Can You Legally Outsource Your Entire HR Department in Mexico? What You Need to Know in 2025
For global companies operating in Mexico, outsourcing non-core functions like payroll, recruitment, or benefits management is a strategic move to stay lean and efficient. But can you legally outsource your entire HR department under Mexico’s strict labor laws—especially after the 2021 outsourcing reform?
The answer is yes—but with very specific limits. This article explores how much of your HR operations can be outsourced, what legal restrictions apply, and how to avoid penalties under current Mexican labor and tax law.
1. Understanding the 2021 Outsourcing Reform in Mexico
In April 2021, Mexico passed a major labor reform that effectively banned labor outsourcing where a third party supplies workers to perform core business activities. This law was designed to eliminate abuse of subcontracting and protect workers’ rights.
Key takeaways:
- Companies can no longer outsource roles that are part of their core economic activity.
- Only specialized services not part of the company’s business purpose may be outsourced—and only if the provider is registered with REPSE (Registro de Prestadoras de Servicios Especializados).
📌 Related: Mexico’s Outsourcing Ban: What EORs Can and Cannot Do
2. What HR Functions Can Still Be Outsourced?
Not all HR functions are considered “core.” You can still legally outsource several HR-related processes if they are classified as specialized and your provider is REPSE-compliant.
Legally outsourceable HR functions include:
- Payroll processing and tax reporting
- Employee benefits administration
- Talent acquisition (excluding actual hiring/employment contracts)
- HR tech platforms (HRIS, applicant tracking, etc.)
- Legal advisory for labor compliance
- Training programs (external or remote)
However, functions like hiring, firing, managing disciplinary actions, or daily supervision are not eligible for outsourcing if they relate to the company’s core workforce.
3. What’s Illegal? Avoiding “Disguised Employment”
You cannot legally outsource:
- Employees who report directly to your supervisors but are on another company’s payroll
- The entire employment relationship, including signing contracts, paying wages, and managing leave/discipline through a third party (unless through an EOR)
- The use of a shell company to avoid social security, taxes, or severance obligations
🚫 This type of structure may be considered “simulación de relación laboral” and is subject to:
- Fines of up to MXN $4.5 million (~USD $250,000)
- Retroactive payments of taxes, social security, and benefits
- Labor litigation and possible criminal sanctions
4. When Can You Use an EOR Legally?
A certified Employer of Record (EOR) is a legal exception that allows foreign companies to hire employees in Mexico without creating a local entity, while remaining compliant with labor and tax laws.
EORs are ideal when:
- You want to expand or test the market before creating a legal entity
- You need to hire staff quickly in compliance with the law
- You want to avoid administrative burdens like payroll tax filing or labor inspections
The EOR acts as the legal employer, but you retain operational control. However, be cautious: if the EOR relationship is seen as labor outsourcing within your core business, it must still comply with the REPSE framework.
📌 Read more: When to Use an Employer of Record (EOR) in Mexico for Payroll Compliance
5. Compliance Checklist for HR Outsourcing in Mexico
To remain legally compliant:
✅ Use REPSE-registered service providers
✅ Clearly define the scope of HR services as “specialized”
✅ Keep documentation of contracts, invoices, and payment records
✅ Separate employment decisions (hire/fire) from service providers
✅ Avoid using third parties as legal employers unless via EORs
Final Thoughts
Yes, you can outsource much—if not most—of your HR operations in Mexico, but not the employment relationship itself. By following the post-reform rules, using REPSE-compliant vendors, and structuring your services carefully, you can unlock the efficiency of outsourcing without exposing your company to legal risk.
When in doubt, consult with a local labor lawyer or partner with a reputable EOR to ensure your HR structure is both efficient and legally sound.
