Hire employees in Mexico from the US (Complete Guide)
Learn how US companies can hire employees in Mexico legally. Explore entity setup, contractors, and why EOR is the safest and fastest solution
More U.S. companies are turning to Mexico for growth, driven by nearshoring advantages, skilled talent, and lower costs. Mexico’s proximity makes it a natural choice for expanding operations or building cross-border teams.
But hiring in Mexico comes with serious challenges. Companies must deal with:
Complex labor laws and strict employee protections
Payroll and tax compliance under SAT and IMSS rules
Legal risks from misclassification or non-compliance
In this guide, we will explain the main options for hiring employees in Mexico, including setting up a local entity and working with service providers or EORs.
Can U.S. Companies Hire Employees in Mexico?
Yes, U.S. companies can legally hire employees in Mexico, but only by complying with Mexican labor law. Employment must follow the Federal Labor Law, IMSS registration, and tax rules. The three most common paths are:
Entity Setup: Creating a Mexican legal entity to directly employ staff.
Independent Contractors: Limited use, but illegal if subordination exists.
Employer of Record (EOR): The safest option, where a local EOR is the legal employer on behalf of the U.S. company.
Each path has different levels of compliance, cost, and risk. Let's understand in detail.
Option 1: Open a Legal Entity in Mexico
One way for U.S. companies to hire employees in Mexico is to establish a local legal entity. This requires full incorporation and registration with multiple authorities before hiring is possible.
The process includes:
Incorporating the company before a Mexican notary
Registering with the SAT (tax authority) for RFC numbers
Registering with IMSS for social security obligations
Registering with the Secretary of Economy (failure to do so can lead to fines)
Opening corporate bank accounts and setting up payroll systems
The advantages are:
Full control over employees and internal policies
A long-term structure suitable for large or permanent operations
Ability to manage benefits directly and develop local business presence
The disadvantages are:
High costs for incorporation, ongoing accounting, and labor compliance
Several months of setup before legally hiring staff
Complex monthly reporting requirements and strict audits
Risk of permanent establishment (PE) tax exposure for U.S. parent companies
For small teams, pilot projects, or first market entry, opening an entity is usually unnecessary.
Option 2: Hire Independent Contractors in Mexico
Independent contractors are a legal hiring option in Mexico, but they are regulated under civil and commercial law, not the Federal Labor Law. This means they are service providers, not employees, and the risks of misuse are significant.
Advantages:
Contractors issue CFDI invoices and manage their own taxes, reducing administrative work for the company.
They are responsible for their own tools, expenses, and business risks.
No obligation for statutory benefits such as aguinaldo (Christmas bonus), vacations, PTU, or IMSS contributions.
Useful for short-term projects or highly specialized roles where independence is clear.
Disadvantages:
If subordination exists, contractors are reclassified as employees under labor law.
Reclassification creates liability for back pay, severance, social security contributions, and profit sharing.
Labor authorities actively audit disguised employment, especially after the 2021 outsourcing reform.
Since 2022, systematic misclassification can be prosecuted as tax fraud, with criminal exposure for companies.
Contractors must have multiple clients, set their own schedules, and work without supervision from the U.S. company.
For U.S. companies, contractors should only be used in narrow, project-based cases. For safe, long-term hiring in Mexico, an Employer of Record (EOR) is the superior alternative.
Option 3: Use an Employer of Record (EOR) in Mexico
An Employer of Record (EOR) is the most practical and compliant way for U.S. companies to hire employees in Mexico. The EOR serves as the official legal employer under Mexican law, while the U.S. company manages the employee’s day-to-day activities and overall business strategy.
The EOR takes full responsibility for employment compliance. This includes drafting Spanish-language contracts, processing payroll, filing taxes with SAT, registering employees with IMSS for social security, contributing to INFONAVIT housing funds, administering benefits, handling severance obligations, and ensuring third-party audit protection.
Advantages:
No requirement to create a Mexican legal entity, avoiding expensive incorporation and complex accounting.
Employees can be hired in just a few days rather than waiting months for entity setup.
EOR guarantees that employees receive all the HR support they need.
Full compliance with the 2021 outsourcing reform and REPSE registration rules.
Significant reduction in liability for misclassification, labor disputes, and severance claims.
Protection against audits, with all labor and tax filings managed by the EOR.
Ideal for small teams, pilot projects, and companies seeking rapid market entry without long-term commitments.
By partnering with a trusted EOR in Mexico, like Human Resources Mexico, U.S. companies can start hiring legally in just days or weeks, without the delays of setting up an entity.
Compliance and Employee Protections in Mexico
Mexico requires strict compliance with its labor laws, and every company hiring employees must meet statutory obligations. Failure to comply brings legal and financial risks.
Employment Contracts: All employees must receive a written contract in Spanish, clearly stating terms, salary, and benefits under the Federal Labor Law.
Aguinaldo: A mandatory Christmas bonus equal to at least 15 days of salary must be paid every December.
Vacations and Premium: Employees in Mexico now receive 12 paid vacation days in their first year of service. This entitlement increases with seniority each year, up to a legal cap. In addition, employees are entitled to a vacation premium of at least 25% of their regular salary during the vacation period.
Profit Sharing (PTU): Employers must distribute 10% of their annually declared taxable profits among eligible employees. This is known as Participación de los Trabajadores en las Utilidades (PTU).
Social Security (IMSS): Registration is mandatory, covering healthcare, retirement, maternity, and workplace injury protections.
Enforcement Risk: Non-compliance leads to lawsuits, back-pay claims, fines, and audits from labor authorities.
An Employer of Record (EOR) in Mexico ensures every employee receives statutory protections automatically, shielding foreign companies from penalties and disputes.
Payroll, Tax, and Payments in Mexico
Running payroll in Mexico requires strict adherence to local banking, tax, and reporting standards. Companies must handle all obligations correctly each pay cycle.
Currency Rules: Salaries must be paid in Mexican pesos through a registered Mexican bank account.
Income Tax Withholding: Employers are responsible for calculating, withholding, and filing employee taxes with the SAT.
Social Security Contributions: IMSS payments are mandatory, covering healthcare, retirement funds, and employee protections.
Housing Contributions (INFONAVIT): Employers must contribute to the housing fund for all employees.
State Payroll Taxes: Obligations vary by state and must be calculated and filed accurately.
Payroll Reporting: Employers must issue electronic payslips, maintain detailed payroll records, and comply with monthly audit requirements.
Without a local entity in Mexico, staying compliant is complex, costly, and prone to mistakes. An Employer of Record (EOR) in Mexico handles payroll smoothly, ensuring compliance with all tax, labor, and banking regulations without needing to set up an entity.
Hiring Foreign Nationals in Mexico
Hiring non-Mexican staff in Mexico involves additional immigration and labor requirements that U.S. companies must carefully manage. Without compliance, both the employer and employee may face penalties.
Work Permits and Visas: Foreign nationals need valid work permits and visas to legally work in Mexico. These are processed through the National Migration Institute (INM) and tied to the employer sponsoring the role.
Quotas and Restrictions: Companies must comply with rules limiting the number of foreign employees relative to Mexican nationals, except in specific cases where specialized skills are required. Violating quotas can lead to permit denials.
Employer Obligations: Employers must demonstrate that the foreign employee’s role cannot be filled locally, provide compliant contracts, and register them with IMSS once approval is granted.
For U.S. businesses, using an EOR in Mexico simplifies the process by managing immigration paperwork, coordinating with authorities, and ensuring the employee’s legal status aligns with Mexican labor law
Risks and Challenges for U.S. Companies in Mexico
Expanding into Mexico offers clear opportunities, but U.S. companies face serious risks if they choose the wrong hiring model. Each path carries significant compliance and cost considerations.
Entity Setup: Incorporating a Mexican entity is costly and time-consuming, often taking months. It requires complex accounting, tax reporting, and compliance with multiple authorities. It may also trigger permanent establishment (PE) tax exposure, creating additional liabilities for the U.S. parent company.
Contractor Model: Hiring independent contractors seems flexible but is highly risky. If contractors work under supervision or exclusively for one company, they are reclassified as employees. This leads to back pay, severance obligations, IMSS contributions, profit-sharing claims, and, since 2022, possible tax fraud liability.
Non-Compliance Penalties: Mexican labor authorities enforce compliance aggressively. Companies found violating labor laws face audits, financial penalties, and potential criminal consequences.
Partnering with an Employer of Record in Mexico eliminates these risks. The EOR becomes the legal employer, ensuring contracts, payroll, benefits, and taxes are fully compliant. U.S. companies gain the ability to hire quickly and legally without entity setup, reducing liability while maintaining operational control.
Choose the Best EOR in Mexico as a U.S. Company
Selecting the right Employer of Record (EOR) is critical for U.S. companies hiring in Mexico. The wrong choice can expose a business to compliance risks, hidden costs, or poor employee support. The best EOR combines legal compliance with strong local expertise.
Legal Registration & REPSE Compliance: Confirm the EOR is officially registered with Mexican authorities and compliant with the 2021 outsourcing reform. Without REPSE, the service is not legally valid.
Local Presence: Choose an EOR with a real office and team in Mexico, not just a fiscal address. Local experts understand cultural norms, labor law, and day-to-day employee needs.
Experience & Track Record: Look for proven years of operating in Mexico, with a history of managing severance, IMSS, INFONAVIT, payroll taxes, and audits.
Transparent Pricing: Avoid providers with hidden fees for onboarding, severance reserves, FX, or compliance add-ons. The safest model is one clear markup on taxable compensation.
Full-Service HR: The best EOR should handle the entire employment lifecycle, including contracts, payroll, benefits, onboarding, offboarding, and compliance with the Federal Labor Law.
Employee Support: Strong local HR support boosts retention and ensures employees feel cared for.
Scalability: Choose an EOR that can support both small pilot projects and future expansion.
Reputation & Reviews: Research client testimonials, case studies, and independent reviews from other U.S. companies in Mexico.
By applying these criteria, U.S. companies can confidently partner with an EOR that provides compliance, stability, and trusted employee management.
Conclusion
Hiring in Mexico offers U.S. companies great opportunities, but choosing the wrong model creates risks. Independent contractors are fragile and often misclassified. Setting up a legal entity is expensive, slow, and complex.
An Employer of Record (EOR) in Mexico is the most efficient, compliant, and low-risk way to build teams in Mexico. With an EOR, U.S. businesses can expand quickly while avoiding penalties and permanent establishment exposure.
Human Resources Mexico is the only Mexico-dedicated EOR with 16+ years of experience, full REPSE compliance, third-party audits, and transparent pricing. Contact us today to get your custom proposal.
FAQs
Can a U.S. company directly hire employees in Mexico?
No. A U.S. company must either open a Mexican entity or use an Employer of Record (EOR). Direct hiring without compliance is illegal. An EOR like Human Resources Mexico becomes the legal employer, handling payroll, taxes, and benefits while the U.S. company manages daily work.
Are independent contractors a safe option in Mexico?
Not usually. If contractors work under supervision or exclusively for one company, they are reclassified as employees. This exposes companies to back pay, IMSS contributions, severance, and penalties. An EOR provides a compliant structure for full-time roles, reducing risks tied to contractor misclassification.
How long does it take to set up a legal entity in Mexico?
Entity setup takes months and requires notaries, SAT registration, IMSS, bank accounts, and complex accounting. It also increases tax exposure. For U.S. companies that need to hire quickly, an EOR can onboard employees legally within days, avoiding delays and permanent establishment risks.
What benefits must Mexican employees receive?
Employees are entitled to statutory benefits, including aguinaldo (Christmas bonus), vacation with a premium, PTU profit sharing, and IMSS social security. Employers must also pay INFONAVIT and state payroll taxes. An EOR ensures all benefits are applied automatically, protecting companies from disputes and non-compliance penalties.
Why choose Human Resources Mexico as an EOR?
Human Resources Mexico is the only Mexico-only EOR with over 16 years of experience. HRM ensures full REPSE compliance, third-party audits, transparent pricing, and real offices in Mexico. U.S. companies trust HRM for quick, safe, and compliant hiring with no hidden fees or shortcuts.
