With a mixture of emerging and booming economies, political uncertainty and extreme contrasts in business customs, the Americas can never be categorized as one homogeneous whole.
Mexico offers investors and businesses a land of opportunity that rivals any other emerging market, but doing business can be a time-absorbing task, which is why having local knowledge as part of the venture is crucial.
Here we take a look at how HR & Payroll works in Mexico.
Social Security System
- All employers are required to be registered themselves, and their employees in front of the Mexican Social Security Institute, which provides them with benefits for job-related and other disabilities, and pension and death benefits
- Employees make IMSS contributions based on their salaries, with a minimum of one minimum wage and a maximum up of 25 times the minimum wage. (In case of higher salaries corresponds less contributions, unlike, for lower salaries applies higher contributions)
- Employers must contribute 2% of payroll to an employee retirement fund and 5% of payroll l to a housing fund, which together constitute an employee pension fund managed by private financial institutions
Click here to view table.
Local Payroll Tax
All federal states in Mexico apply a tax from 1% up to 3% on salaries.
Income tax for the employees
- The tax rate for the employees is variable according to their incomes up to 35% plus a fixed fee.
- Also there is an obligation to certify all payroll payments and issue a Digital payroll tax receipt, or called “Comprobante Fiscal Digital (CFDI) de nómina” in Mexico, per each pay slip issued.
- Under the Mexican Federal Labor Law, employees must enter into an individual employment agreement with employers
- The employment agreement, which can be indefinite or for a fixed term, sets the terms and conditions of employment, and cannot be modified by the employer without the employee’s consent
- Employers may also enter into collective bargaining agreements with labor unions
- If an employer wishes to dismiss an employee with cause, he/she must dismiss the employee within 30 days of the day when the employer became aware of the cause for dismissal; and give written notice of dismissal to the employee
- An employee who has been dismissed without cause is entitled to severance pay amounting to three months’ salary, and 20 days’ additional pay for each year of service, as well as a seniority premium which is 12 days’ salary for each year of service
- Employees are entitled to challenge their dismissal before the Labor Board. In case of a successful challenge, a dismissed employee can be reinstated. If the employer is not willing to reinstate the employee, he/she must pay severance charges as described above
- According to the Mexican Federal Labor Law, 90% of a company’s workforce must be Mexican nationals
- Temporary employment of foreign technicians is allowed up to 10% of the total workforce, if the company can prove that skilled workers are not available locally
* The above personnel requirements do not apply to companies with operations along the US border.
- Expatriate employees must obtain valid work visas in order to live and work in Mexico
- Under NAFTA, Mexico allows temporary entry of North American business visitors; traders and investors; intra - company transferees; and a few specific professionals
- Registration with the National Immigration Institute for all sponsoring companies in Mexico is mandatory.
- Foreigners require a Temporary permit to live and work in Mexico. This Permit is valid for a period of no more than 4 years.
- Foreign nationals from other countries must apply for a permit in the Mexican Consulate of their country. This permit should be subject to a job offer.
Benefit by Law
- Year-end Bonus (Aguinaldo): Consists in the payment of at least 15 days´ wages. This payment should be done no later than December 20th of each year.
- If employees work for an employer for one full year, they are entitled to six days of paid leave, increasing by two days for each of the subsequent three years. After that, the vacation period increases by two days after every five years of service.
- Vacations premium: this Premium is equal to 25% of the worker´s daily wage for each day of eligible of vacation.
- Profit Sharing (PTU): According to the Mexican Constitution and the Federal Labor Law, Mexican companies are required to pay employees a Profit Sharing 10% of their profits.
- According to the Mexican Federal Labor Law, employees must be paid in cash on a weekly or a bi -weekly basis. Employers are allowed to pay wages using electronic means with employees’ prior consent.
- Mexico has only an economic region, with a minimum general wage.
- Minimum wages are determined by the National Minimum Wage Commission, which comprises of representatives from business, labor, and government.
- Employment in Mexico is governed by the Mexican Constitution and the Mexican Federal Labor Law.
- The Federal Labor Law regulates employment contracts, wages, hours of work, legal holidays and paid vacations, labor unions, strikes, severance compensation, and other issues related to employment.
- The Federal Labor Law applies to all employees in Mexico, regardless of their nationality or place of work.