Employer of Record in Mexico

Hiring independent contractors has boomed in popularity because of the cost savings and flexibility they offer. It can be a great option if you require niche skills or short-term project support. Contractors allow businesses to access specialized skills quickly, without the time and cost of setting up a local entity.

However, it’s important to know the limits of this model: contractors are not a substitute for full-time employees. Relying on them for ongoing, long-term roles can create serious compliance risks, including employee misclassification, which can lead to fines, back taxes, and reputational damage.

Playroll’s contractor management solutions make it simple to compliantly engage, onboard, and pay contractors around the world. We provide clear visibility into agreements, streamline payments, and reduce compliance risks – so you can focus on getting the work done. And when you’re ready to take the next step, we can help seamlessly convert contractors into full-time employees through our global Employer of Record service.

Businesses can only operate smoothly in Mexico if they comply with local labor laws including drafting compliant employment contract agreements and meeting taxation and payroll obligations. Learn more about the employment laws and regulations in Mexico below, to avoid any compliance issues.

Employment Contract Requirements

Mexico requires employment contracts, and at-will employment is not permitted. Employers should draft detailed contracts, considering factors such as:

• Employee's personal information (name, contact number, etc.)
• Job details and responsibilities
• Contract duration (seasonal, project, or indefinite)
• Salary breakdown and other compensations
• Working Hours and Vacation Days
• Termination clause

Onboarding Process

We can help you get a new employee started in Mexico quickly, with a minimum onboarding time of just 1-2 working days. The timeline starts once the employee submits all required information onto the Playroll platform and completes any necessary local authority registrations.

For non-nationals, the Right to Work assessment (if applicable) may add up to three extra days. Additional time may be needed for follow-ups on this assessment. Please note, payroll cut-off dates can impact the actual start date. Playroll's payroll cut-off date is the 10th of each month unless otherwise specified.

In Mexico, the standard working hours are defined by the type of shift:

• Day Shift: An employee aged 16 or older is allowed to work up to 8 hours per day, totaling 48 hours per week.
• Night Shift: An employee aged 16 or older can work up to 7 hours per day, totaling 42 hours per week.
• Mixed Shift: Combining day and night periods, an employee can work up to 7.5 hours per day, totaling 45 hours per week.

Overtime compensation in Mexico follows a structured system to discourage excessive work hours. Employers must pay double the regular hourly wage for the first nine overtime hours in a week and triple the rate for any additional overtime. Employers who fail to comply may face criminal penalties under Mexico’s labor-exploitation statutes, including imprisonment of three to twelve years and fines ranging from 50 to 5,000 times the UMA (Unidad de Medida y Actualización).

As of January 1, 2025, the minimum wage rate in Mexico is:

• General minimum wage: 278.80 pesos per day. This represents a 12% increase compared to the previous year, reflecting an effort to improve workers' purchasing power and address inflation.
• The monthly equivalent, based on a typical 40-hour workweek, is approximately 12,596 pesos.
• The Northern Border Free Zone rate: 419.88 pesos per day.  Certain professions have professional minimum wages that exceed the general rate, particularly in specialized industries.

The National Minimum Wage Commission (CONASAMI) reviews and adjusts minimum wages annually, considering inflation and purchasing power. Employers can face legal risks if they fail to comply with these updated minimum wage rates.

Employment laws in Mexico can be intricate, and even unintentional mistakes in contracts, benefits, or termination processes can carry legal and reputational consequences. With an Employer of Record, you gain a local partner that ensures every hire is compliant. The EOR takes care of drafting compliant contracts, processing accurate payroll, managing contributions to statutory benefits, and handling lawful terminations if needed, all according to local employment standards.

This level of protection is especially valuable when expanding into new or unfamiliar regions. Instead of using time and resources to build in-house legal knowledge, you gain immediate access to local expertise. The EOR keeps you ahead of regulatory updates and shields your company from potential compliance gaps, so you can confidently hire and manage employees while minimizing risk. For hiring managers and founders, it's the difference between hiring with uncertainty and building your team on a legally sound foundation.

Employers in Mexico must manage critical payroll obligations, including income tax withholding, social security contributions, and state payroll taxes. Income tax is based on progressive rates ranging from 1.92% to 35%, while social security contributions involve employer and employee payments to fund benefits such as healthcare and pensions. Additionally, state-level payroll taxes, typically ranging from 1% to 3%, add another layer of complexity.

Accurate calculations, timely submissions, and adherence to state-specific regulations are essential to avoid penalties and maintain positive employee relations. Leveraging payroll management software can streamline these processes, ensuring compliance and reducing administrative burdens in Mexico.

When you’re scaling quickly, setting up local payroll systems in each new country slows you down. In Mexico, the administrative load can include government registration, benefits management, and accurate, on-time payment delivery. An EOR gives you a plug-and-play solution that handles all of this while your internal team stays focused on growth, not red tape.

Key Ways an EOR Supports Payroll in Mexico:

• Rapid Payroll Setup: Onboards employees quickly with ready-to-go infrastructure.
• End Administration: Handles salary, tax, and benefits with no extra internal resources.
• Vendor Simplicity: Consolidates payroll across countries for centralized oversight.
• No Entity Required: Operates legally, saving your business the time and resources needed for local incorporation.

In Mexico, work permits and visas are essential for employers hiring foreign workers. The process involves submitting applications, paying fees, and meeting specific eligibility criteria. The key visa types include the Temporary Resident Visa with Work Permission, Permanent Resident Visa, Intra-Company Transfer Visa, and Business Visitor Visa. Employers must ensure compliance with local labor regulations when sponsoring foreign employees.

In Mexico, leave policies are regulated by the Federal Labor Law, which ensures employees have access to annual leave, sick leave, maternity and paternity leave, adoption leave, and public holidays. Employers are legally required to comply with these rules, and many also offer additional benefits beyond the law.

Annual Leave

• Full-time employees receive 12 days of paid annual leave after completing one year of service.
• This entitlement increases by 2 days per year up to a maximum of 20 days.
• After six years of service, vacation days increase by 2 days every five years.
• Employees must also receive a vacation premium of at least 25% of their regular salary during their leave.

Sick Leave

Sick leave is supported through the Mexican Social Security Institute (IMSS) rather than the employer directly.

• Employees receive 60% of their salary starting from the 4th day of illness.
• Coverage lasts for up to 52 weeks, with a possible extension of another 52 weeks.

Maternity and Paternity Leave

• Maternity leave provides 12 weeks of paid leave, typically divided as 6 weeks before and 6 weeks after birth.
• Up to 4 weeks can be shifted from prenatal to postnatal leave.
• If a child is born with a disability or requires additional care, mothers can receive an extra 2 weeks.
• Paternity leave grants fathers 5 days of paid leave.

Adoption Leave

Employees adopting a child are also entitled to leave, ensuring that adoptive parents have time to bond and care for the child in line with Federal Labor Law.

Public Holidays

Mexico observes 7 national holidays annually, with an additional holiday in 2025 for Judicial Election Day (June 1).

Employer Obligations and Optional Policies

Employers must respect these legal requirements to avoid penalties and foster a supportive workplace. While not mandatory, many companies also offer bereavement leave, sabbaticals, or other forms of extended leave as part of internal policies, which can enhance employee satisfaction.

In Mexico, mandatory employee benefits include social security contributions, Christmas bonuses, paid vacations, profit-sharing, retirement savings, maternity and paternity leave, and severance pay. These benefits ensure worker protection and financial stability.

Many companies offer supplemental benefits such as private health insurance, life insurance, meal vouchers, stock options, gym memberships, flexible work arrangements, and tuition reimbursement to attract and retain top talent. Employers must comply with labor laws while strategically leveraging additional perks to enhance employee satisfaction and company reputation.

For startups and small teams, managing global employee benefits isn’t just complex, it’s a full-time job. In Mexico, understanding what benefits are required, how to deliver them, and how to stay compliant can be overwhelming, especially without local HR expertise. An Employer of Record removes that pressure by taking complete ownership of benefits administration, so you don't have to become an expert in local employment law.

Whether it’s healthcare contributions, pension enrollment, or statutory leave, the EOR ensures everything is delivered accurately and on time. They navigate any country-specific nuances, keep up with legal changes, and ensure each benefit is properly tracked and documented. For founders, that means fewer distractions and more time to focus on growth. Your employees get the security and support they expect from a local employer, and you get to scale your team in Mexico without building complex infrastructure or worrying about compliance missteps.

Mexico’s labor laws provide strong protections for employees, requiring employers to follow strict procedures for termination. Dismissals are only allowed for just cause and must be documented with a written notice.

• If dismissed without cause, employees are entitled to severance: 3 months’ salary, 20 days per year worked, plus accrued benefits.
• Disputes go first through conciliation, then to Labor Courts, where reinstatement or extra compensation may be ordered.
• Employers must issue a termination letter, final payslip, tax documents, and settle all outstanding payments promptly.
• Collective redundancies need Labor Board approval and must follow severance rules.