Employer of Record in Mexico

**Employment Contract Requirements**: All employment in Mexico must have a written contract in Spanish. The contract must specify: job title, duties, salary, benefits, work schedule (gradually reducing to 42 hours/week by 2026), leave policies, and severance terms. The employer must provide a copy to the employee before work begins and register the contract with IMSS. **IMSS Registration and Payroll**: IMSS (Instituto Mexicano del Seguro Social) is mandatory for all employees. Employer contribution is 20.4% (broken down: 5.15% disability/life insurance, 1.05% health, 14.2% pension). The employer must register the employee within 5 days of hire. Payroll must be submitted monthly to IMSS. The EOR handles all IMSS registration and submission. **Aguinaldo (13th Month Bonus)**: Employees are entitled to at minimum 15 days of salary as an annual bonus, typically paid by December 20th. Many companies pay more (e.g., one full month). If an employee leaves before December, they receive a prorated Aguinaldo. For a $3,000/month employee, minimum Aguinaldo is 15 × ($3,000 ÷ 30) = $1,500 annually. **Profit Sharing (PTU)**: Companies must distribute 10% of pre-tax profits to employees annually (by May 30th). Calculation is complex: it's typically split proportionally based on salary and days worked. For example, if a company makes $100,000 pre-tax profit, $10,000 is distributed to employees. An employee earning $3,000/month (out of $50,000 total payroll) might receive roughly $600 (their proportion of the profit pool). The EOR calculates and manages PTU distribution. **INFONAVIT (Housing Fund)**: 5% employer contribution goes to INFONAVIT, a housing fund. Employees can withdraw funds to purchase homes or pay mortgages. The contribution is withheld from the employer, not the employee. **Vacation Days**: Minimum 12 days in the first year (newly increased from 6 in 2023). After year 1, minimum 6 additional days per year, up to a maximum of 32 days after 30 years. Accrued vacation must be paid at separation. Vacation cannot be carried over indefinitely—most states allow carryover of only a portion. **Workweek Reduction**: As of 2023, the maximum workweek is gradually reducing: 47.5 hours (2023-2024), 45.5 hours (2025), and 42 hours (2026+). Anything beyond the weekly limit is overtime, payable at double the hourly rate. Employees working weekends or holidays also receive premium pay. **Severance**: If terminated without just cause, employees receive severance of 3 months salary plus 20 days per year of service, or 20 days per year of service, whichever is greater. This must be paid within a certain timeframe. Just cause terminations (theft, repeated violations) may reduce or eliminate severance, but the employer bears the burden of proof. **Tax Compliance**: Employers must withhold income tax monthly and file returns with the tax authority. Tax rates are progressive (0-35% depending on income level). The EOR handles all tax calculations and filing. **Subcontracting Ban**: Since 2021, companies cannot subcontract their core business activities. This ban is strictly enforced. Using an EOR is the compliant way to hire remote workers in Mexico for your main business. If you use contractors for core activities, you risk reclassification as employment with back-payment of all benefits. **Audit and Compliance**: IMSS conducts audits and SHCP (tax authority) reviews payroll compliance. Penalties for non-compliance are severe. Using an EOR significantly reduces audit risk because the EOR maintains compliance documentation and is the registered employer.