Hire employees in Mexico using an Employer of Record

One employee in Mexico means 6 government registrations, monthly tax filings, and ongoing labor law compliance requirements. Most companies don't find out until they're already non-compliant.

Mexico's Federal Labor Law gives employees strong protections. Miss mandatory profit-sharing payments and you'll face back payments plus 20% annual interest. Get the employment contract wrong and labor courts typically side with the employee.

You've got three ways to hire legally in Mexico. Each has different costs, timelines, and complexity levels.

Option 1: Set up your own entity

• Cost: $15k-35k upfront, $8k-15k annual maintenance
• Timeline: 4-6 months minimum
• Complexity: RFC tax registration, IMSS enrollment, payroll system, labor compliance
• Makes sense when: Hiring 15+ people long-term, permanent market presence

Option 2: Hire contractors

• Cost: None upfront, but limited control
• Timeline: Immediate
• Risks: Misclassification fines (up to $50k), back taxes, mandatory employee reclassification
• Makes sense when: Short projects (< 6 months), specialized consulting
• Note: Hire with Columbus also handles contractor agreements and payments

Option 3: Use an employer of record (Recommended for most)

• Cost: $179/month per employee
• Timeline: 2-3 days to hire
• Complexity: None - we handle everything
• Makes sense when: 1-50 employees, testing markets, multi-country teams

If you're hiring 1-8 people, entity setup costs more than 4-5 years of EOR fees ($179/month = $2,148/year per employee). An EOR like Hire with Columbus handles employment contracts, payroll, IMSS contributions, profit-sharing calculations, and keeps you compliant with Mexico's changing labor laws.

Ready to hire in Mexico without the legal headaches? Get started with Hire with Columbus.

What employment types can you use?

You've got three ways to bring someone onboard in Mexico. The costs and risks are pretty different, so let's break down what actually happens with each one.

How can you hire in Mexico?

Before you pick contract types, you need to figure out how you'll legally employ someone. Each approach has different costs, timelines, and potential headaches.

Set up your own entity

This means incorporating a Mexican subsidiary and handling everything yourself. It's a big commitment.

Upfront costs: $15,000-25,000 for incorporation, legal setup, and initial compliance. Then you'll need ongoing accounting, payroll systems, and HR infrastructure.

Timeline: 4-6 months to get fully operational. You can't hire anyone until you've got tax registration, social security enrollment, and payroll systems running.

When it makes sense: You're planning 20+ employees long-term and want complete control. Think permanent market expansion, not testing things out.

Reality check: Most companies underestimate the ongoing complexity. Mexican labor law changes frequently, and compliance mistakes get expensive fast.

Hire contractors/freelancers

The fastest option, but Mexico doesn't mess around with misclassification.

Speed: You can start immediately with a contractor agreement.

The catch: Mexico's labor authorities are aggressive about misclassification. If someone works like an employee (set hours, company equipment, integrated into your team), they legally are one.

Penalties: Back taxes, social security contributions, and fines that can hit $50,000+ per misclassified worker. Plus the contractor can claim full employee benefits retroactively.

When it works: True project work under 6 months, specialized consulting, or work that's genuinely independent.

Note: Hire with Columbus also handles compliant contractor agreements and payments if you need the flexibility without the risk.

Use an employer of record (recommended)

We become the legal employer in Mexico while you manage the day-to-day work. It's the middle path that makes sense for most companies.

How it works: Hire with Columbus handles employment contracts, payroll, taxes, benefits, and compliance. You direct the work and manage performance like any other team member.

Cost: $179/month per employee. No setup fees, no hidden costs.

Timeline: Hire in 2-3 days instead of months. We can have someone on payroll before your entity paperwork would even be submitted.

ROI example: 5 employees costs $895/month with an EOR vs $25,000+ to set up an entity, plus ongoing compliance costs.

When it makes sense: You're hiring 1-50 people, testing the Mexican market, or building multi-country teams without the entity setup.

Employment contract types in Mexico

Once you've decided how to hire, you need to pick the right contract type. Mexico recognizes several options, each with specific rules.

Indefinite term contracts (permanent)

This is your standard full-time employment contract. No end date, maximum job security for the employee.

When to use: Any core role you expect to last more than a year. Sales, engineering, operations - anyone integral to your business.

Benefits: Maximum flexibility for you as an employer. You can adjust responsibilities, promote, or restructure as needed.

Termination: Requires just cause or severance payment. We'll cover the details in compliance, but it's not as scary as it sounds.

Fixed-term contracts

These have a specific end date and can't exceed one year total duration. The rules are stricter than you might expect.

The one-year rule: You can't keep renewing fixed-term contracts. After one year total (including renewals), the contract automatically becomes indefinite.

When to use: Genuine temporary projects, covering maternity leave, or seasonal increases in work.

Reality check: Don't use these to avoid permanent employment. Mexican authorities will convert them to indefinite contracts if the work is ongoing.

Part-time contracts

Less than 30 hours per week, but employees get the same benefits as full-timers (prorated). It's more generous than you might think.

Benefits: Same vacation days, social security, and protections as full-time employees. Just calculated proportionally.

Flexibility: You can adjust hours within the 30-hour limit, but going over converts them to full-time automatically.

When it works: Customer service, content creation, or any role that doesn't need 40 hours but requires employee integration.

How Hire with Columbus handles contracts

We draft all employment contracts in Spanish and English, making sure they comply with Mexican labor law and your specific needs.

Contract customization: We include your company policies, confidentiality terms, and specific job requirements while maintaining legal compliance.

Automatic compliance: As laws change, we update contract templates automatically. Your employees always have current, compliant agreements.

Multi-contract management: Need some permanent employees and some contractors? We handle both with separate, appropriate agreements.

Most companies hiring in Mexico should use indefinite-term contracts through an EOR. It's the most straightforward path to building a team without the entity setup costs or contractor risks.

How does payroll and taxation work?

Your €60,000 employee in Mexico actually costs €82,800 per year once you add employer contributions and taxes. Mexican payroll involves multiple tax types, strict deadlines, and some unique requirements that'll catch you off guard if you're not prepared.

The good news? Mexico's tax system is relatively straightforward compared to some countries. The challenging part is staying compliant with all the different contribution requirements and payment schedules.

Income tax brackets

Mexican employees pay progressive income tax on their salaries. Here's the 2025 breakdown:

Most international hires fall into the 10.88% to 21.36% brackets. You'll withhold this from their salary and remit it monthly to SAT (Mexico's tax authority).

Social security and employer contributions

Here's where your costs really add up. Mexican employers pay significant social security contributions that employees in other countries might not expect:

That 27.4% employer contribution is what catches most companies off guard. It's calculated on the employee's daily integrated salary, which includes their base salary plus benefits.

Payment schedule and bonuses

Mexican employees expect specific payment timing and bonuses that you need to budget for:

Regular payments:

• Salary: Paid twice monthly (1st and 15th) or weekly
• Most companies choose bi-monthly for salaried employees

Mandatory bonuses:

• Aguinaldo (Christmas bonus): Minimum 15 days' salary, paid by December 20th
• Vacation premium: 25% of vacation pay when they take time off
• Profit sharing (PTU): Up to 10% of company profits, distributed by May 30th

The Christmas bonus alone adds 4.17% to your annual salary costs (15 days ÷ 360 working days). Factor this into your budget from day one.

Total employment cost example

Let's break down the real cost of hiring someone at €60,000 annually in Mexico (approximately $1,200,000 MXN):

Base salary: €60,000 Employer contributions (27.4%): €16,440 Christmas bonus (4.17%): €2,500 Vacation premium (estimated): €800 Payroll processing and compliance: €3,000

Total annual cost: €82,740

That's 38% more than the base salary. Most companies budget 35-45% above base salary to cover all employment costs in Mexico.

Payroll cycle and deadlines

Mexican payroll runs on strict deadlines that you can't miss:

Monthly obligations:

• Employee tax withholdings: Due by 17th of following month
• IMSS contributions: Due by 17th of following month
• INFONAVIT payments: Due by 17th of following month

Annual requirements:

• Annual tax returns: Filed by April 30th
• Profit sharing calculation: Due by May 30th
• Christmas bonus: Must be paid by December 20th

Miss these deadlines and penalties start at 20% of the amount owed, plus interest. SAT doesn't negotiate on timing.

Common payroll mistakes

We see the same errors repeatedly when companies handle Mexican payroll themselves:

Integrated salary miscalculation: Companies often calculate social security contributions on base salary only. You need to include the daily integrated salary, which includes benefits and bonuses.

Christmas bonus timing: Paying the aguinaldo in January instead of December. This creates tax complications and employee relations issues.

Vacation premium oversight: Forgetting to pay the 25% vacation premium when employees take time off. This is mandatory, not optional.

PTU calculation errors: Profit sharing calculations are complex and based on specific formulas. Getting this wrong affects every employee.

Setting up compliant payroll in Mexico yourself typically costs €2,500-4,000 monthly (accounting firm plus payroll software), plus the risk of penalties for mistakes. With Hire with Columbus, you get fully compliant payroll processing for $179/month per employee, with zero penalty risk and built-in expertise on all Mexican requirements.

The platform handles integrated salary calculations, ensures all deadlines are met, and manages the Christmas bonus and profit sharing automatically. Your employees get paid correctly and on time, while you focus on running your business instead of decoding Mexican tax law.

What benefits and leave are required?

Mexico employees get six days minimum vacation in their first year, and here's the catch – you must pay them double for unused days when they leave. That's just the start of Mexico's benefit requirements, which add roughly 35% to your base salary costs.

Let's break down what you're legally required to provide and what it actually costs.

Annual vacation

Mexico starts employees with six vacation days after completing one full year of work. The entitlement increases by two days every year until it caps at 12 days after the sixth year.

After that, employees get two additional days every five years of service. So someone with 10 years gets 14 days, someone with 15 years gets 16 days, and so on.

Here's what trips up most employers: Unused vacation days must be paid out at termination. You can't have a "use it or lose it" policy. If an employee leaves with four unused vacation days, you owe them four days of salary on top of their final paycheck.

Employees also get a vacation bonus (prima vacacional) equal to 25% of their vacation pay. So if someone takes six days of vacation, they get six days of regular pay plus 1.5 days as a bonus.

Sick leave

Employees can take up to three consecutive sick days without a doctor's note – you still pay their full salary during this time. After three days, they need medical certification from the Mexican Social Security Institute (IMSS).

Once IMSS certifies the illness, they take over payment starting from day four. The employee gets 60% of their salary from IMSS, and many employers top this up to 100% as a competitive benefit.

IMSS covers sick leave for up to 52 weeks for the same illness. If the employee can't return to work after that period, they may qualify for disability benefits.

The gotcha: You're still responsible for payroll taxes and social security contributions during sick leave, even when IMSS is paying the employee directly.

Parental leave

Maternity leave is 12 weeks (six weeks before birth, six weeks after) at 100% salary paid by IMSS. Fathers get five working days of paid paternity leave, also covered by IMSS.

Mothers can transfer up to four of their pre-birth weeks to after delivery if they want to work closer to their due date. They just need medical approval and to notify you 30 days in advance.

Adoptive parents get the same leave entitlements as biological parents. The leave starts from the day they receive custody of the child.

Important detail: You can't terminate employment from the moment you're notified of pregnancy until one year after maternity leave ends. This protection is absolute – even performance issues won't override it.

Public holidays in Mexico (2025)

Mexico has nine mandatory public holidays. Employees who work these days get double pay (their regular daily wage plus holiday premium).

The Monday rule: Several holidays move to the nearest Monday to create long weekends. This happens automatically – you don't get to choose the date.

Some states and municipalities have additional local holidays. Mexico City adds November 2 (Day of the Dead) as a local holiday, for example.

Mandatory benefits breakdown

Every employee gets three major benefits, and the costs split between you and them:

Social Security (IMSS):

• Employer pays: 20.4% of salary
• Employee pays: 3.15% of salary
• Covers healthcare, disability, life insurance, and retirement

Housing fund (INFONAVIT):

• Employer pays: 5% of salary
• Employee pays: 0%
• Provides low-interest housing loans

Retirement savings (SAR):

• Employer pays: 2% of salary
• Employee pays: 6.275% of salary
• Individual retirement accounts managed by private firms

Christmas bonus (aguinaldo): You owe every employee 15 days of salary paid before December 20th. This applies even if they started in November – you prorate it based on time worked.

Profit sharing (PTU): If your company made a profit, you must distribute 10% of pre-tax profits among all employees by May 30th. The amount each employee gets depends on their salary and days worked.

Optional competitive benefits

Most international companies offer these extras to attract talent:

Health insurance upgrades: IMSS covers basic healthcare, but many employers add private insurance for faster service and better facilities. Expect to pay $100-300 per employee monthly.

Life insurance: Beyond the basic IMSS coverage, additional policies typically cost $20-50 per employee monthly.

Food vouchers (vales de despensa): Up to 40% of minimum wage ($140 monthly in 2025) can be given tax-free as food vouchers. Employees love these because they're tax-exempt income.

Transportation allowances: Common in Mexico City where commutes are brutal. Usually $50-100 monthly.

Flexible work arrangements: Hybrid and remote work became standard post-pandemic, especially for professional roles.

Common benefit mistakes

Missing the aguinaldo deadline: Pay the Christmas bonus by December 20th or face penalties of 50-5000 times the minimum wage ($175-$17,500 per violation).

Forgetting profit sharing: You have until May 30th to distribute PTU. Miss this deadline and penalties start at 250 times minimum wage ($875) per employee.

Vacation payout errors: Not paying unused vacation at termination can trigger labor disputes. Mexican labor courts favor employees heavily in these cases.

Social security miscalculations: IMSS audits are common and thorough. Underpaying contributions results in penalties, interest, and back payments that can exceed the original amount owed.

Maternity protection violations: Terminating a pregnant employee or new mother can result in reinstatement orders plus 20 days salary as damages, regardless of the stated reason for termination.

Administering these benefits correctly requires local HR expertise ($25,000+ annual salary), benefits software ($200+ monthly), and legal review ($5,000+ yearly). Risk of calculation errors or missed deadlines can cost $10,000+ in penalties and disputes.

Hire with Columbus handles all benefit administration, compliance tracking, and mandatory payments for $179/month per employee. We calculate contributions, file reports, manage leave requests, and ensure you never miss a deadline or payment.

What are the compliance requirements?

Written contracts are mandatory in Mexico within 28 days of the employee's start date. Miss this deadline and you're looking at fines starting at 50 times the minimum wage (around $15,000 USD) plus potential back payments if disputes arise.

Employment contract requirements

Every employment contract in Mexico must be written in Spanish and include specific mandatory clauses. You can't just translate your US contract and call it done.

Required elements include the employee's full name and address, job description, work location, salary amount and payment frequency, working hours, and vacation entitlement. The contract must also specify the probation period (if any) and termination notice requirements.

Contracts don't need government registration, but they must be signed by both parties within 28 days of employment starting. Missing this window makes the contract legally questionable and opens you to employee claims.

Probation periods

Mexico allows probation periods up to 30 days for most positions, or 180 days for management roles and positions requiring specialized technical knowledge. During probation, either party can terminate with just cause and no notice period required.

After probation ends, full employment protections kick in immediately. This means standard notice periods, severance requirements, and just-cause termination rules all apply.

Don't try to extend probation periods beyond these limits or restart them with contract renewals. Mexican labor courts will void extended probations and treat the employee as having full rights from day one.

Working time regulations

Standard working hours are 8 hours per day and 48 hours per week for day shifts, 7 hours per day and 42 hours per week for night shifts (10 PM to 6 AM). Weekend work is limited to 7 hours per day and 42 hours per week.

Overtime kicks in after these daily limits, not weekly totals like many countries. First 9 hours of weekly overtime pay double time, anything beyond that pays triple time. You must track and pay overtime weekly, no monthly averaging allowed.

Employees get 30 minutes of unpaid break time during 8-hour shifts. You're required to keep detailed records of working hours, overtime, and break periods for labor inspection purposes.

Notice periods

Notice periods in Mexico depend on length of service and who's initiating the termination:

Employers can pay in lieu of notice, but employees must work their notice period unless you both agree otherwise. During notice periods, employees retain all rights and benefits.

Termination process

You can only terminate employees for just cause (misconduct, poor performance after warnings, economic reasons) or by mutual agreement. "At-will" employment doesn't exist in Mexico.

For misconduct terminations, you need documented evidence and must follow progressive discipline procedures. Economic dismissals require 30 days advance notice to employees and the local labor board, plus proof of genuine financial hardship.

Terminations without just cause are considered wrongful dismissal. The employee can choose between reinstatement or severance compensation, and you'll likely face additional penalties and legal fees.

Severance pay requirements

Severance depends on the reason for termination and length of service:

Severance must be paid within 15 days of termination. Late payments accrue 2% monthly interest, and employees can file claims for up to one year after termination.

Data protection requirements

Mexico follows its Federal Law on Protection of Personal Data, which requires explicit employee consent for data collection and processing. You must inform employees what data you're collecting, how it's used, and how long it's stored.

Employee files must be kept confidential and secure. Sharing personal information without consent can result in fines up to 320,000 times the minimum wage (roughly $9.6 million USD). Background checks and medical exams require written employee authorization.

Data breach notifications must be made to authorities within 72 hours and affected employees within 5 days. Cross-border data transfers need adequate protection measures or explicit consent.

Common compliance mistakes

Invalid contract clauses are the biggest trap. Including "at-will" termination language, waiving overtime pay rights, or setting probation periods beyond legal limits makes the entire contract void under Mexican law.

Wrong termination procedures cost companies heavily. Firing someone without documented just cause or proper notice triggers wrongful dismissal claims averaging 6-12 months of salary in settlements.

Missing mandatory contract elements like specific job duties, work location, or salary details gives employees grounds to claim the employment relationship was never properly established.

Penalties for violations

Common compliance failures in Mexico carry steep costs:

• Invalid employment contract: $15,000+ fine plus contract deemed void, requiring back payments and proper documentation
• Wrong termination process: 3-12 months salary in severance plus legal fees averaging $25,000-50,000 USD
• Missing overtime payments: Double back payment owed plus 2% monthly interest and labor board penalties
• Data protection violations: Fines from $1,000 to $9.6 million USD depending on severity and company size
• Working time violations: 50-5,000 times minimum wage ($15,000-$1.5 million USD) plus back payments owed

Hire with Columbus ensures every contract includes all mandatory clauses in proper Spanish, handles terminations according to Mexican procedures, and maintains compliant payroll and data protection practices. At $179/month per employee, it's much cheaper than dealing with compliance violations or setting up your own legal entity in Mexico.

What has changed recently?

Mexico's employment rules got a major overhaul in 2025, with new regulations that'll directly impact how you hire and manage employees. The biggest changes hit in March when the Mexican Congress passed sweeping amendments to the Federal Labor Law, affecting everything from remote work policies to profit-sharing calculations.

New remote work regulations

Mexico finally put remote work rules in writing after years of informal arrangements. As of April 2025, any employee working remotely more than 40% of their time must have a formal remote work addendum to their contract. This isn't just paperwork – employers now must provide ergonomic equipment, internet allowances, and electricity compensation.

The new law requires employers to cover at least 70% of remote work costs, including internet (minimum 500 pesos monthly) and electricity (calculated at 15% of the employee's monthly salary). Companies that don't comply face fines ranging from 50,000 to 500,000 pesos per violation.

Updated profit-sharing requirements

The annual profit-sharing (PTU) calculation got more complex in 2025. The new formula now includes digital services revenue and cryptocurrency gains in the profit base, which caught many international companies off guard. The PTU rate remains at 10% of taxable profits, but the expanded definition means higher payouts for most employees.

Companies must now file their PTU declarations by March 31st instead of the previous May deadline. Late filings trigger automatic penalties of 2% per month on the total PTU amount owed.

Minimum wage increases

Mexico's minimum wage jumped to 278.80 pesos per day (about $15.50) in January 2025, a 12% increase from 2024. The northern border zone minimum wage reached 419.88 pesos daily ($23.30). These increases affect salary calculations for benefits, severance, and overtime calculations across all employment levels.

Enhanced gender equality requirements

Gender pay equity reporting became mandatory in 2025 for companies with 50+ employees. You'll need to submit annual reports showing salary ranges by position and gender, with explanations for any gaps exceeding 5%. Companies failing to file face fines of 250,000 to 1 million pesos.

The law also expanded paternity leave from 5 to 10 days, effective immediately for all new fathers. Adoptive parents now receive the same leave benefits as biological parents.

Digital nomad visa impact

Mexico launched its official digital nomad visa program in February 2025, creating new compliance challenges. Foreign nationals working remotely for international companies while residing in Mexico need specific visa documentation, and employers must verify immigration status more carefully.

This affects contractor relationships too – foreign contractors working from Mexico for extended periods may trigger tax residency rules, requiring Mexican tax withholding and IMSS registration.

IMSS contribution changes

Social security contributions increased slightly in 2025, with the employer portion rising from 20.425% to 21.15% of salary. The employee contribution remained at 2.375%. The change primarily affects the housing fund (Infonavit) calculation, which now includes performance bonuses in the contribution base.

Vacation law changes are now live

The expanded vacation entitlement law that passed in late 2024 is now fully in effect. New employees get 12 vacation days in their first year instead of six, and the accrual rate increased across all tenure levels. This doubled first-year vacation costs for most employers.

When you're managing these changes through an EOR like Hire with Columbus, we handle all the regulatory updates automatically. Our Mexico team monitors these changes daily and adjusts payroll, contracts, and compliance procedures without you having to track every amendment. That's particularly valuable right now, as Mexico's labor authorities are actively auditing international companies to ensure compliance with the new remote work and gender equity requirements.