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Payroll in Mexico

All Countries > Mexico > Mexico Payroll, Taxes and Contributions
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Capital

Mexico City

Language Desktop

Official Language

Spanish

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Currency

Mexican Peso

Payroll Desktop

Payroll cycle

Bi-monthly

Via offers complete Payroll, EOR and Contractor mangement services for Mexico
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Quick facts about Mexico

Located at the southern end of North America, Mexico is one of the most important economic partners to the United States and Canada. Mexico’s rich history and its ever growing economy has turned the country into an appealing destination for digital nomads. The country’s strong university system also makes Mexico one of the best places to recruit developers, marketers, and other knowledge workers.

More info

Global Payroll

What is payroll in Mexico?

Payroll in Mexico is the process of managing payments, benefits like health insurance, PTU, payroll deductions, 13th-month pay, compliance, and taxes for full-time employees and contractors. Companies without an entity abroad can run payroll with an EOR partner like Via. 

Businesses looking to set up payroll in Mexico need to carefully observe both state and federal regulations, especially following the country’s 2021 labor reform laws. 

Here’s a look at everything global companies need to know about establishing and performing payroll in Mexico.

Payroll in Mexico

Companies must be registered with a number of institutions in order to perform employment payroll in Mexico. While the process varies slightly from state to state, in general businesses must take the following steps:

  1. Register the business with the Public Registry of Property and Commerce (Registro Público de la Propiedad y el Comercio)

  2. Register with the National Foreign Investment Bureau (Secretaría de Economía)

  3. Apply for a Tax ID from the federal taxpayer registration (Registro Federal de Contribuyentes)

  4. Secure the Advanced Electronic Signature (Firma Electronica Avanzada) in order to file tax returns 

  5. Register with the Mexican Social Security Institute (IMSS) so that your employees can receive key benefits, such as basic healthcare and pension

  6. Register for local sales or payroll tax, when applicable 

  7. Establish a bank account in Mexico in order to pay employees in accordance with Mexican payroll laws. Mexican tax revenue legislation passed in 2017 requires employee’s net pay to be paid in Mexican pesos only

Registration with some of these institutions can take up to 90 business days or longer, especially given ongoing delays from Covid-19. 

Companies looking to employ individuals in Mexico need to keep in mind that they cannot start paying employees compliantly until they have completed these steps.

When setting up payroll taxes and deductions in Mexico, businesses need to keep in mind a number of factors, including federal taxes, state taxes, sales tax, and employee withholding tax.

Tax year

The tax year in Mexico runs from 1 January to 31 December.

Pay cycle

The payroll cycle in Mexico is bi-weekly. Employees are usually paid on the 15th and the last day of the month.

Minimum wage

The minimum wage in Mexico is $207.44 MXN per day. For the Free Zone of the Northern Frontier the minimum age is $5,206 per month

Federal vs. state taxes

In Mexico, individual federal income tax rates range anywhere between 1.92% and 30%. Those in Mexico on work permits and visas pay between 15% and 30% at the federal level and help with general resources for both the state and country. 

State income taxes are levied at the individual state level and range from 1%-3%, depending on the individual state’s laws. These taxes are withheld directly by the employer. 

Corporate income tax 

In Mexico, the corporate income tax is a flat rate of 30%. The 30% corporate income tax rate is the same in each state, as well as Mexico City.

Sales tax

Sales tax throughout most of Mexico is a flat 16% (Value-Added Tax). However, in some areas closer to the border, the Value-Added Tax is 11%. 

Social security 

Employer contributions:

  • 26.5%-33.58%: Social Security 

  • 5.15%: Retirement

  • 5%: National Housing Fund 

Total cost: 36.69%-43.73%

Employee payroll contributions: 

  • 1.65%: Social security 

  • 1.125%: Retirement/Old age insurance

Total cost: 2.775%

Income tax

Income tax breakdown (in MXN): 

  • 1.92% Up to $7,735.00

  • 6.40%: $7,735.00 – $65,651.07

  • 10.88%: $65,651.07 – $115,375.90

  • 16.00%: $115,375.90 – $134,119.41

  • 17.92%: $134,119.41 – $160,577.65

  • 21.36%: $160,577.65 -$323,862.00

  • 23.52%: $323,862.00 – $510,451.00

  • 30.00%: $510,451.00 – $974,535.03

  • 32.00%: $974,535.03 – $1,299,380.04

  • 34.00%: $1,299,380.04 – $3,898,140.12

  • 35.00%: Over $3,898,140.12

13th salary

A 13th month payment is mandatory in Mexico. It's a bonus payment made by December 20th. The salary is calculated as at least 15 working days of the employees salary.

Leave in Mexico

Employees who work full-time in Mexico are entitled to paid vacation time with a bonus premium:

  • 6 days of paid vacation after 1 year of work

  • 2 additional days of leave for every year the employee works for a company until the end of the 4th year. After that, they are entitled to 2 extra days of vacation accrued for every 5 years of service.

  • Employees are entitled to 8 paid holidays off annually

Working hours

Standard working hours in Mexico is 48 hours per week with 8 hours per day. The standard working week in Monday-Saturday.

  • Day shifts are 48 hours between 6am and 8pm

  • Night shifts are 42 hours between 8pm and 6am

  • Mixed shift can go up to 45 hours per week

Overtime

Overtime agreements must be stipulated in the employment contract. The first 9 overtime hours are to be paid at 200% of the employees base salary. Every hour after 9 must be paid at 300% of the employees base wage.

Mexican payroll deduction calculator

You can use a payroll deduction calculator to estimate an individual’s take-home pay. 

Most calculators offer both simple and advanced features to calculate income tax deductions.

If you’re looking to estimate your employee’s salary based on the withholding features above, you can check out the Mexico Salary Calculator for 2022-2023.

Welcome

In-house payroll vs. third-party payroll processing in Mexico

In 2021, the Mexican government passed new labor legislation that made it more difficult for companies to outsource payroll to third-party services. 

This means that when companies start hiring in Mexico, they usually have to set up an entity and manage payroll themselves. 

While companies can quote salaries for Mexican employees in foreign currencies such as the US dollar, employees in Mexico must be paid 1) by a Mexican bank and 2) in the national currency, the Mexican peso (MXN). The company must operate an entity in Mexico.

Why companies partner with Via

Many companies based in Mexico want to hire talent in different countries, but aren’t exactly sure how to go about onboarding and paying employees across borders compliantly. Maybe you want to hire a software engineer based in Colombia, or a designer living in Canada. 

With Via, we help you hire, onboard, and pay remote employees across the world. As your employer-of-record abroad, we take care of the local HR logistics, such as payroll, benefits, and taxes. Maintaining compliance is our responsibility. You simply focus on building your team and running your business.

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    Mexico PEO & Employer of Record Services
    Set up Your Subsidiary in Mexico
    Mexico Employee Compensation & Benefits
    Hiring & Recruiting in Mexico
    Work Visas & Permits in Mexico

Frequently asked questions

  • What is the income tax rate in Mexico?

    The income tax rate in Mexico ranges from 1.92% to 35%. For non-residents on a work visa, pay between 15-30%.

  • What is IMSS tax in Mexico?

    IMSS tax in Mexico is employees' social security tax and income tax that they contribute to. This withholding is done by the employer and ranges from 0%-35% depending on the employee’s income.

  • Do expats pay income tax in Mexico?

    Yes, expats are required to pay income tax when working as a foreign national in Mexico. Income tax ranges anywhere from 0%-35% depending on the employee’s income.

  • What are the benefits for the Mexican worker?

    For working in Mexico, employees are entitled to a wide range of benefits. These benefits include: health insurance, vacation pay, aguinaldo (Christmas bonus), savings fund, productivity bonus, food vouchers and many more depending on the employer.

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