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.
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:
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.
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.
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.
