Employer of Record in Mexico

published on 9 April 2024 | reading time approx. 3 minutes

To enter the Mexican market, the incorporation of a Mexican company should be avoided if possible and the selected employee – usually from the sales department – should be employed by an Employer of Record. Is this really possible in Mexico under labour and tax law?

Is the concept of EoR known in your country? Is the concept of EoR regulated by law in your country? »
What are the special tax features of the EoR concept in your country? »

Is the concept of EoR known in your country? Is the concept of EoR regulated by law in your country?

An “Employer of Record” or EoR is popularly known in Mexico as an organization that assumes full responsibility for the financial and legal procedures necessary to expand overseas operations. It is responsible for processes such as payroll management, administration of employee benefits and taxes on your behalf.

However, this concept is not known in Mexican legislation and in fact, could be considered as illegal.

In Mexico the subcontracting of personnel is prohibited, understood whereby an individual or entity provides or makes its own employees available for the benefit of another, whenever such services are comprised to their corporate purpose.

Employment agencies or intermediaries that intervene in the personnel hiring process may participate in the recruitment, selection, training and education, among others. But those companies cannot hire directly the personnel.

Exemptions

The only exception to the outsourcing services would be the hiring of “specialized services”. These should be services that do not comprise its corporate purpose or the predominant economic activity of the beneficiary of such services. This means that companies may hire services for the provision of certain activities that are not related thereof. Usual examples would be cleaning, security, catering services, etc. The complementary or shared services or works rendered between companies of the same business group will also be considered as specialized as long as they do not comprise its corporate purpose or do not represent predominantly the economic activity of the company that receives thereof.

In order to be able to render specialized services, a registration on Public Registry of Specialized Service Provider (REPSE by its acronym in Spanish) should be done.

What are the special tax features of the EoR concept in your country?

It is important to mention that the Federal Labour Law regulates the employees and employers rendering services in Mexico, therefore, the risks of rendering outsourcing services, would be of the Mexican EoR, not the foreign entity. And even if it is not permitted, there are some entities that do offer outsourcing services.

As the EoR is not recognized in Mexican Laws, the personnel of a foreign entity, working in Mexico, can create a permanent establishment for the foreign entity.