There are many things you will need to know before you hire in Mexico but here’re our top 3:
1. Employment in Mexico
Employer and Employee Social Security in Mexico
Both the employer and employee must make monthly social security contributions to the Mexican Social Security Institute. The employee rate is 1.65% of salary and the employer contributes 7.58%. Payments are due by the 17th of the following month of payroll ( for example, by December 17th for November payroll)
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2. Tax in Mexico
Tax Rates in Mexico
Income tax rates in Mexico range from 1.92% to 35% depending on total compensation. However, expat workers on assignments of less than 183 days have a different rate as follows:
- MXP 0-125,900 = 0%
- MXP 125,901 -1 MILLION = 15%
- MXP 1 MILLION + = 30%
For assignments over 183 days, the normal tax rates will be applied.
Corporate Tax in Mexico
The corporate tax rate is 30% in Mexico for all companies, including foreign subsidiaries.
3. Payroll in Mexico
Social Security Registration
Foreign companies running payroll need to register with the MSSI and Mexican Tax Authorities for all payments and withholding.
13th/14th month bonus
A 13th month bonus is required to be paid to all employees by December 20 of each year. Some employers will also pay a 14th month bonus, but that is optional.
It’s going to be hard to employ someone remotely. Here’s what else you should be worried about:
The risk of non-compliance is very high, especially when employing in a new country like Mexico.
Employing in an unfamiliar country like Mexico can be overwhelming. The burden and risk of non-compliance is all on you and your company and you need to be careful when navigating the employment and tax laws of Mexico. The information you’re looking at may be inaccurate, outdated or in another language. The consequences of non-compliance in Mexico are far too high to not invest time and money in thoroughly understanding the Mexican jurisdiction.
Involving tax and immigration providers early is the number 1 most preferred method to manage compliance risks for companies, with 72% stating that they are focusing on outsourcing these services early on in the assignment.
There are many hidden costs that you may have overlooked
When employing in Mexico, it is highly like that you may fail to factor in some costs involved while estimating a budget for the assignment. Usually, these costs occur during the course of employment and tend to be country-specific. They are often unpredictable and unavoidable resulting in the assignment being far more expensive than the business intended it to be.
Outsourcing services is the most preferred way for global mobility professionals to contain costs with 71% stating that they have already made outsourcing changes in an effort to maximise cost savings. Unsurprisingly, outsourcing is preferred over reducing the number of assignments/transfers or improving in-house administrative processes as a method to save costs.
These considerations are common when hiring an employee in any new country. In our years of experience employing in Mexico we have helped our clients with several other problems specific to Mexico. Here’re a few examples:
Other Issues Our Clients Have Encountered When Employing in Mexico
New Payroll Rules in 2017
New Mexican Tax Revenue regulations require that net pay for all employees (including expats) be received in official Mexican banks, and paid in Mexican pesos. What this means is that ‘split payroll’ strategies will not be permitted in Mexico, since the entire net pay must be submitted on the Mexican payroll, and taxes paid accordingly.
The process of issuing payslips has to comply with Mexican law, and they first must be approved and released by the SAT (Mexican Tax Authorities) before the employee or employer receives an official copy. In order for a payroll system to issue the payslips, they are electronically stamped after the SAT match up the amount of money sent from the employer’s bank account to the employee’s bank account.
In addition to the 13th month bonus, all employees also get a vacation bonus. This is 25% bonus on salary while actually on vacation, added to the normal salary for that month. Unused vacation time must also be paid to the employee when employment or the assignment ends.
All expat employees on assignment in Mexico must have a work permit along with a temporary resident visa. It has to be applied for at a consulate in the employee’s home country, and cant be done inside of Mexico.
The Employer of Record Solution
As you can see from this overview, the process of hiring even one employee in Mexico can be a real challenge for any HR department. This is why the Shield GEO Employer of Record (EOR) solution is a cost-effective and simple way to address your payroll, tax and immigration requirements. The EOR becomes the legal employer of your worker in Mexico, with a registered entity that is already in place and prepared to take care of your employment needs.
Our team members can offer personal service, quick communication and the expertise of our regional partners to ensure that our EOR service is delivered seamlessly to support your staff assignments.
Here is a quick summary of what you can expect from your Shield GEO regional account manager:
- A single point of contact for all employee or HR issues and questions
- Assistance with meeting Indian requirements for the employment contract
- Obtaining visas and work permits sponsored by our Mexican EOR
- Full compliance with Mexican payroll, immigration and employment laws
- Monthly payroll and employment administration
For an HR department located in the home country, the Shield GEO team becomes a local, dedicated resource to handle every aspect of your employee assignments. This allows you to focus on supporting your staff’s project and performance needs, while we take care of the multiple employment administration tasks for you.
Hiring your first employee in another country? Let us know which country and we’ll send you a guide on everything you need to know about employing there.
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