Do I Need a Local Entity to Hire in Mexico?

In Mexico, a "local entity" typically refers to a legally recognized presence that allows you to act as an employer, such as a subsidiary or branch office. This setup enables you to fulfill local payroll and employment obligations, ensuring compliance with Mexican labor laws.

Without establishing a local entity, you can't effectively manage payroll, register as an employer, or comply with mandatory employment protections. An EOR can serve as a solution, allowing you to hire without the complexities of setting up a local business.

What is Required to Employ Someone in Mexico?

• Local employing entity required to directly employ? Yes (you need a local entity to hire employees directly)
• Payroll registration required? Yes (you must register with the Mexican Social Security Institute)
• Withholding/tax remittance required? Yes (you need to withhold income tax and remit it to the tax authority)
• Social contributions required? Yes (employers must contribute to social security and other funds)
• Local employment agreement required? Yes (employment contracts must comply with local labor laws)
• Mandatory benefits to budget? Yes (statutory benefits include vacation, sick leave, and social security)
• Works council/collective agreements considerations? Often (certain sectors may require adherence to collective agreements)

Best Options If You're Hiring in Mexico

Can I Hire Contractors Instead of Setting Up an Entity?

Yes, but be cautious about misclassification risks.

While hiring contractors allows you to bypass the need for a local entity, Mexican labor laws are strict. If the contractor's work resembles that of an employee, you could face legal challenges.

• Ensure the contractor has independence in their work.
• Avoid controlling their hours or methods.
• Be wary if the contractor is integral to your business operations.

How Long Does Entity Setup Take And What Does It Cost?

Typical entity setup timeline: It often takes 4–8 weeks to establish an entity in Mexico, depending on registration requirements.

Ongoing cost categories (entity route):

• Accounting, bookkeeping, and statutory filings: Estimated 10,000–25,000 MXN per month ($550–$1,375)
• Payroll provider: Estimated 1,500–4,000 MXN per employee per month ($82–$220)
• Employer registrations and recurring compliance: Estimated 5,000–15,000 MXN per year ($275–$825)
• Corporate tax filings and annual reporting: Estimated 20,000–50,000 MXN per year ($1,100–$2,750)

EOR cost components (no-entity route):

• A per-employee EOR service fee (from $399 per month with Playroll)
• Pass-through statutory costs (e.g., employer social security contributions)
• Any optional benefits you choose to provide beyond statutory minimums

How an Employer of Record Can Help You Hire in Mexico

Hiring in Mexico can be complex, but it doesn’t have to require setting up a local entity or taking on long-term overhead. With an Employer of Record like Playroll, you get a simple, predictable way to hire compliantly while keeping costs transparent and under control. We help you:

• Hire employees in Mexico quickly without establishing a local entity, eliminating incorporation costs, ongoing administration, and exit complexity.
• Stay fully compliant with local payroll, tax, and employment regulations with Playroll’s payroll services.
• Control your total employment costs, with a clear monthly EOR service fee (from $399 per employee).
• Focus on growing your business, while we manage contracts, payroll, compliance, and labor law obligations end to end.
• Scale up or exit the market easily, without the financial or legal burden of closing a local entity.