Essential Legal Considerations When Hiring Remote Teams in Mexico

Essential Legal Considerations When Hiring Remote Teams in Mexico

Hiring a remote team in Mexico has become a smart strategic move for companies looking to tap into a vast talent pool at reasonable costs. Companies have opened mainly call centers for years due to lower workforce costs. Still, during the pandemic and the move of many to the home office, employers realized that working with a remote team is doable, and if such, why not expand your search for talent outside of the US? Unlike remote teams in Asia, building a remote team in Mexico has a significant advantage: The cost is lower than in the US, and the proximity to the US and the favorable time zone make this option very attractive to employers. The cultural similarity between the US and Mexico and the fact that many in Mexico are fluent in English was the direct cause of the exponential demand for talent in Mexico. However, there are some concerns a company looking to hire a remote team needs to consider. This article will focus on the legal aspect of hiring a remote team in Mexico and what an employer should consider before deciding.

Compliance with Mexican Labor Laws:

It doesn’t matter the company’s size, whether it is an S&P500 or an SME; you must familiarize yourself with the local labor laws. Mexico’s legal system is fundamentally different, and assuming that the labor laws in Mexico are somewhat similar to the US is a critical mistake that could be very expensive. The themes that are important to understand are working conditions, benefits, termination, and dispute resolution.

Compliance with Mexican Labor Laws

Acquiring the service of a legal professional can save you time and money. Make sure you understand the concepts and your limitations as a company. One of our clients based in the US assumed that terminating a position is very similar to the US. Since the employee was working over three months, the maximum period you can put your employee on a temporary contract, the employer had to pay the employee three months of salary as compensation. Since, at that point, he had no legal advisor, this came as an unpleasant surprise. He would have let the employee go after three months if he had known that. This is just one example of how understanding the laws would have changed the employer’s decision.

Employment Contracts:

Similar to the US, it is essential to draft a detailed contract with the employee before the start of their work, outlining job responsibilities, compensation, benefits, working hours, and termination terms. Make sure the contract is in Spanish and signed by both parties. For your convenience, you can have the contract in two languages (Spanish will be the primary language if there are discrepancies). We have seen companies that provided their generic US-based employment contract. In case of dispute, the local courts won’t accept that and would usually side with the employee if the work was done in Mexico.

Employment Contracts

Taxation and Social Security:

In Mexico, an employer is obligated to pay employee income tax and social benefits on a monthly basis. The brackets depend on the employee’s income.

Apart from the tax, an employer also pays the social security (called IMSS) and housing benefits (Infonavit) that the employees have the right to receive. Complying with the system requires deep understanding, and an employer should consider hiring local help to navigate the complexity and put together a strategy to optimize not only the costs but also the benefits offered to the employees.

Employer of Record (EOR) Services:

Employers looking to hire a remote team in Mexico must operate under a legal entity to comply with the law. This can certainly complicate the process for several reasons. Unlike the US, it takes a few weeks to open a company. It is also required by law to have a Mexican person as a partner who serves as the company’s representative. However, there is a more straightforward solution for those who prefer to avoid the bureaucratic hurdle: using an Employer of Record services (EOR).

An EOR can handle legal employment responsibilities and is knowledgeable about complying with Mexican labor laws. It will also provide another layer of legal protection for the employer in a labor dispute.

Termination and Severance:

Understanding the significant difference between employment termination in the US and Mexico is essential. There are two scenarios for employment termination:

  1. Employee quits: Depending on the time the employee worked for the company, they may be eligible for some compensation.
  2. Employee is fired: In this case, it’s essential to consider whether there was a valid reason for the termination (such as the employee breaching the contract or failing to perform as expected) or if it was unjustified. In the case of unjustified termination, the employer must pay the employee three months’ salary if the employee worked for more than 90 days, along with other fees required by law. Any termination before the 90 days bears almost no compensation.

Using a staffing company to navigate Mexican bureaucracy

By now, you can see that Mexican bureaucracy is not a walk in the park. It requires learning and experience that would come with a price. However, is there a better way to overcome those obstacles and focus on your core business as a company? Of course! there is the option of using a local staffing company. The staffing company is responsible for serving as your HR arm and a strategic partner in Mexico. They would serve as EOR and handle all accounting and legal issues and recruitment. When working with a professional staffing company, look for a 360-degree solution that includes solving all matters related to working in a foreign country. Make sure you validate what they claim by asking the right questions and asking for references. Enquire the type of positions they have recruited in the past and check that they have the experience to help you grow at your desired pace. The leading staffing companies will also have office facilities to host the employees, including in-house IT services to accommodate any IT requirements the client may have. A good staffing company can advise you on the best strategies to pay your employees and can help you reduce costs and simplify the process.

Wexpand is one of Mexico’s leading staffing companies, with offices in various cities around Mexico. It has legal and accounting experts to help you with any requirement. Please book your free consultation and ask us how to start your remote team in Mexico today!

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