Payroll in Mexico

In Mexico, salary must be paid at least every fifteen days for most employees, and at least weekly for manual work, so a monthly salary is normally paid in two fortnightly instalments. Here's the complete payroll cycle.

Payment frequency and timing

Payment intervals cannot exceed fifteen days for non-manual employees or one week for manual work. A monthly salary quote does not permit paying only once a month, so most employers pay on the 15th and the last working day.

For hourly workers, you can pay weekly or bi-weekly. Monthly remains the most common practice across all employment types.

Payment deadlines are strict. Late payments can result in penalties plus interest charges.

Mandatory 13th month payment (Aguinaldo)

Mexico requires all employers to pay aguinaldo, a mandatory 13th month bonus. It's equivalent to at least 15 days of salary.

You must pay aguinaldo by December 20th each year. Employees who worked less than a full year receive a prorated amount based on their service time.

The calculation is straightforward: monthly salary ÷ 30 days × 15 days = minimum aguinaldo amount. Many companies pay more than the minimum as a retention tool.

Holiday and vacation pay

Employees earn vacation pay based on their length of service, starting with 12 days after one year of employment. The entitlement rises by 2 days for each subsequent year up to 20 days at year five, then by 2 days for every five years of service.

Vacation premium is mandatory. You must pay an additional 25% premium on top of regular vacation pay. This means if an employee takes 6 vacation days, you pay for 7.5 days total.

Most companies pay vacation when it's taken. Some pay it in advance during popular vacation periods like Christmas or Easter.

Payment methods and requirements

Bank transfers are mandatory for all employees in Mexico. You can't pay salaries in cash except in very limited circumstances with government approval.

Employees must have Mexican bank accounts to receive their salaries. International companies often partner with local banks to help new hires open accounts.

All payments must be in Mexican pesos (MXN), even if your company operates in other currencies.

Payslip requirements

Every payslip must include specific information in Spanish:

• Employee's full name and RFC (tax ID)
• Employer's company name and RFC
• Pay period dates
• Gross salary breakdown
• All deductions (taxes, social security, other)
• Net pay amount
• Days worked and any overtime

Payslips must be delivered by the payment date. Late or incomplete payslips can trigger labor authority inspections and fines.

Think you just withhold federal tax? Mexico adds state taxes that catch many employers off guard.

Mexico's federal income tax uses progressive rates from 1.92% to 35%, and on top of that each state charges employers a payroll tax that varies by location. The good news? Mexico's tax system is straightforward once you know the brackets and deadlines.

Income tax brackets

Mexico uses annual brackets converted to monthly withholding. Here are the 2026 federal rates:

SAT's 2026 Annex 8 sets the withholding tariff for each payment period: 11 bands with marginal rates from 1.92% to 35%, each with its own fixed amount. Apply the tariff for the actual pay period, together with any employment subsidy, rather than a single rate on all pay.

Withholding requirements

You're responsible for calculating and withholding federal income tax from each paycheck. Use the monthly brackets above with Mexico's official tax tables from SAT.

File monthly withholding reports by the 17th of the following month. Miss this deadline and the SAT applies penalties.

Submit annual reconciliation (Declaración Anual) by April 30th for the previous tax year. This reconciles total withholdings against employees' actual tax liability.

Tax registration

Register for RFC (Registro Federal de Contribuyentes) through SAT before your first payroll. You'll need:

• Company incorporation documents
• Legal representative identification
• Proof of business address
• Bank account details

Processing takes 5-10 business days. You can't withhold taxes legally without this registration.

Special tax considerations

Non-resident employees face different withholding rates. Withholding for non-residents follows separate rules, so check the employee's residency before the first payroll.

Tax treaties reduce withholding for residents of treaty countries. Check the specific treaty and the employee's circumstances.

State payroll taxes are charged to the employer and vary by state. Check your specific state requirements.

Common tax mistakes

Using wrong tax tables - SAT updates tables annually. Using outdated brackets means incorrect withholding and penalties during audits.

Missing state tax obligations - Assuming only federal tax applies. Some states have income taxes that add to your withholding requirements.

Late monthly filings - The 17th deadline is firm. Late penalties compound monthly and trigger audit flags.

Incorrect non-resident treatment - Applying resident rates to non-residents or vice versa. This creates significant under or over-withholding issues.

Budget roughly 25% on top of salary for a professional-level hire: about 22% in federal contributions plus a state payroll tax of 2% to 4%. Lower salaries carry lower rates on the cesantía band, so the total is salary-dependent.

Contribution breakdown

Mexico splits social security costs between employers and employees, but you'll pay the larger share on most contributions.

*UMA (Unit of Measurement and Update) = MX$117.31 daily from 1 February 2026 **Risk insurance varies by industry classification

Total employer cost example

For a MX$60,000 monthly salary (top cesantía band, office risk class):

• Base salary: MX$60,000
• IMSS percentage components + fixed quota: about MX$3,970
• Cesantía y vejez (7.51%): about MX$4,510
• SAR retirement (2%): MX$1,200
• INFONAVIT (5%): MX$3,000
• Risk insurance (office class): about MX$320
• State payroll tax (3% example): MX$1,800
• Total monthly cost: about MX$74,800
• Cost multiplier: about 1.25

That is roughly MX$898,000 a year, before mandatory benefits like the 15-day aguinaldo and vacation premium, which you should budget separately.

Contribution caps and ceilings

Most contributions cap at 25 times the daily UMA: MX$2,932.75 daily, about MX$89,156 monthly, from 1 February 2026.

Once an employee's salary exceeds this threshold, your IMSS, retirement and INFONAVIT amounts stay fixed. A MX$150,000 salary carries the same capped contributions as one at MX$89,156, though the state payroll tax still applies to the full amount.

The risk insurance premium varies dramatically by industry. Manufacturing companies can pay up to 15.15%, while office-based businesses typically sit near the minimum, around 0.5%.

Registration requirements

Register with IMSS within five business days of hiring any employee. You'll need:

• Company tax registration (RFC)
• Employee's CURP and RFC
• Employment contract
• Medical examination results
• Workplace risk classification

INFONAVIT registration happens automatically through IMSS, but you must activate your employer account within 30 days.

Payment deadlines

Pay all contributions by the 17th of the following month. For December payroll, you have until January 17th.

Late payments trigger penalties plus surcharges. IMSS can freeze your bank accounts for unpaid contributions exceeding 90 days.

Submit monthly contribution reports through the IMSS SUA system by the same deadline. The system calculates exact amounts based on each employee's salary and days worked.

Mexico has 7 mandatory public holidays in 2026. Work on these days? Pay double.

But leave and benefits go way beyond holidays. Mexico's labor laws create specific payroll obligations that you need to calculate correctly. Miss the vacation premium or mess up maternity leave payments, and you'll face penalties.

Annual leave

Mexico requires at least 12 vacation days after the first year of service. That increases by 2 days each year up to 20 days at year five, then by 2 days every 5 years.

The tricky part? You must pay a vacation premium of 25% on top of regular vacation pay. So if an employee takes 12 days vacation at MX$500 daily salary, you pay MX$7,500 total (MX$6,000 + MX$1,500 premium).

Employees can carry over unused vacation for up to one year. When they leave, you must pay out all accrued vacation days plus the 25% premium.

Sick leave

Employees get unlimited sick leave, but payment splits between you and social security. For certified non-work illness, IMSS pays 60% of the last daily contribution salary from day 4, for up to 52 weeks. The ordinary scheme does not require you to pay salary for the first 3 days, though contracts can provide it.

You need a medical certificate from IMSS for absences longer than 3 days. No certificate means no social security payment - and you're not required to pay either.

This creates a payroll adjustment: deduct the IMSS payment from your regular salary calculation once the employee receives their social security benefit.

Parental leave

Maternity leave

Women get 84 days (12 weeks) of maternity leave at 100% pay. IMSS pays this directly to the employee, not through your payroll. But you still need to process the leave and ensure no salary payments during this period.

The leave splits as 42 days before birth and 42 days after, though employees can move up to 4 prenatal weeks to after the birth with medical authorisation.

Paternity leave

Men get 5 days of paternity leave at 100% pay. Unlike maternity leave, you pay this directly through payroll - there's no IMSS reimbursement.

Public holidays 2026

Work on mandatory holidays (January 1, May 1, September 16, December 25) requires triple pay - regular daily wage plus 200% premium. For moved holidays, you pay double - regular wage plus 100% premium.

Mandatory benefits affecting payroll

Aguinaldo (Christmas bonus)

You must pay at least 15 days of salary before December 20th each year. Calculate this as daily salary × 15, based on the employee's salary on December 20th.

Employees who worked less than a year get a proportional amount: (days worked ÷ 365) × 15 days of salary.

Profit sharing (PTU)

Companies with positive taxable income must distribute 10% of profits to employees by May 30th. The amount depends on salary and days worked during the previous year.

This creates a significant payroll event in Q2 that requires careful calculation and withholding of income tax on the distribution.

Employment contracts in Mexico must include specific salary breakdowns, work schedules, and benefit details or they're legally invalid. Miss these elements and labor authorities can fine you.

What monthly filings are required?

Tax and social security submissions

You'll submit three monthly reports through the SAT (tax authority) and IMSS (social security) portals by the 17th of each following month.

SUA system (IMSS portal) requires:

• Employee salary modifications
• New hires and terminations
• Monthly contribution payments

SAT portal needs:

• ISR (income tax) withholdings
• Monthly payroll summary (DIOT)
• Employer contribution calculations

Late tax filings and late IMSS reports both trigger penalties.

Payroll tax payments

Transfer actual tax and contribution amounts by the 17th through authorized banks or the online payment system. Unpaid amounts attract surcharges (recargos), plus inflation adjustments.

What annual reporting is needed?

Year-end reconciliation

Submit the annual tax return by March 31, 2027 for the 2026 tax year. This reconciles all monthly filings and calculates final employer obligations.

Employees receive their constancia de percepciones y retenciones (annual tax statement) by February 28, 2027. You must deliver these statements to all employees who worked during 2026, even if they left during the year.

Profit sharing calculations

Calculate and distribute PTU (profit sharing) by May 30, 2027 based on 2026 profits. Employees who worked at least 60 days during 2026 qualify for payments. The maximum individual payment is three months' salary or the average PTU paid by the company, whichever is lower.

Vacation premium verification

Annual audits check that employees received their prima vacacional (vacation bonus) equal to at least 25% of vacation pay. Document all vacation payments and bonuses paid throughout 2026.

What employee documentation is mandatory?

Employment contracts

Every employee needs a written contract within 28 days of starting work. Contracts must specify:

• Exact monthly salary and payment frequency
• Daily and weekly work schedules
• Vacation days and Christmas bonus amounts
• Job duties and workplace location

Payslip requirements

Monthly payslips must include detailed breakdowns of:

• Base salary and overtime payments
• All deductions with specific amounts
• Net pay calculations
• Year-to-date totals for taxes and contributions

Missing any required payslip element can result in fines.

Record retention

Keep all payroll records for five years from the last payment date. This includes contracts, payslips, time records, and tax documentation. Labor inspectors can request any document during this period.

Store records in Spanish or provide certified translations. Digital records are acceptable if they include electronic signatures and timestamps.

What are the penalty amounts?

Penalties apply for late filing, late payment and incorrect withholding. They are set by the SAT, IMSS and the labour authorities (STPS), so check the current schedule on its website before relying on a figure.

Which agencies oversee payroll compliance?

Primary regulatory bodies

SAT (Servicio de Administración Tributaria) handles all tax compliance through their online portal at sat.gob.mx. Register for your RFC tax ID and digital signature (FIEL) here.

IMSS (Instituto Mexicano del Seguro Social) manages social security through the SUA system at imss.gob.mx. All employee registrations and monthly filings happen through this platform.

STPS (Secretaría del Trabajo y Previsión Social) conducts labor inspections and enforces employment law compliance. They don't have online filings but investigate workplace violations.

Inspection frequency

IMSS audits focus on contribution accuracy and employee classification. SAT runs both desk audits and field audits.

Labor inspections typically occur after employee complaints or during random compliance checks in high-violation industries like manufacturing and retail.