Manufacturing in Mexico: Is Naming an Employer of Record Necessary to Minimize Risks?
02.26.24There are numerous benefits when manufacturing in Mexico. From cost-effective industrial labor to reliable supply chains, and more, U.S. and other foreign manufacturing leaders have relied on Mexico for decades when it comes to expanding production.
However, in addition to the many benefits, there is also risk involved when operating in any foreign country. Therefore, most companies find it advantageous to name a shelter company as their Mexico employer of record (EOR).
As EOR, a shelter company handles all administrative tasks necessary for setup to launch production. This includes HR responsibilities, such as payroll, taxes, employee benefits, and severance pay. The shelter also keeps track of vacation time, handles employee disputes and situations as they arise, and anything else HR-related.
Though the manufacturer maintains complete control over hiring and firing, a Mexico employer of record serves as a local advisor, guiding business leaders in making the best decisions regarding costs and compliance. But it’s not only HR-related matters which fall under the scope of shelter manufacturing services. Additional responsibilities of a Mexico EOR include:
- Permanent establishment
- Importer of record
- Direct liability
- IMMEX program
Though not required, implementing shelter services in Mexico allows U.S. and other foreign companies to reap the benefits of manufacturing in Mexico without facing the complex and time-consuming process of setting up a standalone entity. Here’s how:
Minimizes Risk and Liability
Incorporating shelter manufacturing services minimizes risk and liability for business leaders while providing a quick, three-to-four month startup time. The shelter is held liable if there are any errors regarding compliance, which requires diligence in maintaining a legal structure and valid permits and certifications.
Reduces Learning Curve
Furthermore, having the local expertise of a Mexico employer of record ensures companies are kept up-to-date with all current compliance regulations. Keeping track of these changes proves challenging for foreign manufacturers, as they’re not as familiar with Mexico law and do not have the time, resources, or insight to anticipate rulings as they take effect.
Provides Operational Flexibility
There is flexibility when applying shelter manufacturing services. Though the majority of U.S. and other foreign manufacturers take advantage of this unique opportunity, some companies prefer to operate as a standalone operation.
As a separate entity, the new entity created by the employer is legally exposed and not protected in the same way as those who operate under the shelter model. However, the same setup and shelter manufacturing services can still apply.
The standalone option works well for those more comfortable with establishing their own subsidiary or entity in Mexico from the beginning, as well as for companies that are planning to have domestic sales. IVEMSA offers both the shelter and standalone options to help manufacturers find their best fit.
Ensuring companies have what they need to reach their goals when manufacturing in Mexico has created long-term connections, a robust network, and plenty of resources that provide a smooth startup and successful experience when operating in Mexico.
Why Choose IVEMSA
IVEMSA’s reputable background involves nearly 40 years of providing shelter services in Mexico and a 15-year average client retention rate. We value providing exceptional client experiences and being part of the solution that helps them grow.
If your company is exploring expanding production to Mexico, let us walk you through your options. Even if you’re in the early stages, our team is here to answer any questions so you can feel confident in your decision.