Many international companies searching to expand into Mexico look for a “Professional Employer Organization” (PEO), expecting the same model they know in the United States. In the U.S., a PEO works through a co-employment arrangement, where both the company and the PEO share employer responsibilities. However, this structure does not exist in Mexico.

Mexican labor law requires every employee to have a single, legally recognized employer. The 2021 outsourcing reform further eliminated most subcontracting, making co-employment illegal.

As a result, when businesses refer to PEO in Mexico, what they are actually describing is an Employer of Record (EOR) model, where the provider becomes the sole legal employer while the client directs daily work.

What is a PEO (U.S. Model)?

In the United States, a Professional Employer Organization (PEO) works through a co-employment structure. This means the PEO shares legal employer responsibilities with the client company, dividing tasks between compliance and business operations.

Key features of the U.S. PEO model include:

• Co-employment relationship: Both the PEO and client are legally recognized as employers.

• Administrative management: The PEO handles payroll, tax reporting, and employee benefits.

• Operational control: The client directs daily work, sets goals, and manages performance.

This system functions in the U.S. because co-employment is legally accepted. It gives small and mid-sized businesses access to professional HR services and employee benefits. However, this dual-employer model is not recognized under Mexican labor law.

Why a PEO is an EOR in Mexico

Unlike in the United States, Mexico does not recognize co-employment. Labor law requires that every worker have only one official employer responsible for payroll, benefits, and compliance. This structure leaves no space for a PEO model where both the provider and the client share employer duties.

Important legal points include:

• Single employer rule: Each employee must have one legally responsible employer.

• 2021 outsourcing reform: Subcontracting of core business activities was eliminated to prevent labor abuse.

• Illegal co-employment: Any arrangement resembling shared employment is considered unlawful outsourcing.

Because of these rules, PEO as understood in the U.S. does not exist in Mexico. The only compliant model is the Employer of Record (EOR).

What Companies Really Mean: PEO = EOR in Mexico

Many foreign businesses continue to use the term “PEO in Mexico” because they are familiar with the U.S. model. However, in practice, what they are describing is actually the Employer of Record (EOR) structure. This distinction is critical because Mexico does not legally recognize co-employment.

Key aspects of how PEO translates to EOR in Mexico include:

• Sole legal employer: Under Mexican law, the EOR is the only recognized employer. It signs contracts, registers employees with IMSS, and manages compliance with labor authorities.
  
  

• Payroll and benefits management: The EOR calculates salaries, handles tax withholdings, and ensures employees receive benefits such as vacation pay, Christmas bonus (aguinaldo), social security contributions, and annual profit sharing payout (PTU).
  
  

• Client’s operational role: The foreign company still supervises daily activities, sets performance goals, and manages projects, but it is not listed as the legal employer.

This arrangement allows companies to hire quickly and compliantly in Mexico without creating a subsidiary or a legal presence. By understanding that “PEO” in Mexico truly means EOR, businesses can avoid compliance risks and choose the correct structure for their workforce.

How to Choose the Right PEO/EOR in Mexico

Not all providers that market themselves as “PEO in Mexico” are compliant. Since co-employment does not exist under Mexican law, companies must be careful to select an Employer of Record (EOR) that operates legally. Choosing the right partner ensures compliance, payroll accuracy, and employee satisfaction.

Key factors to look for:

• Legal compliance: Ensure the provider is registered and fully aligned with Mexican labor laws and the 2021 outsourcing reform.

• Experience in Mexico: Providers with local expertise and audits offer more reliability.

• Payroll and benefits administration: They should manage IMSS, tax withholdings, aguinaldo, PTU, and vacations correctly.

• Transparency: Look for clear contracts, no hidden fees, and proven compliance history.

To avoid these issues, companies must work with a legally compliant Employer of Record (EOR) like Human Resources Mexico.

Conclusion

In Mexico, PEO and EOR mean the same thing. Unlike in the U.S., where PEO refers to a co-employment model, Mexican labor law requires every employee to have one sole legal employer. This makes the Employer of Record (EOR) the only compliant model, and in practice, what many call “PEO in Mexico” is actually EOR.

By working with a trusted PEO/EOR, companies can manage payroll, benefits, and compliance legally while focusing on operations and growth. This approach ensures employees are fully protected under Mexican law and gives businesses a safe, sustainable path to expand.

If you’re considering a EOR in Mexico, choose a partner with deep local experience. At Human Resources Mexico, we bring 16+ years of expertise, third-party compliance audits, full legal compliance, and transparent pricing.

We are focused only on Mexico, offering EOR services without setup fees or deposits. Get in touch today to get a custom proposal and see how we can simplify your HR, payroll, and compliance.