mexican Market
Advantages of expanding into the Mexican economy include:
Incentives: Government encourages foreign investment targeting increased employment, industrial development, research and development and manufacturing
Attractions: Taking a foothold in a steadily developing economy with a growing consumer sector
Location: Shares borders with South America and the USA for easy trade links; west and east coast access to the Pacific and Atlantic Oceans
Market: Stable and diverse market capable of riding out economic downturns, as it proved in 2008
Currency: Mexican peso exchange rates are beneficial for most countries, keeping capital and manufacturing costs down
Outgoings: Low labor costs in a predominantly young workforce
Free trade: Agreements allow cost-effective access to other markets
Challenges of operating in the Mexican economy:
Red tape: Complex bureaucratic processes for registering businesses, properties and filing tax returns for payroll, VAT, and corporation tax. Dealing with paperwork can be a major issue
Business culture: Adapting to the workplace and business environment
Safety: Crime and security issues will deter some companies from expansion
Language: Authorities usually deal only in Spanish
Health concerns: Public healthcare is universal, but standards are uneven. The private sector accounts for 60% of Mexican hospitals
Limited Company / Subsidiary or Branch in Mexico?
International businesses planning expansion into Mexico must choose between several types of company structure. The most typical choice is for a Limited Liability Company (Sociedad de Responsabilidad Limitad, SRL) operating as a Subsidiary (Subsidiario). A Branch (Sucursal) is another option. Key differences will apply to which route is taken into Mexico.
A subsidiary is a separate legal entity from the foreign parent company, which is protected from responsibility for liabilities or debt beyond the initial investment in shares. It is advised that subsidiaries have a minimum share capital of MXN 50,000 (US$2,500), with 50% paid at incorporation. Shareholders and directors can be based outside Mexico, but one legal Mexican resident must be appointed with Power of Attorney as representative to deal with authorities. The subsidiary operates as an independent business from the parent company, with a different name if preferred, and can pursue its own activities and contracts. The subsidiary is taxed on Mexican income.
International companies can establish branches with permission from the Ministry of Economy, but the branch operates the same business activities as the parent company and has the same name. The parent company is responsible for all liabilities, financial, legal or others and the branch is taxed on Mexican income.
International companies hiring employees for their global expansion into Mexico must comply with extensive tax, employment, and social insurance regulations. Failure to comply risks fines and sanctions. The employer-employee relationship is governed by the Mexican Federal Labor Law and other laws and statutes. In drawing up their agreement, the parties cannot ‘contract out’ of mandatory requirements of the law.
By law, all employees must have a written contract. If the employee begins work before the contract is formally concluded they are 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. These include:
Contracts are part of the hiring process and should detail such as:
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
Employment Contracts in Mexico
Written contracts have been mandatory since 2012 when the Federal Labor Law was amended to also specify the types of contracts.
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 in Mexico: Close to 90% of Mexican production or industrial workers in enterprises of at least 25 people are members of trade unions. Most 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 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.
Happy and satisfied employees make your business thrive and lead to even better profits. However, the specific benefits for employees in Mexico might not all be familiar to you yet. By using our PEO and Employer of Record (EOR) service we can provide compliant labor contracts for employees in Mexico including local benefits.
When expanding your company’s presence in a new country, you need to ensure compliance both in your employment contracts and benefit guarantees. These involve social security contributions, sick leave, health insurance, and unemployment, to name a few. In Mexico, benefits are guaranteed by national legislation as well as collective agreements with trade unions or workers’ councils.
Our guide will explain what benefits and employee compensation are guaranteed, and what can be modified, for any employer who wishes to expand their business into Mexico
What are Employee Benefits in Mexico?
Companies making their move into a new territory must ensure they comply with guarantees, benefits, compensation, and entitlements when they draw up contracts for their new employees. Mandatory entitlements typically cover social insurance, unemployment support, paid vacations, termination and notice periods, maternity leave, and severance payments.
In Mexico, employee benefits are governed by a range of laws, statutes and amendments under the Constitution and are drawn together under the umbrella of the Federal Labor Law. Additionally, incoming businesses must comply with regulations of the Tax Administration Service (SAT) at the Ministry of Finance and Credit (Secretaria de Hacienda et Credito Publico); the Mexican Social Security Institute (Instituto Mexicano del Segura Social); the relevant local tax administration for payroll (Secretaria de Finanzas del Gobierno de Distrito Federal) and then with the Sistema de Informacion Empresarial Mexicano (SIEM), which keeps a register of all businesses in Mexico.
What Compensation Laws exist in Mexico?
In Mexico a framework of employment laws and regulations guarantee employees are protected in many areas. Legislation covers conditions such as minimum wages, social insurance, redundancy, termination, severance, working hours, vacation leave, maternity, paternity issues, and more.
Statutory and mandatory minimums cannot be undercut by collective or trade union agreements, although they can improve entitlements for employees.
Drawing up contracts can be tricky enough, but in Mexico (as elsewhere), it is vital to fulfil your responsibilities to your employees over benefits, compensation, and minimum requirements. Compensation and benefits include:
Social Insurance: All employees are registered with the Mexican Social Security Institute (Instituto Mexicano del Segura Social, IMSS). Contributions are withheld by the employer, who also makes contributions based on a percentage of the employee’s own salary, subject to various rates and caps.
Retirement pensions, disability insurance, maternity benefits and work-related illness or accidents are among categories covered by social insurance. Employers withhold contributions to the IMSSto a maximum of MXN 138,479 (US$6,840) annually.
Employers may also contribute an ‘occupational risk premium’ depending on the role of the employee.
The employees contribute approximately 5% of their salaries to social security and retirement funds. Employers contribute approximately the equivalent of 25% of employees’ salaries to funds for social security, housing, and retirement.
National Minimum Wage: In January 2021 the National Minimum Wage was raised to MXN (Mexican pesos) 141.70 (US$7) per workday. This can be exceeded regionally and in the Northern Border Zone, for example, it is MXN 213.39 (US$10.55).
Working Hours and Breaks: Working hours are set at eight per day in a flexible 14-hour window from 6am until 8pm. The Federal Labor Law does not allow either employers or their staff to opt out of these regulations. A day shift between 6am to 8pm cannot exceed 48 hours in a week; a night shift from 8pm to 6am cannot exceed 42 hours per week; a mixed shift must not exceed 45 hours in a week. The Federal Labor Law (FLL) stipulates that an employee must have a break of at least 30 minutes during eight hours of continuous work.
Holiday / Vacation Leave: Minimum paid vacations depend on the years of service that qualify 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.
Maternity / Paternity Leave: Maternity leave comprises six weeks each before and after birth and can be stretched by an extra six weeks on half pay. It is possible for the mother to transfer four weeks of the pre-natal leave to the post-natal period. Maternity benefit is paid at full salary for the full term of the leave of six weeks before the birth and six weeks after. Fathers are entitled to five days paid paternity leave after the birth or after the adoption of a child. Maternity leave and paternity leave are governed by the Federal Labor Law and the Social Security Law.
Redundancy, Termination and Severance: Employees are entitled to 90 days’ pay plus 12 days’ pay for each year’s seniority capped at twice the minimum wage, plus any benefits due for vacations and bonuses. There is a further entitlement to an extra 20 days’ pay and if the employer settles all three of the payments the dismissed employee cannot sue for unfair dismissal. Taxes apply. If dismissed for ‘just cause’ the employee is entitled only to salary due.
Overtime: All employees are entitled to overtime pay, whatever their category of work or employment status. They are compensated at 100% premium on their hourly rate for the first nine hours of overtime and a 200% premium for hours above that.
Sick Leave: 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.
Bonuses: The Prima bonus is 25% of the weekly salary which can be taken during time off e.g., holidays, or at the end of a year. The Christmas bonus (‘aguinaldo’) is equal to a minimum of 15 days’ salary and is given before December 20 for the festivities. Profit sharing – Mexican companies (excluding the first year of operation) must share 10% of profits among employees (not high earners or top staff). 50% would be between staff pro rata for days worked and 50% would be distributed based on days worked and wages earned.
Employer Statutory Costs in Mexico
All employees are registered with the Mexican Social Security Institute (Instituto Mexicano del Segura Social, IMSS). Contributions are withheld by the employer, who also makes contributions based on a percentage of the employee’s own salary, subject to various rates and caps. Retirement pensions, disability insurance, maternity benefits and work-related illness or accidents are among categories covered by social insurance.
Employers withhold contributions to the IMSSto a maximum of MXN 138,479 (US$6,840) annually. Employers may also contribute an ‘occupational risk premium’ depending on the role of the employee.
The employees contribute approximately 5% of their salaries to social security and retirement funds. Employers contribute approximately the equivalent of 25% of employees’ salaries to funds for social security, housing, and retirement.
Type of Insurance | Paid by Employer | Paid by Employee | Total
Finding and recruiting top talent in any overseas territory poses many potential issues for companies like yours, who are expanding their international presence. You need your new staff to be ‘up and running’ as quickly as possible. This certainly applies to Mexico, where employment laws are strictly governed by the Federal Labor Law and other statutes.
You need a specialist to oversee the process – and this is where Bradford Jacobs steps in. Our expertise in international recruitment is indispensable for expansion into the Mexican economy.
Bradford Jacobs leads the way with our Professional Employment Organisation (PEO) recruitment networks, and a worldwide reach that will find the highest quality staff, managers, and executives for your move into this new territory.
The Recruitment Process in Mexico
If you are expanding into Mexico, it is mandatory to establish a legal entity to hire and pay employees. Additionally, whether the employees are Mexican or foreign nationals they must be registered with the Tax Administration Service (SAT) at the Ministry of Finance and Credit (Secretaria de Hacienda et Credito Publico) and the Social Security Institute (Instituto Mexicano del Segura Social, IMSS). Companies must also register with the Sistema de Informacion Empresarial Mexicano (SIEM), which keeps a register of all businesses in Mexico.
However, the first step in the expansion process is recruitment. It is vital to know where to locate the best talent who will be a ‘perfect fit’ for your company’s plans.
What makes Mexico a prime target for international expansion? Mexico’s economy has grown to become the 15th largest in the world and has borders with the USA and South America and coastlines on both the Atlantic and Pacific oceans. Further, the United Nations 2020 World Investment Report ranked Mexico 14th globally for attracting Foreign Direct Investment (FDI) and sixth among developing nations.
This foreign investment and influx of international companies has brought higher salaries and job satisfaction, which has filtered down to local companies in terms of working conditions and wages.
You will have a lot of questions … and the answers do not come easily. Once the right employees are found, employers must follow strict registration procedures for their new staff. These include:
Registering with the relevant state’s local tax administration for payroll (Secretaria de Finanzas del Gobierno de Distrito Federal).
Drawing up an employee contract/agreement, which are mandatory in Mexico.
Remitting withheld taxes to the SAT on a fortnightly basis for white collar staff and weekly for blue collar workers.
There is a simple answer to avoiding these time-consuming and unproductive demands. Engage with Bradford Jacobs as your Employer of Record (EOR). We will convert your Mexican expansion blueprint into an action plan, as follows:
Bradford Jacobs step in as EOR through our legal Mexican entity to guarantee your employees comply with employment contracts, payroll, HR, tax and, where required, visas and work permits.
You have daily control of your employee, while Bradford Jacobs manages all work-related registration formalities.
Your employee completes time sheets and approved expenses claims and we invoice you, the client. Once paid, we remit all contributions to the Mexican tax and social security authorities and transfer the balance into the employee’s nominated account.
Legal Checks on Employees in Mexico
Only the prospective employee can obtain data on any criminal record, while credit checks are rare as there is no established procedure for employers to obtain the information. The Data Privacy Law loosely gives employees protection against checks that are not directly related to the role.
Mexico’s Federal Labor Law does not regulate the recruitment process and imposes few limitations on employers’ background checks on employees or interviewees.
Discrimination: The Federal Labor Law prohibits discrimination during interview or employment based on race or nationality, gender, or sexual orientation, religious or political beliefs, health, disability, or social status. Under the Data Protection Law employers should not ask questions that might result in the discrimination against the employee or applicant.
Privacy: The Federal Law on the Protection of Personal Data (FDPL) applies to individuals or legal entities that process personal data. Employers must have the applicant’s consent to obtain personal information.
Permitted questions and documents include:
That the applicant meets all requirements regarding work permits and visas.
Basic Facts on Hiring in Mexico
Employers’ interview questions should not include any that might lead to discrimination against the potential employee, but as the Federal Labor Law does not regulate the recruitment process there are few other restrictions. However, criminal record checks can be made only with the applicant’s permission and the Data Privacy Law restricts questions to being relevant to the designated role.
The Federal Labor Law bars discrimination during employment or at interview on the grounds of religious or political beliefs, gender or sexual preference, nationality or race, social status, disability, or health.
Terms and conditions of employment come under the umbrella of the Federal Labor Law, plus supplementary laws and statutes, the Mexican Constitution, the National Housing Institute Law, the Employment and Social Prevention Secretariat, the Mexican Social Security Institute, and the Anti-Discrimination Law.
Regional and federal labor boards are the main enforcement agencies in employer-employee relationships.
Written contracts and agreements between employers and employees are mandatory in Mexico. If an employer fails to provide a written contract, the employee does not lose any legal rights or entitlements. Each party should have a signed copy of the contract.
The contract should include full details of the employee, whether the contract is fixed term or indefinite, type and location of work, vacations, amount and payment schedule of salary and any bonuses.
Once recruited, employees must be registered with the Mexican Social Security Institute (Instituto Mexicano del Segura Social) and the relevant local tax administration for payroll (Secretaria de Finanzas del Gobierno de Distrito Federal).
Employers must also ensure they comply with various employee entitlements, benefits, and mandatory minimums. These include:
The National Minimum Wage was raised from January 2001 to MXN (Mexican pesos) 141.70 (US$7) per workday. This can be exceeded regionally and in the Northern Border Zone, for example, it is MXN 213.39 (US$10.55).
Sick pay applies once illness or injury is certified by the medical authorities of the Mexican Social Insurance Institute (Instituto Mexicano de Seguridad, IMSS). The employee is then entitled to a maximum of 52 weeks’ paid sickness leave, at 60% of their regular wage from the fourth day of incapacity.
Working hours are generally eight hours per day fitting into a flexible 14-hour window from 6am until 8pm.
Minimum paid vacations depend on the years of service that qualify for days of paid leave:
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.
The maternity leave allowance is for six weeks both before and after the birth. The employee receives full salary with 60% paid by the IMSS and the balance by the employer. Maternity leave can be extended by six weeks on half pay.
Termination and severance is strictly regulated by the Federal Labor Law (FLL), with strong protection for employees regarding termination of employment and severance pay. Dismissal without ‘just cause’, as defined by the FLL, incurs severance payments by the employer.
Employees are entitled to 90 days’ pay plus 12 days’ pay for each year’s seniority capped at twice the minimum wage, plus any benefits due for vacations and bonuses. There is a further entitlement to an extra 20 days’ pay and if the employer settles all three of the payments the dismissed employee cannot sue for unfair dismissal. Taxes apply. If dismissed for ‘just cause’ the employee is entitled only to salary due.
To succeed in business in Mexico, it is vital for both employers and employees to have a strong understanding of the business culture. As a global PEO (Professional Employment Organization) it is our goal to be familiar and updated with the business culture in the country we work with and in. By sharing our knowledge about Mexican work culture, we want to support your global expansion plans. Therefore, we will address all the aspects of the work culture in Mexico to start your expansion well-informed.
Foreign companies targeting Mexico for their international expansion plans must have a thorough understanding of the country’s work culture and business environment as well as the economy. And this is a ‘big ask’ for a nation that has much to offer with coastlines on the Pacific and Atlantic Oceans, a northern border with the USA while the potential of South America lies in the opposite direction.
The influx of foreign investment and international companies moving into Mexico has had a positive effect on workplace attitudes and culture. Higher wages and incentives have seen Mexicans encouraged to view work as more than ‘a means to an end’ but a chance to develop careers and add to their lifestyle.
The benefits of improved job satisfaction and efficiency have filtered through to local companies in their own attitudes towards employees, working conditions and wages.
The more relaxed attitudes of foreign executives and managers towards their staff are chipping away at the traditionally formal and hierarchical structure of Mexican businesses to create a more open employer-employee relationship. But it is still best to be aware of various do’s and don’ts when first embarking on business relationships.
It’s time to ‘get down to business’ … our guide to work culture and business etiquette will help you take those important first steps into Mexico.
Punctuality: It is important to be on time – but do not be surprised if your opposite number keeps you waiting. Make an appointment two weeks ahead of time, confirm a week later, but understand cancellations or postponements are always a possibility
Language: Mexico’s official language is Spanish and if you are not fluent it is best to consider using an interpreter, unless you are sure the meeting will be held in your language. Even so … learning some Spanish introductory phrases will be appreciated
Business Meals: Working breakfast and lunch meetings are a tried method of developing relationships, but do not assume much business will actually be conducted. That is often not the point
Business Relationships: Mexican businesses are hierarchical, so respect that by having comparable seniority in your team. Be patient as Mexicans often prefer to set a target date for a deal, rather than a deadline. Although you may be promised a decision ‘mañana’ (tomorrow) … they just mean ‘sometime soon’
Introductions and Greetings: Play safe from the start and address counterparts with their title and full name, while shaking hands and exchanging the warm smiles that Mexicans appreciate. Mexicans also like to discuss personal background and family matters and will be pleased to hear about yours
Business Cards: These are always exchanged at the start of an initial meeting,and it is quite acceptable if your card is in English only
Dress Code: This is formal, men wearing dark suits and women in conservative dresses or suits
Closing the Deal: To avoid misunderstandings, write up the agreement and both sides should sign the agreement in lieu of an actual contract being in place
Entertaining: Now the deal is done there will be time for socializing and entertaining. Be ready for long and leisurely chat after the meal is over. Even if the meal is at your new colleague’s home, formal attire is still the best
Mexico’s Minimum Wage
The National Minimum Wage was raised in January 2001 to MXN (Mexican pesos) 141.70 (US$7) per workday. This can be exceeded regionally and in the Northern Border Zone, for example, it is MXN 213.39 (US$10.55).
Probation Periods in Mexico
These can be a maximum of 180 days for management, technical or specialized professional positions and up to 100 days for technical roles. A 30-day probationary period can be offered for employees working at a lower level. 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.
Working Hours in Mexico
Working hours are set at eight per day in a flexible 14-hour window from 6am until 8pm. The Federal Labor Law does not allow either employers or their staff to opt out of these regulations.
A day shift between 6am to 8pm cannot exceed 48 hours in a week; a night shift from 8pm to 6am cannot exceed 42 hours per week; a mixed shift must not exceed 45 hours in a week.
Overtime in Mexico
All employees are entitled to overtime pay, whatever their category of work or employment status. They are compensated at 100% premium on their hourly rate for the first nine hours of overtime and a 200% premium for hours above that.
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