All About Payroll in Mexico: How It's Calculated and Regulations
Growing companies are looking for efficient solutions to manage their talent without increasing their administrative burden. This is where the PEO (Professional Employer Organization) model comes in , an option that allows companies to outsource key human resources functions.
In this article, we’ll explore what a PEO is, its advantages and disadvantages, how it works, and how it differs from other solutions like EOR and outsourcing .
What is Payroll in Mexico?
The payroll in Mexico is the document that details an employee’s payments and deductions. Companies must comply with various tax and labor regulations to ensure that employees receive their wages in accordance with the law.
How is Payroll Calculated in Mexico?
The payroll calculation considers different factors such as:
1. Base Salary
The salary stipulated in the employment contract before applying deductions and taxes.
2. Additional Perceptions
Christmas bonusVacationbonus OvertimeBonuses and commissions
3. Deductions and Taxes
Taxes that the Worker Must Pay
Income Tax (ISR): Calculated based on tables established by the SAT (Tax Administration Service). IMSS contributions: Deducted from the employee’s base salary.INFONAVIT contributions: If the employee has a mortgage, these contributions are deducted monthly.
Taxes that the Company Must Pay
Employer Contributions to the Mexican Social Security Institute (IMSS): Mandatory social security contributions.INFONAVIT Contributions: 5% of the employee’s base salary.SAR Contributions: 2% of the base salary.Payroll Tax (ISN): Varies depending on the state.
Labor and Tax Regulations
Laws and Regulations to Comply with
Companies must follow the following regulations:
Federal Labor Law (LFT): Regulates the rights and obligations of workers and employers.Social Security Law: Regulates membership and contributions to the Mexican Social Security Institute (IMSS).INFONAVIT Law: Requires companies to contribute to employee housing.Federal Tax Code: Establishes tax obligations and penalties for noncompliance
Payroll-Related Institutions in Mexico
To carry out payroll-related procedures, you must go to the following institutions:
Tax Administration Service (SAT): For paying income tax and billing payroll.Mexican Social Security Institute (IMSS): For registering and paying social security contributions.National Workers’ Housing Fund Institute (INFONAVIT): For managing housing contributions and loans.National Retirement Savings System Commission (CONSAR): For monitoring contributions to the SAR and AFORES.
Explanatory Video on Payroll in Mexico
Below, we share a video from our YouTube channel where we explain in detail everything about payroll in Mexico:
Conclusion
Payroll management in Mexico is essential for legal compliance and employee well-being. It’s important for both companies and employees to understand the applicable taxes, deductions, and regulations to avoid penalties and ensure efficient payroll administration.