How to hire and pay employees in Mexico
Looking to hire remote workers to join your team? No matter where in the world your employees work, Oyster makes it easy for you to hire, pay, and take care of employees hassle and worry-free.
Before hiring
Before Hiring
Mexico's 2021 labor outsourcing reform fundamentally changed how foreign companies can operate in the country. The law effectively banned traditional contractor arrangements for core business activities and requires at least 90% of workers to be Mexican nationals when foreign companies employ staff without a local entity.
This means the contractor model many U.S. companies relied on is no longer viable for ongoing work relationships.
You have two compliant paths forward: establish a Mexican entity (which takes 4-6 months and costs $50,000+ in legal fees) or partner with an Employer of Record like Oyster.
Setting up an entity also creates permanent establishment tax exposure, requires maintaining SAT and IMSS registrations, and means you're responsible for navigating constitutional labor protections that heavily favor employees.
An EOR transfers compliance risk and gets you operational in days, not months—without the overhead of entity maintenance or the legal exposure of misclassification.
Recent News
If you're trying to hire employees in Mexico, "set it and forget it" is how payroll mistakes and compliance headaches happen. Mexico updates wage floors, calculation bases, and enforcement priorities on a real calendar—and HR and Finance feel it fast in offer approvals, payroll configuration, and leave administration.
Staying current protects your team (and your budget) from retroactive adjustments, penalties, and awkward employee conversations.
Minimum wage increased for 2026 (effective January 1, 2026)
Mexico's CONASAMI increased the minimum wage starting January 1, 2026: MXN 315.04/day in the general zone (+13%) and MXN 440.87/day in the Northern Border Free Zone (ZLFN) (+5%).
This impacts more than entry-level roles—wage compression is real when supervisors sit too close to the statutory floor.
Action: Confirm the employee's work location (ZLFN vs. rest of country) and update offer templates, salary bands, and any policies tied to minimum wage.
UMA updated for 2026 (effective February 1, 2026)
INEGI published new UMA values effective February 1, 2026: MXN 117.31/day, MXN 3,566.22/month, and MXN 42,794.64/year.
UMA is a reference unit used across Mexico for caps, thresholds, and fines—so a "small" annual update can quietly change payroll calculations and compliance exposure.
Action: Make UMA updates a scheduled payroll task (separate from minimum wage changes) and confirm your HRIS/payroll provider has applied the new parameters on time.
The 40-hour workweek proposal is moving—plan now, even if the law isn't final
Over 2025 and into early 2026, the government advanced plans to reduce the standard workweek from 48 hours toward 40 hours, discussed as a gradual transition through 2030 with early reductions often cited starting 2027.
Even before it's enacted, this should change how you model staffing, overtime, and shift coverage—especially in operations-heavy roles.
Action: Run scenarios (headcount vs. overtime vs. schedule changes) and tighten timekeeping practices so you're not scrambling later.
INFONAVIT reform may increase employer cost during absences (effective February 22, 2025)
Reforms to the INFONAVIT Housing Fund Law (including changes tied to Article 29) have been flagged as expanding employer obligations to continue certain housing-loan related payments even during unpaid absences or incapacity, with ongoing interpretation risk.
This is the kind of change that hits when an employee goes on leave and payroll realizes there's nothing to deduct from—but the obligation may still exist.
Action: Review leave workflows, confirm how your payroll handles INFONAVIT deductions during absences, and validate your approach with local counsel if you have employees with active INFONAVIT loans.
Contractor and gig classification scrutiny is rising (not just for "platform companies")
Mexico rolled out reforms and IMSS rules to incorporate digital platform workers into social security, with implementation reported around July 1, 2025.
Even if you're not running a delivery app, this is a signal: the direction of travel is more enforcement around who should be treated as an employee and who pays IMSS/INFONAVIT.
Action: If your Mexico hiring plan relies on "contractors," pressure-test classification up front—because reclassification after the fact is where cost and risk spike.
When you're building a hiring plan, these updates aren't "nice to know"—they affect what you can offer, what payroll must calculate, and what your CFO will ask about total cost. If you want a practical path to hire employees in Mexico with clear compliance guardrails and real human support when things get complicated, Start hiring globally with Oyster HR.
At a glance
CURRENCY
MXN
OFFICIAL LANGUAGE
SPANISH
PAYROLL FREQUENCY
MONTHLY, BI-MONTHLY
EMPLOYER TAXES
22.75%
13th / 14th SALARY
Mandatory 13th salary at end of the year
Good to know
Good to know
- Profit sharing (PTU) is mandatory. Mexican employers must distribute 10 % de las utilidades (10% of profits) from their taxable income to employees annually, typically paid in May. This applies whether you have a local entity or use an EOR. Budget for this from day one—it's not optional, and non-compliant employers can be sancionado con 250 a 5,000 veces (fined 250 to 5,000 times the minimum wage).
- There's no legal notice period. Unlike U.S. or European markets, Mexico doesn't require advance notice for termination. However, you must pay immediate severance based on a constitutional formula (3 months' salary plus 20 days per year of service, minimum). This makes cash flow planning critical.
- Aguinaldo (Christmas bonus) is legally required. Every employee receives at least 15 days' salary as a year-end bonus, typically paid before December 20. Employees who started mid-year receive a prorated amount. This cultural and legal expectation is non-negotiable.
- IMSS registration is immediate. Employers must register employees with the Mexican Social Security Institute (IMSS) upon hiring. Late registration carries significant penalties and can trigger labor disputes. Your EOR should handle this automatically.
- Labor courts favor employees. Mexican labor law is constitutionally protective of workers—a commitment reflected in its having ratified 82 Conventions with the International Labour Organization, including nine of the ten fundamental conventions—and courts consistently rule in favor of employees in disputes. This makes proper documentation, compliant contracts, and fair termination procedures essential—not optional.
.avif)
Top countries hiring in
Mexico
.webp)
Labor laws in
Mexico
Working hours and overtime
Mexican law sets a maximum 48-hour workweek, typically structured as six 8-hour days. Overtime is expensive: employees earn 200% of their hourly rate for the first nine overtime hours per week, then 300% beyond that.
There's a hard cap—no employee can work more than three hours of overtime daily or three days per week.
Employees must receive at least one rest day per week (usually Sunday), and working on a rest day triggers 200% premium pay.
These restrictions impact operational planning differently than U.S. models—you can't simply ask someone to stay late or work weekends without triggering significant additional costs.
Minimum wage
Employment contracts
All employment contracts in Mexico must be written in Spanish to be enforceable in labor disputes. Bilingual contracts are common, but the Spanish version controls if there's any conflict.
Fixed-term contracts are permitted but limited—they can't exceed six months for initial hiring or three years total across renewals without converting to indefinite employment.
Mandatory contract clauses include:
- Job title and duties
- Work location
- Salary and payment frequency
- Working hours and rest days
- Vacation entitlement
- Any probationary period terms
Missing clauses can result in labor disputes where courts interpret ambiguities in the employee's favor. Oyster's employment contracts include all required provisions and are reviewed by local legal experts.
Probationary period
Mexican law permits probationary periods of up to 180 days (six months) for most positions. During this time, you can terminate without severance if the employee fails to demonstrate required skills—but only if you clearly documented performance expectations and gave feedback.
The probationary period must be explicitly stated in the employment contract and agreed to by the employee.
Extensions beyond 180 days require the employee's written consent and are generally difficult to justify. After the probationary period ends, full constitutional protections and severance requirements apply immediately.
This makes the probationary period strategically important—it's your window to assess fit with significantly lower termination costs if things don't work out.
Pensions
Non-compete agreements
In Mexico, non-compete clauses are allowed but are subject to limitations, particularly after termination. While exclusivity during employment is enforceable under labor law, post-employment non-competes are considered civil agreements and must be enforced through civil courts. To be valid, they must have a limited duration, defined geographic scope, clearly described restricted activities, and offer fair compensation (commonly 50–70% of salary). Broad or indefinite restrictions risk being declared unenforceable.
Estimate your savings when using Oyster
Use this calculator to get an estimate of employment costs using Oyster.
(Spoiler alert: It’s much cheaper than setting up entities around the world!)
- Taxes, and social security20,602
- Net annual salary29,389
- Taxes & contributions12,885
- Social Tax11,875
- Occupational Health fee35
- Labor Accident Insurance375
- Fct (Wage Guarantee Fund)0
- Allowances600
- Fct (Wage Guarantee Fund)600
Benefits and leave in
Mexico
Vacation time
Mexican employees start with 12 days of paid vacation after their first year of service. Vacation days increase by two days every year until reaching 20 days, then increase by two days every five years thereafter.
This is significantly less than European markets but structured differently than typical U.S. PTO.
Employees also receive a vacation premium equal to 25% of their vacation pay. For example, if someone takes 12 days of vacation, they receive their regular salary for those days plus an additional 25% as premium pay.
Vacation entitlements are non-waivable—you can't ask employees to forfeit unused vacation, and accurate tracking is legally required.
Sick leave
Mexico's social security system (IMSS) provides sick leave coverage starting from day four of illness. IMSS pays 60% of the employee's registered salary from day four onward, while employers typically cover the first three days at full pay as a matter of practice.
This creates a gap where many employers provide additional coverage to maintain 100% pay for short-term illness.
Employees must provide a medical certificate issued by IMSS or a private doctor for absences exceeding three days. Return-to-work medical clearance is required after extended illness to confirm the employee can resume normal duties.
These requirements protect both parties but require clear communication of sick leave procedures during onboarding.
Maternity and paternity leave
Parental leave
Pregnant employees in Mexico receive 12 weeks of fully paid maternity leave: six weeks before the due date and six weeks after birth. IMSS funds this leave at 100% of the registered salary.
Employment protections extend from pregnancy confirmation through one year after returning from leave—termination during this period is presumed discriminatory unless the employer proves just cause unrelated to pregnancy.
Fathers receive five working days of paid paternity leave, paid by the employer (not funded by IMSS). Adoptive parents receive six weeks of paid leave.
New mothers are also entitled to two 30-minute nursing breaks per day (or one 60-minute break) until their child reaches six months old, which can significantly impact scheduling.
Holidays
View a list of recognized public and local holidays in Mexico here. To see the list of mandatory public holidays, login to our platform.
Employer tax
Mexican employers contribute approximately 27-32% of gross salary in mandatory taxes and social security contributions. The largest component is IMSS (social security) at roughly 20-22%, which covers healthcare, disability, and retirement benefits.
INFONAVIT (housing fund) adds another 5%, and SAR (retirement savings) contributes 2%.
Additional costs include state payroll tax (typically 2-3% depending on location) and the mandatory profit sharing (PTU) distribution of 10% of pre-tax profits, though this payment has a límite máximo tres meses (maximum limit of three months) of salary or the average of the last three years' payout, whichever is more favorable to the employee.
These aren't hidden fees—they're legal requirements that make the total employment cost significantly higher than base salary. When budgeting for Mexican employees, calculate total cost as 1.3-1.4x base salary to account for all mandatory contributions.
Individual tax
Mexican employees pay progressive income tax ranging from 1.92% to 35% depending on income bracket. Employers must withhold income tax from each paycheck and remit it to SAT (Mexico's tax authority) monthly.
Tax-free benefits like food vouchers (vales de despensa) and savings funds can optimize take-home pay within legal limits.
Foreign residents working in Mexico may qualify for special tax treatment for the first four years, potentially reducing their effective tax rate. Employees also receive a share of mandatory profit sharing (PTU) distributed annually, which is taxed separately.
Oyster handles all withholding calculations, tax remittance, and year-end tax documentation automatically.
Termination in
Mexico
Terminating employment in Mexico is significantly more expensive and procedurally complex than in the U.S. The constitutional compensation formula requires three months' salary plus 20 days' salary per year of service, plus prorated vacation, vacation premium, aguinaldo, and any other accrued benefits—all paid immediately upon termination.
For an employee earning $3,000/month with three years of service, you're looking at roughly $13,000+ in immediate severance costs.
You can only avoid severance if you establish "just cause" for termination—serious violations like theft, intoxication at work, or repeated insubordination after written warnings. Just cause requires meticulous documentation and following specific procedural steps, including written notice delivered within 30 days of discovering the cause.
Mexican labor courts heavily favor employees, so most employers opt to pay severance rather than risk a wrongful termination lawsuit.
The 2021 labor reform added joint liability provisions that make U.S. parent companies potentially liable if a Mexican entity or contractor arrangement fails to pay wages or severance. This dramatically increases risk for companies not using a proper EOR structure.
If you're ending employment, budget for full constitutional compensation and consult legal counsel before acting—the margin for error is slim.
Mexico has no legal notice period requirement for either employers or employees. When you terminate someone (with or without cause), you must pay all severance and accrued benefits immediately—not over a notice period.
This creates cash flow implications that differ significantly from European markets where notice periods spread costs over weeks or months.
Many Mexican companies maintain informal notice period norms (two weeks to one month) through company policy or individual agreements, but these aren't legally required. If an employee quits without providing customary notice, you cannot withhold final pay—it must be provided immediately.
The lack of notice periods makes severance budgeting and transition planning more critical than in other markets.
Start hiring employees in
Mexico
You have two compliant options for employing workers in Mexico: establish a local entity or partner with an Employer of Record.
Entity setup takes 4-6 months, costs $50,000+ in legal and registration fees, and requires ongoing maintenance including SAT and IMSS filings, permanent establishment tax compliance, and local accounting support. You'll need local legal counsel, a Mexican address, and typically a Mexican director to complete registration.
Ongoing costs run $2,000-5,000/month minimum before you employ a single person. An EOR like Oyster employs workers on your behalf through our existing Mexican entity. You direct the work; we handle employment contracts, payroll, IMSS registration, profit sharing, tax withholding, and all compliance obligations.
You're operational within 48 hours instead of months, with no entity maintenance costs and no permanent establishment exposure. The trade-off: you pay a service fee per employee rather than fixed entity costs, so EOR typically makes sense for smaller teams (under 10-15 people) or when you're testing the market before full commitment.
After Mexico's 2021 reform, contractor arrangements are no longer viable for core business functions. If you have existing contractors doing ongoing work, they must be converted to proper employment.
Oyster helps companies navigate this conversion while managing compliance risk and ensuring fair treatment. Whatever path you choose, get compliant employment right from the start—the legal and financial consequences of misclassification or improper termination are too significant to risk.
Disclaimer: The information provided in this resource is for general educational purposes only and shall not be construed as legal advice. While Oyster strives to provide current and accurate information, Oyster makes no warranties or representations as to the correctness of the content provided and accepts no liability or responsibility for any errors or omissions in the content provided. By using this resource you acknowledge and agree that you do so at your own risk. The content of this resource is subject to change without notice.
Explore other Country Guides
FAQs
How do I pay employees in Mexico?
Mexican employees must be paid in Mexican pesos (MXN) through local bank transfer, typically biweekly or monthly. Payslips must detail all deductions including IMSS, income tax withholding, and any other contributions.
Payment in foreign currency or through international wire transfers creates tax reporting complications and isn't considered compliant payment. Oyster handles local payroll processing, MXN conversions, and compliant payment delivery automatically.
Do I need a work permit to employ someone in Mexico?
If you're a foreign company without a Mexican entity, you cannot directly employ Mexican workers—you need either a local entity or an EOR partner. The 2021 reform requires 90% of employees to be Mexican nationals when operating through a foreign entity, making immigration less of a barrier for most hiring.
If you're bringing foreign employees to work in Mexico, they need work visas (typically temporary resident visas with work authorization), which take 4-8 weeks to process. Oyster can guide you through immigration requirements when employing foreign nationals.
What's the difference between contractors and employees in Mexico after 2021?
Mexico's 2021 labor outsourcing reform effectively banned using contractors for core business activities. Independent contractors can only be engaged for specialized, temporary projects outside your main business operations—and they must legitimately control how they work, provide their own tools, and serve multiple clients.
If someone works regular hours under your direction as part of your core team, they must be properly employed. Misclassification triggers back taxes, IMSS contributions, severance obligations, and potential fines. When in doubt, employ them properly.
What are my tax obligations as an employer in Mexico?
You must register with SAT (tax authority) and IMSS (social security), withhold income tax from employee paychecks, contribute 27-32% of salary to IMSS/INFONAVIT/SAR, remit state payroll tax (2-3%), and distribute 10% of profits annually as PTU.
You must also file monthly and annual tax returns, maintain detailed payroll records, and issue year-end tax documentation to employees. Missing deadlines or incorrect calculations trigger penalties and potential audits.
An EOR handles all of this automatically—you pay one invoice and we manage every compliance obligation.
Guide: How to get started with hiring global talent
Hiring globally remote talent is easier than ever — learn how to get started.
Access Guide
.webp)
.webp)
.webp)
