How to hire employees in Mexico with an Employer of Record

Mexico is one of the largest talent markets in the Americas, with a skilled workforce, competitive salary levels relative to the US and Canada, and a time zone that aligns well with North American operations. For companies looking to build teams without the cost and complexity of establishing a local entity, an Employer of Record offers a compliant route to hiring in Mexico quickly.

But Mexico’s employment law is detailed, employee-protective, and strictly enforced. Employers who underestimate the requirements risk financial penalties, employee claims, and complications that are far easier to prevent than to fix. This guide covers what you need to know.

Mexico’s appeal is practical. The country produces a large number of graduates in engineering, technology, finance, and customer service every year. Labour costs are lower than in the US and Canada for comparable skills, and the proximity means that real-time collaboration is possible without the timezone challenges of hiring in Asia or Europe.

For US-based companies in particular, Mexico offers a near-shore alternative that reduces costs without creating significant operational friction. Remote and hybrid roles work well across the border, and Mexico’s growing tech sector means that the talent pool for software development, data analysis, and digital marketing has expanded considerably in recent years.

The barrier is not the talent. It is the employment infrastructure. To hire an employee in Mexico legally, you need a registered entity, compliant contracts, payroll that meets federal and state requirements, and ongoing compliance with a body of employment law that is among the most employee-protective in Latin America.

Mexico’s Federal Labour Law (Ley Federal del Trabajo) sets the framework for all employment relationships in the country. It is prescriptive, and it favours the employee in most disputes.

Employment contracts must be in writing and in Spanish. They must specify the role, salary, working hours, benefits, and the location where the work will be performed. Indefinite-term contracts are the default, and the use of fixed-term or seasonal contracts is restricted to situations where the nature of the work justifies it.

The standard working week in Mexico is 48 hours for day shifts, 42 hours for night shifts, and 45 hours for mixed shifts. Overtime is capped at three hours per day and nine hours per week, and it must be paid at double the regular rate. Hours beyond the nine-hour weekly cap are paid at triple the rate.

Probationary periods are permitted but limited to 30 days for most roles, or up to 180 days for management and specialised technical positions. The terms must be set out in the employment contract.

These are not guidelines. They are legal requirements. Non-compliance exposes the employer to claims before the Federal Conciliation and Arbitration Board (or the new Labour Courts established under Mexico’s 2019 labour justice reform), and penalties can be material.

Employer costs in Mexico go well beyond salary. Mandatory contributions and statutory benefits add a layer that employers must factor into their total cost of employment.

Social security (IMSS) Employers contribute to the Instituto Mexicano del Seguro Social across several categories, including occupational risk, illness and maternity, disability and life insurance, daycare, and retirement. The employer’s total IMSS contribution varies depending on the employee’s salary level and the company’s risk classification, but it typically ranges from 20% to 30% of the employee’s base salary.

Housing fund (Infonavit) Employers contribute 5% of the employee’s integrated daily wage to the national housing fund.

Retirement savings (SAR/Afore) Employers contribute 2% of the employee’s base salary to the retirement savings system, with additional contributions under the 2023 pension reform that are being phased in through 2030.

State payroll tax Each Mexican state levies its own payroll tax, ranging from 1% to 3.5% depending on the state.

The total employer burden in Mexico typically falls between 30% and 40% above the employee’s gross salary, depending on the salary level and the state where the employee is based. For an accurate calculation, use the Boundless cost calculator or speak to our team.

Mexican law requires a set of employee benefits that are non-negotiable. These are not perks. They are legal obligations.

Aguinaldo (Christmas bonus) Every employee is entitled to at least 15 days’ salary as a Christmas bonus, paid before 20 December. Employees who have worked less than a full year receive a pro-rated amount.

Vacation and vacation premium Under the 2023 reform to Mexico’s Federal Labour Law, employees are now entitled to 12 days of paid vacation after their first year of service, increasing by two days per year up to 20 days, then by two days for every subsequent five years of service. Employees also receive a vacation premium (prima vacacional) of at least 25% of their salary for the vacation period.

Profit-sharing (PTU) Employers in Mexico are required to distribute 10% of their annual pre-tax profits to employees. The distribution is split into two equal portions. One half is divided equally among all eligible employees, and the other half is distributed in proportion to each employee’s wages. The 2021 reform capped individual PTU payments at three months’ salary or the average of the previous three years’ PTU received, whichever is higher.

Sunday premium Employees who work on Sundays are entitled to a premium of at least 25% on top of their daily wage.

These statutory benefits represent a real cost that must be built into your compensation planning. The aguinaldo and vacation premium alone add roughly 10% to 12% to annual salary costs.

Termination in Mexico is one of the most employee-protective regimes in the region, and the financial consequences of getting it wrong are high.

An employer can dismiss an employee without liability only for specific causes set out in Article 47 of the Federal Labour Law, such as fraud, violence, or serious misconduct. The employer must provide written notice specifying the grounds.

For dismissals that do not fall under Article 47, the employer must pay a severance package that includes three months’ salary (indemnización constitucional), 20 days’ salary per year of service (seniority premium for unjustified dismissal), a pro-rated aguinaldo, accrued vacation and vacation premium, and 12 days’ salary per year of service as a seniority premium capped at twice the minimum wage.

In practice, most terminations in Mexico are resolved through negotiated settlements. Employers and employees commonly agree on a separation package, and the agreement is ratified before the relevant labour authority to ensure enforceability.

The key point is that termination costs in Mexico are predictable but material. Employers should factor potential severance liability into their hiring decisions from the outset. For more detail, see our guide to employment in Mexico.

An Employer of Record becomes the legal employer of your team member in Mexico. The EOR holds the employment contract, runs payroll, manages tax withholding and social security contributions, administers statutory benefits, and ensures compliance with the Federal Labour Law.

You retain full control of the work. You manage performance, set objectives, and decide on compensation. The EOR handles the legal and administrative infrastructure that makes the employment relationship compliant.

The process is typically fast. Once you have identified your candidate and agreed on terms, the EOR prepares the employment contract, registers the employee with IMSS and other relevant authorities, and runs the first payroll. In most cases, onboarding can be completed within days rather than months.

This is particularly valuable for companies testing the Mexican market with a small number of hires before deciding whether to establish their own entity. An EOR lets you move quickly without committing to the cost and complexity of local incorporation.