For companies considering expanding into Latin America and taking advantage of the myriad of market opportunities, Mexico could well be an option worth exploring.
As one of United States key trading partners, Mexico acts as a gateway for US companies to expand into the general Latin American region.
In addition to having an abundance of natural resources (oil, natural gas, petroleum, metals), and a relatively stable political and financial environment, the Mexican government remains very favourable towards business expanding into Mexico by offering incentives. Mexico receives a significant amount of foreign direct investment (FDI) across multiple sectors including technology, finance, automobile, electronic, and energy.
It should be noted however that expanding into a new country and hiring staff (either local or expats) can be challenging with many factors to consider. Each country has its own set of rules and regulations when it comes to statutory leave, employee benefits, expenses and taxes.
In the following section, we highlight some of the aspects that should be considered before entering the Mexican market.
1. Fixed-term contracts
Fixed-term contracts are allowed in Mexico, although they are not common practice. The temporary nature of the agreement needs to have a valid justification, as otherwise it could be deemed as an indefinite employment relationship. Furthermore, a fixed-term contract cannot be terminated. Therefore, proper classification needs to be conducted in order to avoid fines and unnecessary labour risk.
2. Annual holiday leave
Annual holiday leave corresponds to 6 business days per year after the first year of employment, and this leave is increased by 2 working days per year, up to 12 days, for each subsequent year of service. After the fourth year, the 2 leave days will be added every 5 years. It is important to know that public holidays are not included.
A holiday bonus is also a mandatory benefit and equals to 25% of the employee’s regular salary. This payment must be made along with the salary paid at the end of the month worked.
3. Notice periods and termination
In Mexico, differently from other countries in Latin America, no notice period must be given from employers to employees before termination. Severance indemnification is paid as follows:
3 months of salary
20 days of salary for each year of employment
Seniority premium is equal to 12 days salary per year of employment, with a maximum cap of twice the minimum daily wage per day; and is due to employees dismissed without cause.
4. Christmas bonus
In Mexico, Christmas bonus is a mandatory benefit, and it is equivalent to at least 15 days of salary, pro-rated in case the employee has worked for less than a full year. Payments are made by the 20th of December each year.
5. Additional benefits
In Mexico, monthly benefits such as meal voucher, profit sharing and saving funds (similar to a pension fund or a savings incentive) are commonly offered by companies to employees.
Use Capital’s GES International PEO/EOR services to expand into Mexico
Capital GES can help you expand into Mexico and other countries in South America without the need to immediately establish a corporate entity. By choosing to use our International PEO/EOR services you can expand your business in a fully compliant and cost-effective way. Our in-country experts will be able to help you navigate the different regulations and labour laws and assist you with employing staff legally and compliantly in Mexico. For further information you can contact our LATAM office on + 55 31 3194 8150 or email us at firstname.lastname@example.org to see how you can expand your business and hire staff in Mexico.