Hire and manage employees in Mexico
Table of contents
Key takeaways
Mexico’s Federal Labor Law (Ley Federal del Trabajo) governs all employment. At-will employment does not exist in Mexico. Employers must have just cause to terminate or pay a constitutional severance package of 3 months’ salary plus 20 days per year of service.
The 2026 minimum wage is MXN 315.04 per day (general zone) and MXN 440.87 per day in the Northern Border Free Zone, a 13% increase from 2025.
All employers must pay a Christmas bonus (Aguinaldo) of at least 15 days’ salary before December 20, and vacation starting at 12 days per year with a mandatory 25% vacation premium.
Companies must distribute 10% of annual pretax profits to employees (PTU) within 60 days of filing annual taxes. This is mandatory for nearly all private employers.
Mexico’s 40-hour workweek reform is being phased in by 2030: 46 hours in 2027, 44 in 2028, 42 in 2029, and 40 in 2030. The current standard remains 48 hours per week.
Total employer costs typically run 30 to 40% above base salary when IMSS contributions, profit sharing, vacation premium, and the Aguinaldo are included.
Foreign companies can hire Mexican employees without a local entity using an Employer of Record (EOR). An EOR handles IMSS registration, payroll tax withholding, mandatory benefit administration, and compliance with the Federal Labor Law.
Employer of Record (EOR) vs. entity
When you’re hiring in Mexico, you have two choices: You can either use an Employer of Record (EOR) or establish your own legal entity.
Setting up your own Mexican entity. Business owners who choose to set up a legal entity from scratch need to take numerous steps to ensure they create a legitimate company. This includes selecting the right business structure, opening a business account with a bank in Mexico, registering with the Mexican Secretariat of the Economy, and paying the appropriate fees.
Using a Mexican EOR. An Employer of Record (EOR) is a third-party service that takes care of all of these steps for you. In essence, they operate as the employer on your behalf, which means they’ll not only ensure the appropriate fees are paid, but that payroll, contracts, and benefits are taken care of for you as well.
The choice you make will depend on your company’s plans, resources, and other factors. Here are the pros and cons of an EOR vs. setting up your own legal entity in Mexico:
- | EOR | Legal Entity |
|---|---|---|
Cost and implementation | The setup is less time-intensive. Hire in days instead of months. This option is costlier as you scale. | Can take up to six months to set up—and you have to pay registration fees. Once you’ve hired enough employees, this option is more cost-effective. |
Hiring | Set up new hires fast—often within one to 14 days, depending on the provider of the EOR service. | Supports mass expansion into new markets. |
Compliance | Provides localized employment contracts, manages compliance work, and assumes liability. Can’t customize certain policies or HR and legal processes to your specific company needs. | Need to have expert command of local employment laws and regulations, as well as internal legal resources, since your company assumes all legal liability. Can tailor any policy or HR and legal process to your specific company needs. |
Payroll and benefits | Pay and insure your employees fast—regardless of location. Your taxes are handled for you. | You have to take care of all payroll items, including statutory deductions, and benefits yourself. |
Understand the steps to hiring through an EOR in Mexico in our guide.
Classifying Mexican workers: employees vs. contractors
One of the first steps you’ll need to take when hiring a new team member in Mexico is classifying them as an employee or an independent contractor. It’s crucial you categorize each worker correctly, or you could find yourself facing fines, having to pay back taxes, and even being subject to legal action.
Employees | Contractors |
|---|---|
Supervision required. In Mexico, employers have the right to directly supervise the work their employees are doing, including how and where it’s performed. | Highly autonomous. Contractors are largely in charge of their own work, including how, when, and where to perform it. |
Company provides tools. Any laptops, equipment, apps, and other tools required for the job are provided by the employer. | Contractor provides tools. Any and all equipment needed to complete the job should be provided by the contractor. |
Regular wages mandatory. Employees have to be paid on a regular basis, regardless of whether they completed certain tasks or not. | Payment due upon invoice. After a contractor’s work is complete, they’ll send an invoice to the company. Then, payment is due in the agreed-upon amount of time. |
Benefits mandatory. Mexican employees are entitled to receive certain statutory benefits. | No benefits required. Independent contractors in Mexico do not receive benefits from their employers. |
Disciplinary action allowed. Employees must follow company codes, and managers can take disciplinary action when policies are disregarded or rules broken. | No disciplinary action permitted. If the contractor violates company policy, the only action the employer can take is to end the contract. |
Non-competes allowed. Employees can be barred from seeking additional employment, especially with a competitor. | Work cannot be exclusive. Employers are not permitted to bar contractors from seeking employment elsewhere. |
Employers take care of payroll taxes and other deductions. Payroll taxes and social security insurance are all directly deducted from the employee’s paycheck by the employer. | Takes care of own payroll taxes and other deductions. Contractors handle taxes and insurance themselves. |
Stay compliant with Mexican labor and employment laws by learning how to correctly classify your workers in our classification guide.
Work permits for Mexican employees
Foreign nationals who wish to work in Mexico must possess a work visa. They can apply for a working visitor visa (up to 180 days), a temporary resident visa (more than 180 days, up to 4 years), or a permanent resident visa. To learn more, check out our guide on work permits for employees in Mexico.
New hire onboarding checklist
Once your applicant has been officially verified to work in Mexico, it’s time to onboard them. An onboarding process done right starts before the employee’s actual first day and lasts about 90 days. Review our step-by-step guide to onboarding new employees in Mexico.
Before their first day
Send an offer letter (more on that in the next section).
Complete necessary paperwork (NDA, tax withholding).
Enroll them in benefits and add them to payroll.
Prepare an employee handbook.
On Day 1
Make sure they have the devices, apps, and equipment they need.
Give them an agenda for the day.
Schedule a meeting with their manager.
During their first 90 days
Help them set goals for 30, 60, and 90 days.
Schedule role-specific training.
Set up regular check-ins.
Provide feedback on their progress.
What to include in an offer letter in Mexico
The official employment contract is a crucial part of hiring a new employee in Mexico. It must be in writing and translated into Spanish. Key items to include: contact information, job title and duties, start date and probation period, compensation and benefits, working hours, vacation leave, termination policy, and confidentiality agreements. Learn more about sending a legally compliant offer letter in Mexico.
NDAs and confidentiality agreements in Mexico
Non-disclosure agreements (NDAs) are generally included in the initial employment contract in Mexico and protect trade secrets, intellectual property, client data, financial information, and technical data. Read about the different types of NDAs in our guide to NDAs in Mexico.
Running background checks on Mexican employees
Mexico allows employers to run background checks on employees and contractors, as long as you have their consent and follow Mexico’s strict data privacy laws. Below is an overview of common background check types.
Common background checks | Less common background checks |
|---|---|
Employment history | Credit history |
Education history | Social media |
Criminal record history | Driving record (depends on role) |
References | Ability to work with children (depends on role) |
- | Work authorization |
Paying employees in Mexico
As of January 2026, Mexico’s general minimum wage is MXN 315.04 per day (MXN 440.87 per day in the Northern Border Free Zone). Total employer costs typically run 30 to 40% above base salary when mandatory benefits are included. See the cost breakdown below:
What to deduct | How much |
|---|---|
Payroll taxes | Varies by state |
Health insurance | 20.4% |
Work risk insurance | 0.67455% |
Disability and life insurance | 1.75% |
Retirement insurance, unemployment in advanced age | 1.125% |
Daycare insurance and social benefits | 1% |
Retirement Fund (SAR) | 5.15% |
Daycare insurance and social benefits | 1% |
For more details on running payroll in Mexico, see our step-by-step guide.
Mandatory employee benefits in Mexico
By law, you are required to offer your Mexican employees certain statutory benefits. These include:
Social Security (IMSS): Covers healthcare, pensions, sick leave, disability, and more. About 25 to 35% of payroll.
Profit sharing (PTU): 10% of annual pretax profits distributed to employees within 60 days of filing annual taxes.
Vacation time: Starting at 12 days after the first year, plus a 25% vacation premium while on leave.
Christmas bonus (Aguinaldo): At least 15 days’ salary, paid before December 20.
10 statutory holidays per year, plus Sunday premium pay if employees work Sundays.
Check out our full guide for more on statutory and supplementary benefits in Mexico.
Managing remote employees’ computers and apps
Remote work creates logistical challenges with managing employee devices and apps from afar. With Rippling, you can quickly set up and secure employee accounts and manage all apps from a single place. Learn more about managing remote employee devices in our guide.
Protecting company IP in Mexico
Mexico takes IP ownership and protection seriously. INDAUTOR records copyrights, IMPI registers trademarks, patents, and industrial designs, and Mexico belongs to international agreements like the Madrid Protocol and the Patent Cooperation Treaty. Read our primer on IP ownership and rights in Mexico for more details.
Complying with Mexican labor laws
Key requirements include profit sharing obligations, mandatory severance (even for voluntary resignations), and the distinction between employment law and labor law. Mexico’s 40-hour workweek constitutional reform is being phased in gradually: 46 hours by 2027, 44 by 2028, 42 by 2029, and 40 by 2030. Our guide covers the top things employers should know when hiring in Mexico.
Terminating employees in Mexico
At-will employment does not exist in Mexico. If you terminate an employee without just cause, you must pay a constitutional severance package: 3 months’ salary, 20 days’ salary per year of service, and a seniority premium of 12 days’ salary per year. Even employees who resign are entitled to their earned severance. To avoid costly scenarios, read our guide to terminating employees in Mexico.
Reason for leaving | Severance amount |
|---|---|
Termination with cause | • 12 business days’ worth of wages for each year of employment • Payment for any days worked that have not yet been paid • All paid vacation time thus far accrued • Anything else discussed in the employment contract, including a prorated Christmas bonus |
Voluntary resignation | • Payment for all days worked that haven’t yet been processed • All paid vacation time thus far accrued • Anything else discussed in the employment contract • Prorated Christmas bonus |
Termination without cause | • Minimum 3 months’ worth of salary • Proportional profit share and prorated Christmas bonus the person would have received that year • All paid vacation time accrued, as well as payment for all days worked but not yet paid • Seniority premium if the individual has been with the company for over 15 years • Expired wages for up to 12 months from the date the notice of termination was given • Any other payments discussed in the original employment contract |
Frequently asked questions about hiring in Mexico
Frequently asked questions about hiring in Mexico
Is at-will employment legal in Mexico?
No. At-will employment does not exist in Mexico. Under the Federal Labor Law (Ley Federal del Trabajo), employers cannot terminate an employee without cause. If a company terminates an employee without a justified reason (dismissal sin causa justificada), the employee is entitled to a constitutional severance package—which includes 3 months' salary, 20 days' salary per year of service, and a seniority premium of 12 days' salary per year worked. This makes terminations in Mexico significantly more expensive than in at-will jurisdictions, so proactive HR compliance is essential.
What is the minimum wage in Mexico in 2026?
As of January 1, 2026, Mexico's general daily minimum wage is MXN 315.04 (approximately USD 17.54), a 13% increase over 2025. In the Northern Border Free Zone (Zona Libre de la Frontera Norte), the minimum wage is higher at MXN 440.87 per day (approximately USD 24.55). In addition to base salary, employers must account for mandatory benefits like vacation pay, Christmas bonus (aguinaldo), profit sharing (PTU), and social security contributions—which typically push total employment costs 30–40% above the base salary.
What statutory benefits must employers provide in Mexico?
Mexican labor law mandates several employer-provided benefits: a Christmas bonus (aguinaldo) of at least 15 days' salary paid before December 20; paid vacation starting at 12 days after one year (increasing by 2 days per year up to 20, then 2 days every 5 years); a vacation premium of 25% on top of vacation pay; profit-sharing (PTU) of 10% of pretax profits distributed to employees annually; and social security (IMSS) contributions covering healthcare, housing (INFONAVIT), and retirement (AFORE). Total mandatory employer contributions typically add 30–40% on top of base salary.
How is Mexico's 40-hour workweek reform being phased in?
Mexico's constitutional reform reducing the maximum workweek was enacted in March 2026. The reduction is phased in gradually: 46 hours in 2027, 44 hours in 2028, 42 hours in 2029, and the final 40-hour maximum in 2030. During the transition period, the existing standard (48 hours/week) remains in effect. Overtime pay is required at double the regular rate for the first 9 hours beyond the standard, and triple thereafter. Employers should begin planning now for the operational and cost impact of these changes, particularly in manufacturing and service industries.
Can a foreign company hire employees in Mexico without a local entity?
Yes. Foreign companies can hire employees in Mexico using an Employer of Record (EOR), which acts as the legal employer under Mexican law. The EOR handles IMSS registration, payroll, tax withholding, mandatory benefits administration, and compliance with the Federal Labor Law. This is the faster path to market versus setting up a Mexican entity (Sociedad Anónima de Capital Variable or SAPI), which requires notarized articles of incorporation, tax registration (RFC), and IMSS registration—a process that can take 4–8 weeks. The EOR route also reduces permanent establishment risk for foreign companies.
What are the risks of worker misclassification in Mexico?
Mexico's subcontracting reform (2021) significantly tightened rules around worker classification. Misclassifying employees as independent contractors or using unregistered specialized service providers can result in: joint employer liability for labor and social security obligations, substantial administrative fines, cancellation of the service provider's registration, and adverse tax consequences. Starting in 2026, labor inspections specifically target whether 'specialized services' truly meet statutory requirements and whether contractors are properly registered with REPSE (the employer registry). Employers should audit their contractor arrangements regularly.
Disclaimer
Rippling and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.
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