Payroll in Mexico
Capital
Mexico City
Official Language
Spanish
Currency
Mexican Peso
Payroll cycle
Bi-monthly
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.
Payroll in Mexico is the process of managing payments, benefits like health insurance, profit sharing, payroll deductions, Aguinaldo (13th month bonus pay), compliance, and taxes for full-time employees and contractors. Companies without an entity abroad can run payroll with an EOR partner like Via.
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 in order to remain compliant and avoid any fines or penalties.
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).
In this article we’ll go over everything you need to know about running payroll in Mexico and how to properly outsource payroll in Mexico without violating the new labor reform laws.
How to perform internal payroll
Internal payroll in Mexico is when you hire your own HR team to operate and handle all payroll duties in Mexico.
To run payroll, you will need to register with the Public Registry of Property and Commerce (Registro Público de la Propiedad y el Comercio), the National Foreign Investment Bureau, (Registro Público de la Propiedad y el Comercio) enroll in social security, and hire your own internal HR team to manage payroll.
Performing payroll in Mexico
Performing payroll in Mexico requires you to comply with each individual state's regulations. In general businesses must take the following steps if they want to run payroll on their own:
Register the business with the Public Registry of Property and Commerce (Registro Público de la Propiedad y el Comercio)
Register with the National Foreign Investment Bureau (Secretaría de Economía)
Apply for a Tax ID from the federal taxpayer registration (Registro Federal de Contribuyentes)
Secure the Advanced Electronic Signature (Firma Electronica Avanzada) in order to file tax returns
Register with the Mexican Social Security Institute (IMSS) so that your employees can receive key benefits, such as basic healthcare and pension
Register for local sales or payroll tax, when applicable
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.
Payroll outsourcing in Mexico
Employer-of-record (EOR) and Professional Employer Organizations (PEO) are legal partnerships in Mexico and can be used to outsource under these new labor reforms. Global EOR services handle the HR process such as payroll and benefits, as well as ensuring that your company is following all of the legal and compliance obligations that are necessary in Mexico.
What does a Mexican PEO do?
When using a PEO service in Mexico, you will still need to have an entity or subsidiary established within the country. The problem with establishing a business in Mexico is that the process can take a few months and requires a significant amount of approval from the correct government agencies. PEO services do not take any legal responsibility for compliance.
If any issue arises, the parent company is still held accountable for any mistakes made by the PEO service.
What does a Mexican EOR do?
An EOR, on the other hand, already has established entities in the country, so you can skip the costly incorporation process.
EORs in Mexico:
Manage payroll, employment contracts, and statutory benefits
Navigate payroll taxes and other HR processes
Support full-time workers across the entire employee lifecycle, from onboarding to offboarding
Sponsor work visas & permits
Save thousands of dollars and countless hours of valuable time
Employment and payroll taxes you should know about
If you’re planning to 1) use an EOR partner and 2) run internal payroll yourself in Mexico, you should know about the mandatory employment and payroll taxes in the country.
Payroll deductions include:
Income tax
Social security
Social security
Employer Contributions | Percentage |
Social Security | 26.5%-33.58% |
Retirement | 5.15% |
National Housing Fund | 5% |
Total payroll cost | 36.69%-43.73% |
Employee payroll contributions:
1.65%: Social security
1.125%: Retirement/Old age insurance
Total cost: 2.775%
Income tax
Gross Income (in MXN) | Percentage |
Up to $7,735.00 | 1.92% |
$7,735.00 – $65,651.07 | 6.40% |
$65,651.07 – $115,375.90 | 10.88% |
$134,119.41 – $160,577.65 | 17.92% |
$160,577.65 -$323,862.00 | 21.36% |
$323,862.00 – $510,451.00 | 23.52% |
$510,451.00 – $974,535.03 | 30.00% |
$974,535.03 – $1,299,380.04 | 32.00% |
$1,299,380.04 – $3,898,140.12 | 34.00% |
Over $3,898,140.12 | 35.00% |
2023 tax year in Mexico
The tax year in Mexico runs from January 1, 2023-December 31, 2023.
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%.
13th-month 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:
15 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 is 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.
Why companies partner with Via
Via makes hiring talent around the world and building your global team seamless by helping you onboard workers in as little as 2-3 business days. With our easy-to-use platform, Via helps you manage local HR processes for direct employment such as work visas & permits, employee data privacy compliance, benefits, global payroll, background checks, and more. Our team of local labor lawyers and on-the-ground experts provide 24-hour local support and ensure that your company remains compliant while expanding abroad. As your employer-of-record/entity
abroad, Via assumes responsibility for employment liability, so that you can focus on what matters: recruiting and managing your team.
