Expanding your business into Mexico? Welcome! Managing payroll in Mexico involves navigating a complex landscape of federal and state regulations. This guide breaks down the payroll process, tax obligations, and important considerations for global employers to manage Mexican payroll effectively.
Step 1: Understanding the Salary Structure in Mexico 💰
The salary structure in Mexico comprises mandatory and optional components, including wages, taxes, and various benefits.
Component | Details | Mandatory/Optional |
|---|---|---|
Base Salary | Fixed compensation agreed in the contract. | Mandatory |
Bonuses | Performance-based or holiday bonuses. | Optional |
Health Insurance | Employer’s contribution to healthcare. | Mandatory |
Housing Fund (INFONAVIT) | Employer and employee contributions for housing. | Mandatory |
Social Security (IMSS) | Contributions for pension, medical, and other insurances. | Mandatory |
Paid Time Off (PTO) | Vacation and sick leave benefits. | Mandatory |
Total Compensation | Sum of all components. | — |
Outcome: A well-structured salary with mandatory contributions like social security and the housing fund ensures compliance with Mexican labor laws while offering competitive compensation for talent acquisition and retention.
Step 2: Income Tax Withholding in Mexico 🧾
Employers in Mexico must withhold individual income tax (ISR) from employees’ salaries based on a progressive tax rate.
Annual Salary (MXN) | Tax Rate (%) |
|---|---|
Up to $6,942 | 1.92% |
$6,943 – $58,922 | 6.40% |
$58,923 – $103,550 | 10.88% |
$103,551 – $120,372 | 16.00% |
$120,373 – $144,119 | 17.92% |
$144,120 – $290,667 | 21.36% |
Over $290,667 | 35.00% |
Outcome: Employers must accurately calculate and remit income tax based on the progressive tax system to ensure compliance with Mexican tax regulations and avoid penalties.
Step 3: Social Security Contributions 
Mexico’s social security system includes several mandatory contributions that both employers and employees must pay.
Type of Insurance | Employer Contribution (%) | Employee Contribution (%) |
|---|---|---|
Pension Fund (IMSS) | 20.40% | 1.75% |
Medical Insurance (IMSS) | 10.75% | 2.00% |
Unemployment Insurance | 0.65% | 0.00% |
Work-Related Injury Insurance | 1.40% | 0.00% |
Maternity Insurance | 0.50% | 0.00% |
Housing Fund (INFONAVIT) | 5.00% | 5.00% |
Total Contributions | 38.80% | 8.75% |
Outcome: Timely and accurate social security contributions ensure legal compliance and provide benefits like medical coverage and pension plans to employees.
Step 4: Payroll for Non-Residents 🌍
Global employers hiring non-resident employees in Mexico must consider additional tax obligations and work permits.
Non-Resident Consideration | Details |
|---|---|
Tax Residency | Non-residents are taxed only on their Mexican-sourced income at a flat rate of 30%. |
Work Permits | Required for non-residents; failure to comply can result in fines and legal complications. |
Social Security Contributions | Non-resident employees must contribute to IMSS if they are employed in Mexico. |
Outcome: Proper management of non-resident payroll and ensuring work permit compliance avoids penalties and ensures legal employment.
Step 5: Housing Fund Contributions 🏘️
Employers must contribute to the Housing Provident Fund (INFONAVIT), which assists employees with housing-related expenses.
Type of Contribution | Employer Contribution (%) | Employee Contribution (%) |
|---|---|---|
Housing Provident Fund (INFONAVIT) | 5.00% | 5.00% |
Outcome: The Housing Fund is an essential part of compensation, helping employees secure better housing options and maintaining legal compliance.
Step 6: Paid Leave and Holiday Entitlements 🌴
Mexico mandates specific paid leave entitlements and national holidays.
Leave Type | Details |
|---|---|
Annual Leave | Starting at 6 days after the first year, increasing with service. |
Sick Leave | Paid leave based on illness severity and length of service. |
Maternity Leave | 12 weeks of paid leave, with additional days for complications. |
Public Holidays | 7 mandatory national public holidays, with additional state-specific holidays. |
Outcome: Proper management of paid leave and holiday entitlements improves employee satisfaction and ensures compliance with labor laws.
Step 7: Health Insurance and Other Benefits 🏥
While health insurance is included in social insurance, employers can offer additional private health insurance or other benefits to attract top talent.
Benefit Type | Employer Requirement | Optional/Mandatory |
|---|---|---|
Private Health Insurance | Often provided by multinational companies. | Optional |
Meal Allowance | Tax-exempt within limits, boosts employee morale. | Optional |
Transportation Allowance | Common in urban areas to support commuting costs. | Optional |
Performance Bonuses | Incentivize and reward employee performance. | Optional |
Outcome: Offering competitive benefits like private health insurance and allowances helps attract and retain top talent in Mexico’s competitive labor market.
Step 8: Payroll Compliance and Reporting 📊
Mexico requires strict compliance with payroll and tax reporting, including monthly and annual obligations.
Compliance Requirement | Details |
|---|---|
Monthly Payroll Remittances | Payroll taxes and social contributions must be remitted monthly to local authorities. |
Annual Tax Reconciliation | Employers must file annual tax reports for employees by April 30. |
Record-Keeping | Payroll records must be maintained for several years for audit purposes. |
Outcome: Adhering to payroll compliance and reporting obligations helps employers avoid hefty fines and ensures smooth payroll processes.
Step 9: Payroll for Remote Workers 💻
Managing payroll for remote workers in Mexico involves additional considerations regarding taxation and social insurance.
Remote Worker Consideration | Details |
|---|---|
Tax Residency | Employees may be subject to local taxes based on their residence or work location. |
Social Insurance Contributions | Remote workers must be enrolled in IMSS if they are employed in Mexico. |
Outcome: Accurately managing payroll for remote workers helps avoid tax and compliance issues across different regions in Mexico.
Conclusion: How GlobainePEO Can Help with Payroll in Mexico 🌐
GlobainePEO specializes in managing all aspects of payroll in Mexico, from calculating and withholding taxes to ensuring timely social security and housing fund contributions. By partnering with GlobainePEO, you ensure full compliance with Mexican payroll regulations, streamline your payroll processes, and focus on expanding your business with confidence.