Mexico, the birthplace of advanced civilizations like the Maya and Aztecs, has spent the last decade earning a new reputation as one of the world’s fastest-growing tech hubs. The country's IT scene is flourishing thanks to ambitious government initiatives, a growing tech talent pool, and a strategic location whose benefits can't be overstated.
Mexico's dynamic tech scene has caught the eye of major global tech players. Google, Microsoft, Intel, and Netflix are among the many US companies mining Mexico for engineers skilled in coveted areas like artificial intelligence (AI) and machine learning (ML).
Interested in capitalizing on the abundance of tech talent in Mexico? We discuss the benefits and challenges of hiring in the promising Latin American IT hub in this article.
Why hire workers in Mexico? A quick summary
- A growing tech talent pool. With over 700,000 software engineers, Mexico has one of the largest, fastest-growing tech talent pools in Latin America.
- A thriving tech ecosystem. Mexico's tech sector is thriving, catalyzed by government support, funding opportunities, and homegrown tech talent.
- Cost efficiency. Average salaries in Mexico remain about 38% of those in the US.
- Time zone alignment. Mexico's time zones mirror those in the US.
- Cultural compatibility. A shared border and history fosters cultural, social, and linguistic ties between the US and Mexico.
Mexico's growing talent pool
Over the past decade, Mexico's IT workforce has ballooned. Mexico City, the country's legendary capital, boasts the largest tech talent pool in Latin America, outpacing fellow heavyweights São Paulo and Santiago. Two other Mexican cities, Monterrey and Guadalajara, have been recognized as two of the fastest-growing IT talent pools in the region.
Mexico is home to a whopping 700,000+ tech professionals, with over 300,000 tech specialists in Mexico City alone. The pool is growing fast, with an estimated 130,000 new developers graduating annually from Mexico's top universities and coding boot camps.
Thanks to lower living costs and a favorable exchange rate, tech talent in Mexico is highly competitive. While salaries have risen with rapid growth, average wages in Mexico remain about 38% of those in the US.
Mexico is a booming tech hub
Mexico is Latin America’s second-largest tech hub. By 2028, the country's IT market is projected to reach $18 billion in market value, catalyzed by government initiatives and startup investment. A large chunk of the market is dominated by tech outsourcing, accounting for around $6 billion.
Mexico is home to over 1,000 startups, including nine unicorns. The country's first unicorn, Kavak, is now the most valuable startup in Latin America.
Mexico has joined some of the world's most forward-thinking countries by introducing a national artificial intelligence strategy. The country launched its National AI Strategy in 2018, becoming the 10th in the world and the first in Latin America to regulate AI use publicly.
Mexico is also poised to become a leader in global fintech. Mexico was among the first countries in LatAm to establish a regulatory framework for fintech companies when it passed its Fintech Law in 2018. Mexico is the second-largest fintech market in the region, with nearly 800 fintech companies registered at the start of 2024.
Time zone alignment
Mexico's geographic location gives it a major competitive edge. The country's major tech hubs are a quick flight from Austin, San Francisco, and Los Angeles, allowing for more frequent in-person meetings and team collaboration.
Geographic proximity translates to time zone alignment. Mexico has four standard time zones that mirror US time zones. Most of the country, including Mexico City, Guadalajara, and Monterrey, observes Central Standard Time (CST). (Compare this to the Philippines, another popular tech outsourcing hub, which is 13 hours ahead of CST.) Overlapping time zones between Mexico and the US facilitate real-time communication and collaboration, which is crucial for fast-paced software development projects.
Cultural compatibility
The US is the second-largest Spanish-speaking country in the world after Mexico, with over 41 million Spanish Americans speaking Spanish at home. Interestingly, language fluency isn't reciprocated: Mexico ranks 87th on the EF English Proficiency Index. However, English proficiency among tech professionals is high, with around 50% speaking English at an advanced level.
How to hire workers in Mexico
Now that we've discussed the "why" of hiring in Mexico, let's dive into the "how." To hire workers in Mexico, US companies have three options:
Establish a separate entity
Setting up a legal entity in Mexico lets you hire local employees directly. However, entity establishment is a complex, multistep process that can take several months. This option requires local legal and accounting expertise to maintain ongoing compliance — missteps can lead to fines, back‑pay liabilities, and legal disputes.
Hire freelancers
Hiring contractors (prestadores de servicios) is a quicker way to tap into the Mexican labor pool. Note that independent contractor arrangements in Mexico are heavily scrutinized, and misclassification risks are high. The penalties for misclassifying Mexican workers can be steep, involving heavy fines and legal repercussions.
Partner with an Employer of Record (EOR)
At Howdy.com, helping US tech companies expand to Mexico is our specialty. We help you build your Mexican dream team quickly and compliantly while enjoying support from our on-the-ground HR team every step of the way. Book a demo to learn more.
Key labor laws in Mexico
Expanding to Mexico requires careful compliance with federally mandated labor laws. As a US employer of Mexican workers, you must follow Ley Federal del Trabajo (LFT). Mexico's famously complex labor laws govern everything from the form and content of employment contracts to mandatory benefits, work hours, social security contributions, and severance. Here are the key regulations to know:
Employment contracts in Mexico
Contracts in Mexico must be in writing if employment exceeds 30 days. Contacts may be indefinite, fixed‑term, or project‑based. Essential elements include job description, salary, work location, probation period, and benefits.
Working hours in Mexico
In Mexico, the typical workweek is Monday through Saturday. Maximum working hours include:
- 48 hours per workweek for day shifts (6 days a week; 8 hours per day)
- 42 hours for night shifts (6 days a week; 7 hours per day)
- 45 hours for mixed shifts
Overtime in Mexico
Overtime pay in Mexico is 200% of the normal rate for the first 9 extra hours per week and 300% beyond that. Overtime must be voluntary. Employees cannot exceed 3 hours per day or 9 hours per week.
Employment taxes in Mexico
US employers must register with the Mexican Social Security Institute (Instituto Mexicano del Seguro Social or IMSS) and contribute the following:
- IMSS (Medical, disability, life, and retirement benefits) - Approximately 15 % of base salary
- Housing fund (INFONAVIT) - 5% of base salary
- Retirement savings system (SAR) - 2% of base salary
- Payroll tax - 15 to 3 % of base salary
Benefits and leave in Mexico
In Mexico, employees are entitled to the following benefits:
- Vacations: 6 days after 1 year, increasing by 2 days per year until 12 years. After 12 years, vacation days increase by 2 days per year every 5 years.
- Vacation premium: Employees receive at least 25% extra pay on vacation days.
- Profit‑sharing (PTU): 10% of a company's pre‑tax profits are shared with employees annually.
- Paid holidays: Mexico observes seven official federal holidays.
- Mandatory bonus: The year‑end Aguinaldo, which includes 15 days’ salary, is paid by December 20.
- Maternity leave: New mothers receive 12 weeks of maternity leave, paid by IMSS.
- Paternity: New fathers receive 5 days of paternity, paid by the employer.
- Sick leave: Sick leave longer than 3 days is paid by IMSS at 60 to 100% of salary, depending on duration.
Termination in Mexico
Dismissals may be “justified” (e.g. serious misconduct) or “unjustified.” In unjustified cases, employers owe:
- Indemnity: 3 months’ salary plus 20 days’ salary per year of service
- Accrued benefits: Vacation, PTU, and seniority premium (12 days/year at twice minimum wage)
FAQs for hiring in Mexico
What are the benefits and challenges of hiring in Mexico?
We've summarized the benefits and challenges of hiring in Mexico below:
Benefits:
- Cost efficiency: Employer social contributions average 25 to 30% of payroll versus 40 to 50% in the US.
- Talent pool: Mexico produces over 130,000 engineering graduates annually, skilled in areas like AI, ML, and data analytics.
- Geographic advantage: Shared time zones and cultural affinity simplify collaboration compared to traditional offshore locations.
Challenges:
- Legal complexity: Mexico's Federal Labor Law is highly protective of workers. Missteps can incur fines and back‑pay liabilities.
- Payroll & tax compliance: Employers must navigate tax and IMSS requirements.
- Cultural & language barriers: Onboarding requires Spanish‑language contracts and HR support
Work smarter, not harder. Simplify compliance by partnering with Howdy.com, a trusted Mexican EOR. Book a demo to learn more.
Can I hire in Mexico without an EOR?
Technically, yes. US businesses can establish a Mexican legal entity or contract freelancers directly. However, setting up a local entity can take several months and cost upwards of $15,000 in legal and administrative fees. Direct contracting requires careful adherence to Mexico's Federal Labor Law, as misclassification of employees as independent contractors carries hefty fines.
Engaging an EOR eliminates these hurdles, letting you onboard staff in days without a local entity or compliance headaches.
How are employees and contractors classified in Mexico?
In Mexico, classification depends on the nature of the work relationship. Here's a quick breakdown:
- Employees: Work under employer direction, on‑site or remote, with fixed schedules and benefits.Contractors: Provide specified deliverables, use their own tools, can serve multiple clients, and negotiate fees.
It's vital to classify employees correctly. Misclassification may result in audits, fines, and retroactive social‑security payments.
How do you pay employees in Mexico?
Salaries must be paid in Mexican pesos and remitted via bank deposit. Employers are responsible for withholding income tax and employee contributions to social security, housing, and retirement funds. Additionally, employers contribute roughly 25 to 30% of payroll toward social charges. Payslips must comply with the Mexican electronic invoicing standard (CFDI‑nomina).
What is the minimum wage in Mexico?
As of 2025, Mexico’s general minimum wage is MXN 207.44 per day. Municipalities in the Free Zone along the US border observe a higher rate of MXN 312.41 daily. These rates are adjusted annually each January.
What is Mexico’s aguinaldo?
In Mexico, the aguinaldo is a legally mandated annual bonus. The bonus is equivalent to at least 15 days of the employee's base salary. Employers must pay all employees an aguinaldo by December 20 of each year.
Build your software engineering dream team in Mexico with Howdy.com
Howdy.com helps you confidently scale your workforce in Mexico and beyond. With decades of regional experience, Howdy.com has a proven track record of delivering seamless, compliant EOR services across Latin America. We connect you with Mexico's top talent and provide the ongoing support you need to keep your global team members productive, loyal, and happy.
Build a Mexican team and offer a top-notch employee experience to help your business soar. Learn how Howdy.com can help in a free demo.
