Introduction 

Mexico continues to be a strategic destination for global employers - offering access to skilled labour, proximity to North America, and an increasingly digital workforce. But with opportunity comes responsibility. Labour laws in Mexico have evolved significantly in recent years, particularly around subcontracting, employee rights, and union representation.

The 2019 labour reform, aligned with USMCA (formerly NAFTA), strengthened collective bargaining and increased transparency requirements for employers. If you’re managing a team in Mexico or considering expansion, understanding the local landscape is essential to staying compliant and protecting your business.

Quick Tips

• Written contracts are legally required for all employees in Mexico - make sure yours are up to date.

• Avoid outsourcing core business activities - subcontracting reforms now limit this practice.

• Register union agreements with STPS (Secretariat of Labour and Social Welfare) to ensure validity.

• Pay attention to severance obligations - termination without cause can be costly.

• Be aware of Mexico’s mandatory profit-sharing (PTU) obligations each year.

Written Contracts Are Not Optional 

Under Mexican law, all employees must have a written employment contract that outlines key terms such as salary, working hours, job duties, and benefits. Failing to issue a proper contract can lead to disputes where the employee’s word is taken as fact.

A recent client who onboarded remote workers in Mexico assumed their global template would suffice. Unfortunately, this missed local holiday entitlements, PTU requirements, and caused confusion over job scope. We helped them rewrite compliant, localised contracts - avoiding future disputes and building trust with their team.

The takeaway? Don’t treat Mexican hires like US or UK hires. Get local contracts reviewed before onboarding.

Subcontracting Reforms - A Wake-Up Call 

In 2021, Mexico banned the outsourcing of core business functions. You can still contract for specialised services (like cleaning or IT) but not for roles that are integral to your business model. This reform was aimed at curbing abuse and ensuring workers receive full employment rights.

This means if your sales team, for instance, operates in Mexico, you cannot hire them through a third-party outsourcing firm just to avoid employer responsibilities. Businesses must register with REPSE if they use legitimate subcontractors and must ensure these contractors are compliant.

One client I worked with had to pivot quickly when their provider lost REPSE status. We transitioned roles in-house, aligned benefits with Mexican standards, and restructured reporting lines. It wasn’t easy, but it avoided significant legal and reputational risk.

Unions, Profit-Sharing, and Termination Protections 

Mexican labour law strongly favours employee protections. Unions play an important role - and reforms now require union contracts to be legitimised through employee votes. This makes your employee relations strategy vital.

There’s also a mandatory annual profit-sharing requirement (PTU), equal to 10% of taxable income. Employers must distribute this among eligible employees each May. Failing to do so can trigger audits or fines.

And if you need to part ways with an employee? Unless you have cause (as narrowly defined by law), you must pay a severance that typically includes three months’ salary, plus 20 days for each year worked, and accrued entitlements. This makes documentation and performance processes crucial.

A Real Example: Setting Up Right from Day One 

A European client setting up operations in Mexico came to us early - before hiring their first employee. We advised on entity registration, set up payroll through a local partner, and drafted compliant contracts and policies. They launched with clarity, retained their first hires long-term, and avoided the retroactive corrections we so often see.

Final Thoughts 

Mexico is full of opportunity - but it’s not a place to wing it when it comes to HR. Respect for the local legal framework, worker protections, and cultural expectations is not only ethical, it’s strategic.

What’s next for your global people strategy? 

Book a free compliance check-in or HR audit with ThinkGlobal HR. Whether you’re just entering the Mexican market or managing a growing team, we’ll help you stay compliant, build trust, and scale with confidence.