Mexico has long been an attractive location for launching an overseas – or just an over-the-border venture. Labor costs have always been one of the key selling points to companies in manufacturing and production. But Mexico offers advantages well beyond the cost of labor. Perhaps its biggest advantage is highly underestimated – Mexico as a gateway to Latin America. All the way from Mexico to the edge of South America, there is a massive market that is still unsaturated. The potential really is endless.
Hiring employees in Mexico, however, can be challenging. There are numerous essential labor laws to learn, starting with the Federal Labor Law (FLL) that governs all the interactions between employers and their employees. Only a small portion of the labor force at any company can be made up of foreign workers, and there are strict procedures regarding visas and tax reporting.
Even when hiring locally, it is essential to understand the expectations of Mexican employees. These include bonuses that serve as a 13th salary, and even a 14th salary, as well as a vacation bonus consisting of 25% of the employee’s salary on top of the regular salary for the prescribed vacation days. There is a generous paid maternity leave of three months (covered by social security, not the employer).
In general, a familiarity with Mexican labor law will see that the labor laws tend to favor the employees. While labor laws, in general, are designed to protect employees against exploitation, the sense in Mexico is that the laws go further, mandating levels of safety and cleanliness that go beyond financial protection.
The Main Employment Options
There are several ways to hire people in Mexico and choosing the right one can make an enormous difference to your business. The simplest way to begin hiring is by engaging with independent contractors. Independents are self-employed and therefore do not enjoy the protection of labor law. There are no minimum wages, no overtime pay, no mandatory holiday bonuses, and no health insurance payments. That usually means that independent contractors are a highly cost-efficient option.
The downside of working with contractors, however, is that the laws are strict on what they can and cannot be asked to do. To be classified as contractors (rather than as employees, and thus protected by labor law) they must be truly independent. An employer cannot tell a contractor how or where to do a job, only what the job must accomplish in the end. The relationship cannot be a permanent one.
Generally, contractors are good for getting a business started but at a certain point, the company needs continuity that it cannot get with independent contractors. At that point, the risk of misclassification is high, and governments are cracking down on the practice with heavy fines. At some point, a company needs employees, people who will be there day in and day out to get a job done.
The most stable – and the most traditional – way to hire people in Mexico is through a local entity. That means filing for legal status through the government and opening a local subsidiary.
That method is stable because it puts all of the liability on your company as the legal employer. All of the employees are the responsibility of your company, and you have the task of ensuring that all taxes are properly withheld and paid to the proper authorities, all benefits are run through third party vendors, and payments with pay slips are delivered accurately and on time.
For many businesses, that step is full of risk. They may not know the local market, or they may not have a deep enough knowledge of labor laws and tax codes to handle payroll compliantly. For those companies, the third option may well be the best decision they will ever make.
The third major employment option is known as the Global PEO (Professional Employment Organization). It is also sometimes known as an Employer of Record option because that’s the principle behind the idea.
What is a Global PEO?
A Global PEO is an agency that directly employs the people you want to hire. The PEO, or one of its partners, serves as the legal employer, assuming all liability and handling all the back-office administration, including calculating payroll and benefits, making sure all the correct taxes are withheld and delivered to the proper authorities, and ensuring that all the employees are paid properly and with full legal compliance.
But even though the employees are officially employed by the PEO or its local partners, it is you who direct them on their day-to-day tasks. In other words, a Global PEO is a form of outsourcing employment so that you could hire legally without an entity and without assuming liability.
Companies that provide PEO services in Mexico allow you to hire a full team of employees in the shortest amount of time. They can start small and test the market to see if the business will be successful before making a full commitment. If the business looks viable, they can easily change over to an entity. Or they can hire through a PEO while they file their paperwork for an entity and hit the ground running when the process is complete, usually after a few months.
Hiring in Mexico is a great opportunity for any company. They a highly qualified workforce and an accommodating business environment. It’s a good idea to take some time to study the labor laws. But it’s an even better idea to look into companies that offer Global PEO services so that you can get your business off to a flying start.