The Complete Guide to Hiring Employees in Mexico For US Companies
Tag: Hiring employees in Mexico comes with its dynamics. A comprehensive business guide is vital for employers of labor and tech innovators from the US and Europe looking to onboard top tech talents to their companies.
The latest technological innovations and the recent advancements in software system developments have made the world a global village, and due to the changing nature of work roles, incredible talents are springing up in different areas around the world, and US companies can profit from this.
Mexico is a great example. Top companies are virtually ‘Climbing the walls’ and crossing borders to hire employees and top-level talents in Mexico and Latin America. Mexico’s diverse, vibrant, and equally sophisticated employee market provides US companies with solid alternatives to growing a competitive workforce.
It is also right on the border of the United States, meaning there is no better time to hire top-quality Mexican professionals with premium remote working services. Globy aims to lead this new era by focusing HR departments on this budding goldmine of solid talents.
Before You Get Started: Key Considerations For Hiring In Mexico
- Mexico and many of the countries in Latin America may hold the key to US companies breaking even as the new year approaches. Mexico’s diverse workforce is one of the things to look out for if you are hiring for a company in the US. Recently, the country has made solid gains in its labor laws and employment landscape, ultimately supporting the rise in cross-border hiring.
Mexico’s diverse workforce has been known to boost performance, one that US companies can access. There is also the advantage of increased access to educational workers that can boost company growth. Collaboration of the US with the US involves some of the following actions;
- The creation of workforce hubs under the bipartisan infrastructure law.
- Advanced manufacturing workforce sprint, and safe and secure with equally effective and trustworthy executive orders that are targeted towards
- Mexico’s recent strategic partnerships and strengthening trade relationships with its giant neighbour, the United States, foster economic development and inclusion and create an excellent environment for remote employment while offering certain perks to employers, such as the creation of a conducive environment for work, effective payroll set-up, and well-defined statutory benefits for employees.
- According to Bloomberg, Mexico is set to profit significantly from the Latin American Investment boom. In 2021 alone, the country attracted over $15 billion in funding while hiring workers in Latin America tripled by the second half of that year.
- To hire from Mexico, you have to be familiar with the culture. Knowledge of the culture is necessary when recruiting essential talents from outside the country. Companies should also be aware of cultural sensitivities during the recruitment process. Skilled workers are made available for you in the long run, and you also get to save some money on general overhead costs, office rent, and other valuable supplies.
There are also some legal obligations for employers, which may become too much for employers. This is precisely the need for this compilation. Let’s get an overview of what you should expect when hiring in Mexico.
Mexico At A Glance: Essential Country Facts
Before we get into the specifics of hiring from Mexico City, we must share some essential background. Facts to prop up your interest in a country that is fast solving the increasing work gaps in the American Silicon Valley. Mexico is located in the Southern Portion of North America, just between the United States and Central America.
Mexico has a GDP of 1,273 trillion USD, considered the 15th largest in the world.
Human Development Index And Literacy Level:
Mexico has an HDI of 0.779, which is high compared to other countries in the Latin American region. The country also has a literacy rate of over 95%, and about 10% of the population is regarded as natural English speakers.
The Mexican Peso is the official currency of Mexico. It originated from the 16th – 19th century forms of the Spanish dollar.
Language: Official Communication In Spanish
90% of folks in Mexico speak Spanish, also regarded as the official language of communication.
Payroll Frequency: Understanding the Norms
In line with the best international hiring practices, employers in labor are mandated to pay either monthly or bi-monthly. The minimum wage in Mexico is MX$207.44 per day. In the free economic zone of the Northern Border, the minimum wage is 312.41 daily. The standard workweek is 48 hours for day work and 42 hours for night work, with 8 hours work day and 7 hours worknights, respectively.
Public Holidays: Number and Types
Depending on the region you are hiring from, Mexico has 13 public holidays yearly. These dates coincide with the worldwide holidays, but in general, about 43 holidays are observed by Mexicans. However, only a few holidays are celebrated as days off work.
Employer Tax Rate: What to Expect
In line with international recruitment best practices, Mexico’s labor laws stipulate that employers must pay a payroll tax that ranges from 1% to 3% of the total salaries paid to workers. It is best to know that these percentages depend on the part of the country or the LatAm region you are hiring from.
Bonus Pay: 13th/14th Month Salary Explained
As for paying employees in Mexico, employers must pay the 13th salary at the end of the year. Employees are entitled to this form of payment as a Christmas bonus (Aguinaldo) by mid-December, worth at least 15 days of their regular salary.
Navigating Mexican Labor Laws and Regulations
Mexican Labor Unions
Labor unions in Mexico are truly democratic in their actions. The government fully supports them, so they can afford to provide workers with ample protection of their rights. To foster cross-border employment compliance, it is vital to interact with an effective interfacing agency to navigate the labor laws for foreign companies in Mexico.
There is no obligation for employers and employees alike to provide a notice period in place of a pending resignation or dismissal. Notice periods can be enforced if there has been a prior agreement in place.
However, in Mexico, rather than requesting a notice period, employees who have their employment terminated for reasons other than physical abuse, harassment, unaccounted absences, deception, dereliction of duty, etc. The employee will be entitled to at least three months of salary as compensation.
Working Hours And Overtime
in Mexico, it is stipulated that the regular working hours cannot exceed about 8 hours a day and up to 48 hours per week, as we mentioned earlier. An average employee must work only up to three hours of overtime per week and about nine hours a week, double the hourly rate.
Finally, any employee choosing to work more than the stipulated nine hours will be paid three times the average rate.
Labor laws for foreign companies in Mexico make it such that contracts have no specified language requirements. But generally, Spanish is recommended. Non-compete agreements in Mexico are unconstitutional, and the employee’s consent must be sought before they are enforced.
Employers also offer incentives for prospective employees to abide by a non-compete agreement voluntarily. This is done by employers paying employees a lump sum during employment. It is best to know that to adhere to the best international hiring practices, Globy has the best framework for cross-border compliance with labor laws, paperwork and payroll setup.
For US companies looking to hire talent across the South American region, Globy is skilled in helping fast-growing US startups hire top developers overseas and helping validate and recruit the best talents.
Budgeting for International Hires: Cost Considerations
One of the biggest reasons US companies are now looking towards Mexico and the entirety of the Latin American region is the cost-efficiency it offers without compromising on quality. The positive nature of US-Mexico tax implications allows foreign companies to thrive without budget constraints.
According to the International Trade Administration, one of the most promising sectors in Mexico for exports into the US is information technology, the internet, and the digital economy, which should interest any fast-growing company. As a fast-growing startup looking to attract talent in Mexico and Latam, you need to be aware of some of the strategies you need to plan your expansion into the country.
- Contract Negotiations are Important: In Mexico, contract negotiations are demanded by the law, and for every year, an employee’s salary must be re-negotiated. As for these negotiations, the collective bargaining agreements must be updated at least every two years.
- Payments Should be made in Mexico: This is because it is mandatory for a company paying employees based in Mexico to make all the salary payments from a Mexican bank account. The employees being paid should also be made a registered beneficiary.
- Perfect Remote Working Structure: If you are a startup in the US looking to hire employees in Mexico, you might think there is a need for a structure on the ground. However, Globy can help you reduce costs by consulting on hiring the best and right employees for your business.
Vacation and Leave Policies: Understanding Mexican Standards
The Mexican Labor market holds employers to high standards. For vacation and leave policies, Mexican workers are entitled to a paid vacation, including a 25% vacation premium of 25% of the base salary.
In plain terms, an employee with a year of service is only entitled to a holiday of 12 working days, while those with five years of service are entitled to a minimum holiday of at least 20 days. There are also two paid vacation days every five years. Different types of leaves are also allowed for employees. Annual, sick, maternity, and paternity leave periods and public holidays are permitted.
Taxation for Employers and Employees in Mexico
Mexico’s employer tax rate is 22.75% of the gross salary. The employer payroll tax in Mexico is a state-level tax, and its design is straightforward. This is the same as we mentioned earlier; employers must pay a payroll tax which ranges between (1-3)% of the total salaries paid.
Other employer contributions are expected. There is also 5.15% for retirement and 5% for the national housing fund. Overall, employer taxes and payroll may rise to between 37% and over 43%, making Mexico one of the countries with the highest employer taxes in the world.
The Process of Terminating Employment in Mexico
Termination processes in Mexico are pretty straightforward because the law does not mandate termination notices or periods. However, Mexican employees who have their employment terminated without cause are entitled to claim severance or reinstatement, which includes the following.
- 90 days of their daily total compensation
- 20 days of daily full payment for each year of service that the employee has worked
- Twelve days of daily base salary for each service that the employee has also worked.
Initiating the Hiring Process in Mexico
Since you want to hire for your fast-growing company, below are some steps to land your ideal candidate.
- First, you open a legal entity in Mexico or partner with an employer of record. Globy also has a wide network of EoR partners that will certainly make our work here easier.
- Next, you collect the information of your new hire, the employment status, location, and everything else applicable.
- Systems are then created to comply with Mexican labor and payroll stipulations.
- Then, to retain your ideal candidate, it is crucial to design a Mexico-specific comprehensive package.
- Ensure you open the required Mexican bank accounts, understand employer obligations under Mexican tax laws, and become familiar with employee rights related to termination, severance, and separation.
- Finally, draft a contract and write and sign an employee agreement with your candidate of choice.
It is best to add that Globy simplifies the above steps so you can start immediately with your candidate. The importance of global expansion for your company is not lost on us, and we are always ready to provide more insights on how best to do this. All we do is to fully represent your interests, support them, and strike a balance in terms of employee satisfaction.
Attracting Global Talent: Recruitment Best Practices
With the changing nature of work roles, Globy comes to the fore in helping promote workplace inclusivity. There are some recruitment best practices to remember to attract global talents to your company. They include;
- Invest in building up credible visibility for your brand. Have a company culture and stick to it.
- Focus on the employee value proposition. This means a combination of what the employee receives in exchange for the value to be offered.
- Ensure the building of an inclusive and flexible corporate culture.
- Adopt remote-friendly policies, offer competitive compensation, and always ensure that you highlight your company’s mission, vision, and values.
- Then, most importantly, offer Competitive Compensation
Choosing Between Contractors and Full-Time Employees
Choosing between independent contractors and full-time employees is tricky because they are not entitled to the same benefits as contractors. They offer companies more versatility, especially if it’s a company looking for only short-term work.
Differences and Hiring Strategies
One of the first steps to consider when hiring a new worker is categorizing each worker correctly. If this is not done, your company could be found paying fines, paying back taxes, or being subject to legal action.
Regarding differences, contractors are highly autonomous workers; you provide tools for them, pay as at when due on invoices, no disciplinary action is required, no benefits, and work cannot be exclusive. An independent contractor takes care of taxes and other deductions.
As for permanent employees, benefits are mandatory, non-completes are allowed, supervision is required, and the companies provide tools amidst other strategies for employment.
Work Authorization: Permits and Visas for Mexico
The National Institute of Migration oversees all work issues and immigration in Mexico. Individuals working in Mexico-based companies need a residency visa with permission to work. In contrast, folks working for an international company in Mexico for less than six months can get a visitor’s access with authorization to work. Mexico gives three different visas, and they are;
- The Tourist Visa
- Temporary Resident Visa
- Permanent Resident Visa.
Some standard documents required for permits in Mexico include a Valid Passport, a Visa application form, a Photo ID, an invitation from a public or private institution, a copy of the migratory document, proof of finances, education, employment, and every other relevant data.
Employee Benefits and Compensation Norms in Mexico
Regarding employee benefits and compensations, an employee who has worked for up to a year is entitled to yearly paid vacations. A period that starts at 12 days and two days is added for each year of continuous employment until the 5th year when 20 days are reached. The vacation days are also paid an extra 25% of the regular salary.
Hence, it is always important to calculate the employee’s regular daily salary; there is also the Christmas bonus of 15 days of the pay an employee is entitled to. There are bonuses based on industry and first-year-end bonuses.
Overcoming Hiring Challenges in Mexico
Hiring from Mexico has many benefits; however, US companies looking for new hires may encounter some challenges. These challenges include noticeable cultural differences, language barriers, and bureaucracy that tends to cause uncertain delays.
Hence, to overcome these hiring challenges, the smart move for US companies is to partner with a trusted and diligent representative to quickly navigate the difficulties of getting new hires from Mexico.
Staying Compliant in International Hiring
We know that labor laws and country regulations might be overwhelming; hence, with the team of experts at Globy, we help you stay compliant and ensure that you are on top of the trends of business operations in Mexico. Staying compliant with all the ethos of international hiring has been made more accessible with Globy.
Getting Further Assistance and Information
It is not business-wise to want to set up new entities in every location you want to hire as a company. However, with Globy, you can navigate these challenges by allowing us to act as an intermediary between you and your prospective employees. At Globy, we help fast-growing US companies struggling to onboard talent find, validate, and recruit top talents from Mexico, the LatAm region, and across Europe.
What should US companies consider before hiring in Mexico?
Before engaging in Mexico, the company’s registration pattern should be considered when hiring from Mexico. Also, the decision to hire directly or indirectly, employment agreements, and the obligations to be met as an employer are some factors to be considered before hiring in Mexico.
How does Globy help hire software developers in Mexico?
With the expertise and credibility of its hiring team, Globy can stand in for you and act as an interface to hiring software developers in Mexico. Globy will reach out to prospective candidates and vet and validate their profiles before leaving you with the ultimate decision to onboard them.
What are the Usual Payroll times and employer taxes in Mexico?
As mentioned earlier, employer taxes are about (1-3)% on the employer’s side, and the usual payroll times, depending on agreements, can be monthly or bi-monthly.
What is ‘Hire Now Pay Later’ with Globy?
Globy has the game-changing feature of ‘hire now and pay later.’ This is designed to build confidence in the hiring process the company is undertaking on your behalf. We understand the importance of faith. Hence, you can pay the fee when you are satisfied with our hiring decision on your behalf.
What basic labor laws in Mexico should US companies Know?
It is essential for US companies hiring in Mexico to be aware of Mexican remote work trends, work hours, daytime and night-time shifts, leave and vacation policies, and public holidays that are considered off-work days for prospective employees.
Can Globy assist in hiring specialized tech roles in Mexico?
Globy can assist in hiring specialized tech roles in Mexico. We understand how US companies try to reduce overhead costs and recurrent expenditures without breaking budget limits. With our team of seasoned experts, we also help to hire specialized tech roles with our wide range of expertise.
How does Globy ensure the quality of software developers?
We have seasoned professionals, tech entrepreneurs, engineering leaders, and innovators in our ranks who can recognize quality from a mile away. We will rely on them to provide credible candidates to fill in effectively for your company and ensure that their expertise meets your specified quality standards.
What are the standard holiday and leave policies in Mexico?
Employees in Mexico get time off; they are also entitled to about six vacation days after being employed for at least a year and up to 2 additional days for each year they stay at the company, which can get to a maximum of 12 days. By the 5th year, the employee is entitled to at least 14 workdays of vacation, and subsequent increases can be added.
How quickly does Globy find senior engineers for companies?
At Globy, we understand the importance of time, especially when hiring talent. Hence, we streamline the process and aim to deliver qualified senior engineers quickly, reducing time wasted on non-qualified candidates.
What do US companies need to know about Mexican hiring taxes?
Before hiring in Mexico, it is crucial to understand the payroll tax system. The country operates under a progressive tax system, which means that as the employee’s income increases, their tax rate also does the same. This and many other hiring taxes are what you need to keep in mind as an employer.