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In terms of GDP, Mexico's economy ranks 15th globally by sharing 1.42% of the world’s GDP & based on purchasing power parity, the International Monetary Fund ranks it as the 13th largest country. The economy of the nation has also experienced steady growth; as of 2020, it is approximately five times larger than it was in the 90s. The official currency of Mexico is the Mexican Peso (MXN).
In recent years, Mexico has become one of the major and intriguing business hubs in the Americas. With a population of about 132 million and strong ties to both South America and the US, it presents a plethora of opportunities for multinational corporations seeking to grow.
The country of Mexico has reported lower unemployment over the past several years (between 3 and 4%) and has already reached its low which was before the pandemic. Many companies have benefited from the comparatively low wages they offer to local employees. This, along with its established international connections, make Mexico a highly desirable—if not slightly riskier—location for foreign businesses. One of the first steps in expanding in Mexico is to grasp the peculiarities of payroll in Mexico & payroll laws in Mexico and how they fit into your global payroll technique.
Payroll Cycle & Working Hours in Mexico
Payroll in Mexico is processed biweekly. On the 15th and last day of every month, employees typically receive their biweekly paychecks after payroll processing in Mexico. According to payroll laws in Mexico, 48 hours is the maximum workweek, with a maximum of 8 hours per day.
Payroll Tax in Mexico
Payroll taxes are collected at the state level in Mexico. The rate is deducted by the employer and ranges from 1% to 3% of salaries. For payroll in Mexico, employers must figure out and file taxes for both themselves and their workers, and they must do so accurately as per the payroll laws in Mexico.
All employees of a Mexican employer must be registered with the Mexican Social Security Institute (IMSS). If the employee wants to use social security benefits, like medical care, they must submit this to the clinic that corresponds to their place of residence. The Mexican Social Security Institute receives source deductions from employee wages as employee costs. Additionally, the employer also contributes to the payroll taxes for employment costs. Following multiples of the minimum wage, both contributions are calculated at various rates and are subject to various caps.
Social Security & Statutory Contribution for Payroll Tax in Mexico
The Mexican Social Security Institute (IMSS) is in charge of maintaining the social security contribution under payroll tax in Mexico. It also offers permanent disability insurance and full payment for 78 weeks of disability in addition to old-age benefits. Additional benefits include pensions, life insurance, childcare facilities, and maternal leave with pay. Furthermore, conditions and mishaps unrelated to the workplace are also covered by the system.
According to payroll laws in Mexico, employees are required to contribute around 5% of their salaries toward social security and retirement (with a cap). Employers make contributions to retirement, housing, and social security funds. Regardless of how much is deducted from the employee salaries (depending on the minimum wage), this sums to about 25% of the income.
A mandatory contribution of MXN 23,804 a year is required from employees for payroll tax in Mexico. For mid-sized businesses, the maximum employer contribution is MXN 166,174 per year. Given that the employer's contribution includes a workplace risk premium, the maximum social security contribution by employers may be higher. Employees making more than MXN 872,892 annually are subject to these maximum contribution limits.
State Pension/ Retirement
In Mexico, both the employer and the employee make contributions to the state pension for payroll in Mexico. The contributions made are as follows:
- The employer contributes 2% of each employee's base pay toward their retirement pension.
- Employer pension contributions for unemployment and old age insurance are 3.15 percent of base pay.
- Employee pension contributions for unemployment and old age insurance are 1.125% of base pay.
Employer Contribution (Employment Cost) to Payroll Tax in Mexico (2022)
The primary state institution in Mexico for making sure that households can exercise their entitlement to decent housing is the Institute of the National Housing Fund for Workers (INFONAVIT). It is also one of Mexico's most reliable social security pillars. It is essential to mortgage financing in all 32 states and promotes growth and prosperity across the board.
Employee Contribution (Employee Cost) to Payroll Tax in Mexico (2022)
Employee Income Tax in Mexico
All employees must be registered with the Mexican Tax Authorities by their employers for payroll in Mexico. Residents who are employed in Mexico must acquire a CURP (Uniform Population Registry Code) and a tax identification number (RFC). For income tax processing, foreign citizens must request a CURP from immigration authorities and a tax ID number directly from the tax authorities.
The tax year for all Mexican organizations is from 1 January to 31 December. A resident's individual income tax is computed at progressive rates that range from 0% to 35%, where the level of income of the employee directly affects the tax rate.
Employee Income Tax Rate in Mexico ( for 2022):
The employer is responsible for paying the relatively low payroll taxes that are levied by the majority of Mexican states. For instance, Mexico City charges a 3% payroll tax.
