HR and Payroll Administration

Cloud-Based Human Resources and
Payroll Administration in Mexico

Use a Trusted Partner to meet your Human Resources needs in Mexico using MexInc’s Cloud platform

Overview of Human Resources and Payroll

Hiring employees in Mexico has two main elements: payroll compliance and administration, and employment law compliance. MexInc handles both. Payroll compliance involves the following activities:

Human resources and payroll in Mexico, in general terms, functions much differently from payroll in the United States and shares similarities with European jurisdictions. Specific attention should be paid to understanding these differences.

Employee Income Tax Deductions

It is the employer’s responsibility to deduct income taxes from employee salaries and to pay
employee retentions to the Mexican tax authorities, the SAT, on the employee’s behalf.
These payments are made monthly.

Have MexInc Administer all aspects of your
Payroll Administration in Mexico

MexInc offers cloud-based payroll administration in Mexico, taking the headaches out of payroll. Let MexInc handle all salary disbursements and payroll tax payments for your company. Hiring local talent in Mexico has never been easier.

Social Security (IMSS) and
Public Housing Fund Contributions (INFONAVIT)

Social Security contributions in Mexico are administered by the Instituto Mexicano del Seguro Social,
which is referred to by the acronym IMSS. Obligations for IMSS are paid by the employee and the employer,
however, the employer share is significantly larger. The employer has the obligation to make the corresponding
deductions from the employee’s salary and coordinate payment to the authorities for both the
employer’s contribution and the employee’s deduction. This occurs monthly. Public Housing Fund or INFONAVIT,
is a state-funded housing benefit provided to all Mexican workers. Contributions are paid on a bi-monthly basis.

Cloud-Based Human Resources Administration

MexInc offers extensive human resources services including on-boarding and off-boarding of employees,
drafting of labor agreements, employee compliance plans, and private and government
benefits administration. MexInc can design and implement an employment
model that’s tailored to your specific needs.

Get to know the 3 main Employment Models in Mexico

Three main employment models are available under Mexican law: direct hire, hybrid contractor and independent contractor models.

Direct Hire Model

Employees are hired directly under the employer’s legal entity in Mexico. The employer is responsible for paying employees’ income tax, social security and INFONAVIT contributions to the Mexican authorities. Employees are entitled to full protections and benefits under the Mexican Federal Labor Law. This includes limits on at-will employment, three months of severance pay in the case of separation, two-weeks pay annual bonus, 12 days of paid annual vacation, and seniority benefits after the first year of employment.

Hybrid-Model (Asimilados a Salarios)

Employers are hired directly under the employer’s legal entity in Mexico. The employer is only responsible for deduction and payment of employee income taxes on the employee’s behalf. Employers are not responsible for payment of social security or INFONAVIT benefits.

Employees are not entitled to severance pay, paid vacation and are considered completely at-will employees. Unlike the direct hire model, employees can be separated at any time with or without cause. For projects that are seasonal, temporary, or required to work for a specific project based on a fluctuating schedule, this is the preferred model. In general, the cost to the employer is significantly lower because contributions for employee benefits like social security are not required.

Independent Contractor Model

Employees are not hired directly under the employer’s entity and are treated as independent sole proprietors. The employee is responsible for payment of their own income taxes. A formal tax invoice or CFDI must be issued from the employee to the employer, which is marked up to include 16% IVA or sales tax. Employees do not receive any formal benefits under the Mexican Federal Labor Law and do not accrue paid vacation, annual bonus or severance pay in the case of separation

Let MexInc handle your HR Admin in Mexico

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Overview of Payroll Taxes and Employee Government
Benefits under the Standard Direct Hire Model

Direct Hire Model
Category	Description	Rate / Amount (Approx.)	Notes
Income Tax (ISR – Impuesto Sobre la Renta)	Withheld by the employer from employee wages and paid to SAT (Tax Authority).	Progressive rates from 1.92% up to 35% (monthly brackets).	Employer must calculate and withhold based on employee’s taxable income.
Social Security (IMSS – Instituto Mexicano del Seguro Social)	Covers health, maternity, occupational risks, disability, retirement, daycare, and social benefits.	Employer contribution ranges 15%–25% of salary (varies by risk class, capped at UMA). Employee contribution around 2–3%.	Both employer and employee contribute; employer pays and withholds employee’s portion.
Housing Fund (INFONAVIT)	Provides housing credit to employees.	5% of employee’s base salary (paid by employer only).	No employee contribution.
Retirement & Pension (SAR / AFORE)	Individual retirement savings managed by AFORE	Employer contributes 2% of base salary; employee contributes 1.125%; government adds a small portion.	Employer responsible for transferring all contributions.
State Payroll Tax (Impuesto Sobre Nóminas – ISN)	Local payroll tax applied by Mexican states.	Typically 2%–3% of payroll (varies by state).	Paid only by employer; rates and rules differ depending on the state.
State Payroll Tax (Impuesto Sobre Nóminas – ISN)	Paid in addition to vacation days.	At least 25% of vacation salary.	Calculated on vacation days based on seniority

What are Standard Employee Benefits
and Employment Conditions in Mexico?

Employee Benefits and Employment Conditions
Benefit	Legal Basis (LFT)	Minimum Requirement	Notes / Details
Annual Bonus (Aguinaldo)	Art. 87	At least 15 days of salary, payable by Dec. 20 each year.	Many employers offer more (e.g., 30 days) as part of benefits packages.
Vacation Time	Art. 76 (reformed 2023)	Starts at 12 working days after 1 year of service, increasing by 2 days each year until reaching 20, then by 2 days every 5 years.	Vacation must be taken continuously unless employee agrees otherwise.
Vacation Premium (Prima Vacacional)	Art. 80	At least 25% of salary corresponding to vacation days.	Paid together with vacation time.
Severance Pay (Indemnización Constitucional – Unjustified Dismissal)	Art. 48, 50, 123	3 months of integrated salary + 20 days of salary per year of service + accrued benefits (aguinaldo, vacations, etc.).	Applies only in cases of unjustified dismissal or resignation with cause.
Seniority Premium (Prima de Antigüedad)	Art. 162	12 days of salary per year of service, capped at 2× minimum wage, payable upon: 1) termination (except justified dismissal), 2) retirement, 3) resignation after 15+ years.	Even employees who resign after 15 years are entitled.
Rest Days & Holidays	Art. 69–75	At least 1 paid rest day per 6 days of work; 12 mandatory public holidays.	If employee works on holiday, entitled to triple pay for that day.
Maternity Leave	Art. 170	6 weeks before and 6 weeks after childbirth, fully paid.	Can be adjusted if medically necessary.
Paternity Leave	Art. 132 (XXVII Bis)	5 working days with pay.	For birth or adoption of a child.

Why use MexInc to handle your Payroll and Human Resources Administration in Mexico?

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