Employer of Record vs. Own Entity in Mexico

Foreign companies often ask whether they can hire in Mexico without creating a subsidiary through an employer of record (EOR). In Mexico the answer is more complicated than elsewhere because of the 2021 ban on subcontracting personnel. This article compares the main options and the legal risks to consider.

What an EOR does elsewhere

In many countries an EOR becomes the legal employer of a worker who performs services for the client company. The EOR handles contracts, payroll and compliance, and the client directs the day-to-day work. It is a quick way to start without an entity.

Why Mexico is different

Since the April 2021 reform, Mexican law prohibits subcontracting personnel, that is, providing workers to another company. The only permitted form is specialized services or works that are not part of the client's corporate purpose or main activity, provided by a company registered in the REPSE registry. An arrangement in which a provider simply employs people who work under the client's direction may be treated as prohibited subcontracting, making the client the real employer, with tax and labor consequences.

The main options

Each route has different trade-offs.

• Own subsidiary: full control and the clearest compliance position; requires setup time and ongoing administration
• Payroll administration service (maquila de nómina): your Mexican entity remains the employer; a provider calculates and files payroll
• Specialized services contract with a REPSE-registered provider: valid only for genuinely specialized services
• Independent contractors: only for truly independent work; risky if the relationship is subordinated
• IMMEX shelter programs: for manufacturing operations, with their own regulatory structure

Payroll administration as a practical bridge

If you already have an entity, a payroll outsourcing service lets you delegate calculation, stamping, IMSS filings and payments while keeping the employment relationship. The contract should clearly state that the provider performs administrative tasks, not worker supply. This is often the fastest way to ensure compliance without building an internal payroll team.

Tax and labor risks of getting it wrong

If a structure is deemed to be prohibited subcontracting, the client can lose deductions and VAT credits, face tax assessments, be treated as the employer retroactively for PTU, social security and seniority, and incur fines. Joint liability applies if a provider does not pay contributions. For that reason, obtain documented legal advice before using any third-party employment model.

How to decide

Consider your timeline, the number of hires, the sector, the need for control and whether you plan a long-term presence. For a single remote hire, a short-term structure may seem convenient; for a team of several people, an entity with a payroll platform is usually more sustainable and transparent.

This article is general information, not legal, tax or accounting advice. Mexican law and tax rules change often: confirm current requirements with a qualified Mexican advisor before making decisions.