“An EOR is a third-party organization that becomes the full legal employer of your workforce and assumes all employer-related responsibilities and tasks on behalf of your company.” -Velocity Global-
Mexico, the southern neighbor of the US, is the ideal entrance door to Latin American Markets and still, represents an attractive Country for US companies looking for expanding their operations into the rest of the continent.
Besides the political situation and constant changes in the legislation, the country presents a cost-effective alternative for American and European Companies to start operations.
But the first question that many companies have -when they want to go overseas -will be: how to get into a foreign country, with a different language, different practices and constant changes in legislation?
This answer is very simple when you use an EOR or an Employer of Record provider. Typically, an EOR provider has the knowledge and experience of local practices, tax payments, and payroll systems to streamline operations and provide a quick jump start for a foreign company in Mexico.
There is no need to set up a company. An EOR can provide all the required back-office to facilitate operations in the region. Or, if for any reason the Company needs to establish a local entity in Mexico, an EOR can provide legal assistance to set up the company, with the mandatory requirements and filing, and then run the company on behalf of the parent company.
This is a very common model, where the external provider manages the personnel, tax and payroll payments, and even provides the local team with leased offices, laptop computers, mobile phones, and everything required to run the operation.
In April 2021, a new labor reform was approved, as to regulate all the contracting firms and ensure that all the personnel are enrolled in the Government’s Social Security program and that all required taxes are paid.
Many non-compliant companies disappeared or changed their models, but the EOR model was untouched. Since the model consists of hiring personnel from a foreign company, the service is 100% legal as long as the EOR provider pays all the mandatory taxes.
The EOR (also named PEO, an acronym for Professional Employer Organization) is a legal entity set up in Mexico, providing Recruitment, Payrolling and all HR-related services. The EOR hires the personnel, becoming accountable for liabilities and benefits, acting as the HR department of your organization. Tasks and objectives are still managed by the parent companies, while the EOR takes the burden of payroll calculation, tax payments and filing, and employee onboarding… and eventually, off-boarding.
The local labor legislation in Mexico is very employee protective. One of the key differences is the protection that the government provides to employees when being fired. A very expensive three months salary severance must be paid in the case of employee dismissal, without cause. Employee termination is a highly specialized task that must be correctly executed, so as not to incur unnecessary severance costs. The use of an experienced firm in HR could support this unpleasant situation.
The local legislation dictates that a mandatory 15-day Christmas bonus must be paid in December, plus a 25% bonus on every Paid Time Off (PTO) day taken. Yes, in Mexico you get paid extra for taking time off.
In addition to this, and optional for the employer, some benefits can be provided, such as grocery or gas tickets, private medical insurance and savings fund, among others. The tax management of these benefits is complex, and many rules must be followed to deduct some of these from your tax statements. Again, EOR companies provide a critical mass of different employees from different clients, as to effectively manage these benefits, at an effective cost for its clients.
Especially with Sales Employees, traveling and incurring Sales Representation expenses are common tasks. There are some specific rules in Mexico as to make these reimbursements tax deductible and effectively tracked.
All expenses must be justified through a digitally signed invoice, following a government template and protocol, and be reimbursed in local currency.
There is specialized software to streamline this process, handling these digital invoices and going through the required workflow authorizations.
It also happens with the payroll: not quite so simple. Taxes must be paid and filed to the authorities. Also, a digitally stamped payment slip must be issued, as for the government to ensure that the employee has been paid.
Grupo Cygnus has +15 years of experience in managing payroll and HR-related services for domestic and international companies in Mexico. The unique EOR offer has positioned CYGNUS among the top EOR service providers in Mexico. The services offer includes Legal support, recruiting, payrolling (or simple payroll calculation), tax calculations and payments, and benefits management. All services provided are 100% compliant with Mexican regulations, in terms of taxes and labor.
So, if your Company is planning to start operations in Mexico, CYGNUS could be your best alternative. As our logo states, “With CYGNUS, everything is in order!
Grupo Cygnus. Servicios especializados en México y EUA.
