If a US-based HR or engineering team plans to hire full-time employees in Mexico or Brazil, compliance details can slow hiring, create budget surprises, and increase legal exposure. Both countries have employee-protective labor frameworks, mandatory bonuses or profit-sharing mechanics, and digital reporting systems that require local execution. This guide covers the compliance, cost, and operational differences to evaluate before choosing an Employer of Record (EOR) in either market.
Quick takeaways (Mexico vs. Brazil EOR in 2026)
- Mexico: PTU budgeting and payroll CFDI receipts are the two recurring “gotchas.”
- Brazil: ESocial reporting and FGTS-linked termination costs drive operational risk.
- Both: Contractor misclassification is the fastest way to create back-pay exposure.
- Vendor diligence: Require proof of remittances and reporting artifacts (CFDI XML, eSocial receipts).
- Cost comparisons: Insist on a line-item total cost of employment model, not a single %.
Who this guide is for
This is for US HR leaders, people ops teams, and engineering managers hiring employees in Mexico or Brazil without setting up a local entity. It is also useful when comparing an EOR to entity incorporation and building a total cost of employment model.
Quick definitions: EOR vs. PEO vs. contractor
An Employer of Record (EOR) is a third party that becomes the legal employer in-country and runs payroll, tax withholding, benefits administration, and statutory compliance, while day-to-day work is directed by the operating company.
A Professional Employer Organization (PEO) is a co-employment model that typically requires an existing local entity, which limits usefulness for market entry in most of LatAm.
Independent contractor arrangements avoid the employer relationship, but misclassification risk is the decision driver. Mexico’s Federal Labor Law and Brazil’s CLT framework can treat directed, ongoing work as employment, with exposure that can include back taxes, benefits, and fines.
When an EOR makes sense vs. setting up a local entity
The EOR vs. entity decision usually comes down to speed to first hire, expected headcount, permanence, risk tolerance, and internal ops maturity.
An EOR is often a fit when hiring a small initial team quickly, testing a market, or lacking in-house payroll and legal coverage for local labor law. Entity setup tends to make more sense when headcount is large and stable, direct control of benefits and IP structures is required, or local customer contracting is a priority.
For teams expecting a stable 15+ employees for 2+ years, entity costs are worth modeling in parallel, even if an EOR is used first.
| Dimension | Mexico | Brazil |
| Labor framework | Federal Labor Law (LFT) | CLT (Consolidação das Leis do Trabalho) |
| Payroll complexity | Moderate; state payroll tax varies | High; layered contributions and reporting |
| Mandatory profit sharing | Yes (PTU), capped | No equivalent |
| 13th salary equivalent | Aguinaldo (15 days minimum) | 13th salary (full month) |
| Digital reporting | Payroll CFDI stamping | eSocial event-based reporting |
| Termination exposure | High; severance can be months of pay | High; FGTS fine plus accrued payouts |
| Data privacy regime | LFPDPPP | LGPD with active ANPD rulemaking |
Mexico tends to be simpler on recurring payroll processing, while Brazil is heavier on reporting and layered contributions. Termination exposure is meaningful in both countries, but the mechanics differ.
EOR in Mexico (2026)
An EOR in Mexico needs to operationalize contracts, social security registration, payroll compliance, statutory benefits, PTU handling, and payroll CFDI issuance as one system.
Employment contracts and worker classification
Mexican labor law expects written employment contracts that specify duties, compensation, schedule, and duration. Indefinite-term contracts are common for full-time hires.
Probationary periods can apply (commonly up to 30 days, and longer for certain management or technical roles), but they need to be explicitly stated in the contract. If work is directed and integrated into the business, contractor classification can create misclassification exposure.
Payroll, taxes, and mandatory contributions
State payroll tax rates vary by state, so multi-state hiring requires correct registrations and filings for each work location.
Statutory benefits and common market expectations
In tech, market packages often add grocery vouchers (vales de despensa), private medical coverage, life insurance, and extra PTO. A usable EOR quote separates statutory costs from elective benefits.
PTU profit sharing: What it is and how to budget it
PTU (Participación de los Trabajadores en las Utilidades) requires profit sharing, and budgeting depends on how the EOR entity calculates and allocates PTU across clients.
Mexico’s 2021 labor reform introduced a cap on individual PTU payouts, and in 2024, Mexico’s Supreme Court upheld the constitutionality of the cap. The cap is described as the greater of three months of salary or the average PTU received over the prior three years.
Minimum wage and pay benchmarking (2026)
CONASAMI set the 2026 general daily minimum wage at MXN 315.04 per day, and the Northern Border Free Zone (ZLFN) daily minimum wage at MXN 440.87 per day.
For engineering roles, pay is typically well above minimum wage, but the minimum wage still anchors certain calculations and compliance baselines.
Termination, severance, and offboarding risk
Termination in Mexico is documentation-heavy. Without documented just cause, severance can include three months’ salary plus additional components tied to tenure and accrued benefits.
Before hiring, an EOR should be able to show a termination workflow, severance modeling approach, and documentation standards.
Payroll documentation and reporting (CFDI)
Mexico payroll requires issuing payroll CFDIs (Comprobante Fiscal Digital por Internet), which are XML-based electronic receipts stamped (timbrado) through authorized certification. CFDI errors can create tax authority issues and employee disputes.
A practical EOR requirement is access to stamped CFDI files and payroll support that can correct errors quickly.
EOR in Brazil (2026)
Brazil EOR operations are defined by CLT employment norms, layered payroll costs, eSocial reporting, and termination mechanics tied to FGTS.
Employment contracts under CLT and worker classification
The CLT (Consolidação das Leis do Trabalho) governs employment relationships and generally treats regular, subordinate work as employment. Written contracts are standard, and indefinite-term employment is common.
Contractor use can be higher-risk than in many markets because labor courts can reclassify relationships based on subordination and regularity.
Payroll, taxes, and mandatory contributions
Brazil employer payroll costs are often driven by multiple layers of contributions. As a baseline, employer INSS (social security) is due at a 20% rate on employees’ payroll, with additional items varying by industry and risk classification.
FGTS requires monthly employer deposits of 8% of each employee’s gross salary into a government-held account. Other add-ons can apply, so total employer burden varies by company activity code and risk classification.
Instead of relying on a single percentage range, request a line-item total cost of employment model that shows each statutory component and its basis.
Statutory benefits and common market expectations
Brazil’s statutory baseline includes a 13th salary, 30 calendar days of paid vacation, and a vacation bonus equal to one-third of monthly salary.
Common market add-ons in tech include meal or food vouchers (vale-refeição and vale-alimentação), private health insurance (plano de saúde), dental plans, and transportation vouchers.
Minimum wage and pay benchmarking (2026)
Brazil’s national monthly minimum wage is BRL 1,621 effective January 1, 2026. The same source notes the adjustment is 6.79% from BRL 1,518.
As in Mexico, engineering compensation is typically well above minimum wage, but minimum wage still affects floors and some thresholds.
eSocial and ongoing reporting obligations
eSocial is Brazil’s unified digital reporting system for employment, payroll, and tax events. Hiring, termination, payroll, and many employment changes are reported as events with deadlines.
A key diligence question is whether the EOR owns and operates eSocial reporting directly, and what controls exist for late or corrected submissions.
Termination, severance, and offboarding risk
Termination without just cause can trigger multiple payouts, including a 40% FGTS penalty (based on the accumulated FGTS balance), accrued 13th salary, accrued vacation plus the one-third bonus, and a notice period that can increase with tenure.
Because termination costs are formula-driven and time-sensitive, the EOR’s offboarding process and documentation standards should be reviewed before hiring.
Data privacy and cross-border data transfers (LGPD)
Brazil’s LGPD governs employee data processing, and EORs often transfer data to US-based HRIS and payroll systems. In August 2024, Brazil’s ANPD introduced new rules for international personal data transfers.
Vendor diligence should cover transfer mechanisms, data storage locations, subprocessors, and incident response.
Cost model: What an EOR fee covers vs. pass-through costs
EOR pricing usually combines a provider service fee and pass-through statutory costs. Comparing providers requires separating these components.
| Cost type | What it includes | Who controls it |
| EOR service fee | Payroll operations, compliance management, HR support | Provider pricing model |
| Statutory costs | Mandatory contributions and statutory benefits | Government-mandated; varies |
| Supplemental benefits | Health, meal vouchers, dental, life insurance | Employer choice |
| FX and transfer fees | Currency conversion and payment rails | Provider or banking partner |
| One-time costs | Onboarding, background checks, offboarding | Provider; varies |
If evaluating EOR providers for Mexico or Brazil and a line-item cost model is needed, book a demo with Howdy to review payroll, compliance, and onboarding workflows.
Onboarding timeline and what slows it down
Onboarding through an EOR in Mexico or Brazil often takes 5 to 15 business days, assuming documents and benefits enrollment move quickly.
Mexico delays often come from tax and identity documentation, IMSS registration timing, and banking setup. Brazil delays often come from document collection, eSocial pre-start reporting, and benefits enrollment timelines.
Checklist: How to evaluate an EOR for long-term teams
- Compliance ownership: clarity on liability, carve-outs, and who signs what.
- Entity structure: direct entity vs. subcontracting, and how that affects control.
- Payroll accuracy: SLAs, error handling, and audit support.
- Statutory administration: ability to show calculations and proof of remittance.
- Termination support: severance modeling, legal review, and execution timelines.
- Reporting access: CFDI access (Mexico) and eSocial confirmations (Brazil).
- Security and privacy: LGPD controls, subprocessors, and cross-border transfer approach.
- Scalability: ability to support growth without changing operating model.
Questions to ask EOR providers (Mexico and Brazil)
Mexico:
- How is PTU calculated and allocated across clients, and how is the cap applied?
- How is SBC determined for IMSS, and how are changes handled?
- Who issues payroll CFDIs, and is access provided to stamped XML files?
- What is the termination workflow, and what severance modeling is provided?
Brazil:
- Is eSocial reporting owned and operated directly, or subcontracted?
- How are FGTS deposits handled monthly, and how is the 40% penalty calculated?
- What LGPD controls exist for cross-border transfers and subprocessors?
- How are benefits enrolled, and what timelines apply by city and carrier?
Common failure modes and how to avoid them
Starting with contractors by default: later conversion can surface back-pay exposure if the relationship looks like employment.
Comparing EOR fees instead of total cost: a low service fee can hide higher pass-through costs or unclear assumptions.
Treating offboarding as an edge case: termination is a predictable workflow in Mexico and Brazil, not a rare event.
Accepting weak reporting access: without CFDI or eSocial evidence, compliance is hard to verify.
Ignoring data transfer diligence: cross-border employee data flows should be documented and contractually controlled.
FAQ
Is using an EOR legal in Mexico and Brazil? Yes, when structured correctly. Mexico’s 2021 labor reform restricted certain outsourcing models, but specialized service arrangements are commonly used by EORs; Brazil’s CLT permits third-party employment relationships under specific conditions.
How long does it take to hire an employee through an EOR? Often 5 to 15 business days, depending on documents, reporting deadlines, and benefits enrollment.
What is the real cost of hiring through an EOR in Mexico vs. Brazil? Costs vary by salary, location, benefits, and company classification. A usable comparison is a line-item total cost of employment model that separates provider fees from statutory costs and elective benefits.
Can an independent contractor be converted to an EOR employee? Yes, and it is often the safer move when the working relationship is directed and ongoing.
What happens if termination is needed? In both countries, termination requires documentation and formula-driven payouts; the EOR should run the workflow and provide severance modeling.
If evaluating EOR providers for Mexico or Brazil and a transparent cost model is required, book a demo with Howdy to review compliance, payroll, and onboarding workflows.