Things You Need to Know About Payroll in Mexico

Mexico has one of the largest economies in Latin America, with a population of 128 million. The country’s rich culture and heritage have attracted numerous businesses worldwide.

If you are establishing a business in Mexico, you can hire a diverse workforce to work for you.

Before hiring employees in Mexico, you must first set up a payroll. The Mexico payroll must adhere to all national rules and regulations. This article will go over everything you need to know about payroll in Mexico.

Quick facts about Mexico

Mexico’s powerful university system makes it one of the best places to recruit developers, marketers, and other knowledge workers.

Its colorful diversity has drawn businesses worldwide to serve customers with varying product and service needs. If you run a business in Mexico, you must have a standard payroll process.

The country provides several tax breaks to businesses that are expanding into Mexico. Mexico has also signed the Northern American Free Trade Agreement (NAFTA) with the United States and Canada, which aims to eliminate trade barriers between the three countries.

Salary Structure Elements in Mexico

The Mexican salary structure consists of several components. Among these are:

CTC

CTC refers to the total cost of all payroll-related items such as gross compensation, net salary, basic pay, allowances, and other deductions.

It differs from cash payments. The CTC includes cash components, taxes the employee must pay, and any benefits credited to the employee.

Gross Salary

An employee’s gross salary is their pay before any deductions or contributions. An employee’s gross salary includes base pay, bonuses, and other benefits.

Net Salary

It is an employee’s take-home pay after deductions. Deductions are applied to the net salary amount according to company policies.

Basic salary

The basic salary accounts for 35-50% of the gross compensation. It is computed before any increase or decrease (bonus, overtime, etc.).

Employee designation governs operations in the organization and sector.

Allowances

Employees are entitled to several benefits throughout their employment. Each company has its own set of rules when it comes to allowances. The taxation of benefits is highly subjective. Among the standard benefits provided by the company are

• Meal allowance
• Medical allowance
• allowance
• House allowance
• Transport

What are the Mexican Payroll Options for Businesses?

The following are the Mexican payroll options for Businesses.

1. Remote payroll

Remote payroll in Mexico is when a non-resident foreign company pays a resident employee in Mexico. It applies to both domestic and foreign workers.

A non-resident company can use a fully outsourced service like a GEO or PEO to employ and pay its employees (both local and foreign) in Mexico.

2. Internal payroll

Your affiliate can handle payroll, which is especially useful if your company plans to expand into Mexico. It necessitates the hiring of dedicated human resources personnel who are familiar with Mexican labor and compliance laws.

3. Mexico payroll processing company

Working with a Mexican payroll company will help you process your payroll, but not with compliance.

4. Mexico payroll outsourcing

Working with Bradford Jacobs, on the other hand, eliminates all concerns. We can handle payroll and compliance for all of your employees in Mexico.

We take care of the paperwork, so you can focus on what you do best.

How is payroll calculated in Mexico?

Payroll calculation in Mexico is primarily determined by the employee’s salary structure and job type, such as full-time, part-time, and so on.

As a result, it is critical to establish payroll in Mexico while recruiting qualified personnel. The gross salary and contributions are part of the overall payroll.

The total amount an employee earns after providing services to the company, including net pay and any other contributions the employee must make, is referred to as “gross salary.”

The net salary is the takeaway salary after deductions such as social assistance and taxes. The following deductions may be made from an employee’s gross salary, depending on the company:

Income tax

Mexico has a progressive tax system in which the tax rate is directly proportional to the employee’s income. The following rates apply to income taxes:

• 0 – 5,952.84 pesos – 1.92%
• 5,952.85 – 50,524.92 pesos – 6.40%
• 50,524.93 – 88,792.04 pesos– 10.88%
• 88,793.05 – 103,218 pesos – 16%
• 103,218.01 – 123,580.20 pesos – 17.92%
• 123,580.21 – 249,243.48 pesos – 21.36%
• 249,243.49 – 392,841.96 pesos- 23.52%
• 392,841.97 – 750,000 pesos – 30%
• 750,000.01 – 1,000,000 pesos – 32%
• 1,000,000.01 – 3,000,000 pesos – 34%
• Above 3,000,000.01 pesos- 35%

Tax rates in Mexico can reach 35%.

Employee social security

Employees must contribute 1.65% to Social Security. Contributions to unemployment, old-age insurance, and life and disability insurance are all included.

13th salary

Mexico requires a 13th-month payment. It is a bonus payment made by the 20th of December. The salary is calculated as the employee’s salary divided by at least 15 working days.

Payroll tax

Unlike in other countries, each state in Mexico has a payroll tax. The rate is between 1 and 3% of the salary. The employer withholds the amount and remits it to the appropriate authorities in one lump sum.

Employers also contribute to their employees’ social security. Employers must contribute 7.58% of the employee’s salary. Pensions, maternity and health insurance, occupational risk, daycare, disability, life insurance, unemployment, and old-age insurance, are all covered.

When setting up the Mexican payroll process, you must follow Mexican federal laws that define minimum wages, mandatory deductions, etc. When making employee payments, you must also keep a payroll record.