If your operating company has chosen to move some or all of its manufacturing to Mexico, you already know the benefits of nearshoring—lowering your production costs, improving the efficiency of your supply chains, among others. 

With the benefits of doing business in Mexico, however, come some potential challenges. As you begin to employ and pay an international workforce, you’ll need accountants and lawyers who are well-versed in Mexican payroll laws and procedures to ensure full compliance.

While some companies process their payroll in-house, payroll outsourcing is the most straightforward way to safeguard your business. 

In this short guide, we’ll go over the five major benefits of payroll outsourcing in Mexico for your company.

#1 Reduce Costs

You likely have a payroll solution for your U.S. employees. Perhaps you process payroll internally, or maybe you’re already enjoying the benefits of outsourcing with a domestic partner.

As you expand operations into Mexico, consult with your current payroll solutions provider to find out if they’re well-versed in Mexican laws and regulations, including:

• Labor laws (overtime, required time off, holidays)
• Social security
• Tax laws
• Profit-sharing
• Laws surrounding bonuses

Your team will need to act quickly to register with relevant agencies like the Mexican Social Security Institute and the Institute of the National Fund for the Workers’ Consumption before you can begin paying employees and operating your business.

However, if your current payroll solution is unprepared to deal with the particularities of payroll processing in Mexico, your costs may rise quickly.

• If you ask your in-house accountants to get up to speed with new laws and regulations, anticipate reduced productivity as they acquaint themselves with a new set of challenges.
• Conversely, you may need to hire additional staff with the proper background and training to ensure full employee compliance.

But there’s another solution. 

When you outsource payroll administration in Mexico, you connect with fully qualified CPAs whose primary expertise meets your specific needs. Besides the obvious advantages of expert knowledge, you’ll also benefit from the lower labor costs in Mexico.

#2 Comply With Social Security, Tax, and Labor Laws

As you begin to establish your business in Mexico, one major goal is to avoid any legal or financial issues. As noted above, the Mexican labor market comes with its own set of peculiarities.

Outsourcing payroll administration to a team of qualified CPAs means you’ll never fly afoul of regulations like the following:

• A worker’s employer in Mexico is required to share 10% of their taxable profits with employees beginning with their first day on the job. 
• In Mexico, workers are legally mandated to receive Christmas bonuses from their employer that equate to 15 days of wages by December 20th. 
• When employees are terminated, they are entitled to severance pay.

Local experts can help you ensure full compliance with all aspects of laws regarding labor and tax obligations.

#3 Avoid Fines

Unfamiliarity with national laws like the ones we’ve reviewed above could extend beyond legal issues into costly fines.

• We noted that Mexican businesses are required to share their profits. What happens if your payroll department is slow to enroll employees in a profit-sharing program? You could end up paying a penalty from between $900 and $18,000 USD.
• Likewise, failing to affiliate employees with the Mexican Social Security Institute could result in penalties.

These fines can gradually eat away at the savings you accrue by doing business in Mexico. 

If there are serious mistakes, it could also tarnish your reputation in the country or lead to further legal issues. If you end up in court, you’ll end up paying costly attorney’s fees on top of any court-mandated fines.

#4 Ensure Timely Payment

Many businesses experience occasional payroll expense delays. While a twenty-four-hour delay may seem like a small issue from your perspective, it may frustrate your employees.

And employee retention is key to your success.

The challenges of conducting payroll administration across national borders include the legal and regulatory issues we’ve already discussed, along with practical issues like different national holidays. If your employees fail to receive their paychecks in a timely manner, it could lead to worker attrition.

Eventually, you could also face fines for failure to pay your employees promptly.

#5 Streamline Reporting

Successful payroll administration requires both accurate payment of employees and thorough reporting to all relevant stakeholders.

Essential tasks include the following:

• Keep track of your weekly and monthly expenses for internal and external auditors
• Record payments to the Sistema Unico de Autodeterminacion (SUA)
• Calculate and reconcile quotas from Fonacot
• Record bonus payments and profit-sharing

When you outsource, your accounting department can ensure all reports are filed with relevant agencies and partners correctly and on-time.

NAPS’ Payroll Processing Services

At NAPS, our long history of doing business in Mexico enables us to connect clients and partners with the right resources to streamline their manufacturing processes, including payroll and account administration.

For over 20 years, our accredited accounting department has helped businesses process payroll in full compliance with Mexico’s labor, tax, and social security laws. Our award-winning services have been recognized for their timely payment and fulfillment of social responsibilities.

Whether you’re using shelter services or operating your company independently in Mexico, it’s possible to save on your administrative costs while protecting your business by outsourcing your HR payroll Mexico needs to NAPS.

 

Sources: 

Investopedia. Aguinaldo definition. https://www.investopedia.com/terms/a/aguinaldo.asp

Association of Corporate Counsel. Employees Profit Sharing in Mexico. https://www.acc.com/resource-library/employees-profit-sharing-mexico