Mexico is an attractive destination for international businesses, offering a growing economy, skilled workforce, and competitive labour costs. However, hiring and paying employees in Mexico involves navigating complex employment laws, payroll regulations, and cultural nuances. This guide provides an in-depth look at the essentials of hiring and paying employees in Mexico, including employment law, payroll systems, benefits, and best practices.
Employment law in Mexico
Mexican employment law is governed by the Federal Labour Law (Ley Federal del Trabajo), which establishes employee rights, employer obligations, and the terms of employment. Below are key aspects of Mexican employment law:
Contracts of employment
- Mandatory contracts: All employees must have a written employment contract outlining terms such as salary, role, working hours, and benefits.
- Types of contracts:
- Indefinite contracts: Default arrangement for most employees.
- Fixed-term contracts: Allowed for specific projects or temporary roles.
- Trial period contracts: For up to 30 days, extendable to 180 days for management or technical roles.
Working hours and overtime
- Standard workweek: 48 hours per week for daytime roles (6 days per week), with shorter hours for night work.
- Overtime regulations: Paid at 200% of the regular hourly rate for up to 9 hours weekly and 300% beyond that.
Termination and severance
- Termination must be for just cause under Mexican law, such as misconduct or non-performance.
- Severance pay: Includes 3 months’ salary, 12 days of salary for each year worked (if salary is below twice the minimum wage), and additional compensation for unused entitlements.
Payroll requirements in Mexico
Employers must adhere to specific payroll obligations, including accurate record-keeping, tax compliance, and timely payment of salaries. Below are critical payroll details:
Tax and social security contributions
- Income tax (ISR): Withheld from employee wages at progressive rates (up to 35% for high earners).
- Social security contributions: Shared between employer and employee, covering pensions, healthcare, and housing funds:
- Employer contributions: Approx. 25–30% of an employee’s salary.
- Employee contributions: Approx. 2.5% of their salary.
Payment frequency and methods
- Frequency: Employees must be paid at least fortnightly.
- Payment methods: Payments can be made via bank transfers, ensuring transparency and compliance with tax laws.
Payslips
Employers are required to provide payslips with clear details of:
- Gross salary
- Deductions (taxes and contributions)
- Net salary
- Any additional benefits or bonuses
Payroll process in Mexico
Managing payroll in Mexico involves several steps to ensure compliance with local laws and timely, accurate payment to employees. Here’s a breakdown of the payroll process:
1. Employee onboarding and documentation
- Collect and verify all necessary employee information:
- Full name, CURP (Clave Única de Registro de Población – Unique Population Registry Code).
- RFC (Registro Federal de Contribuyentes – Tax Identification Number).
- Social Security Number (NSS).
- Bank account details for salary deposits.
- Provide employees with a signed employment contract specifying terms, salary, and benefits.
2. Set up tax and social security registrations
- Register employees with the Mexican Social Security Institute (IMSS) and the National Workers’ Housing Fund Institute (INFONAVIT).
- Update your company’s records in the Mexican Tax Administration Service (SAT) to include new employees.
- Ensure employee tax categories and benefits are appropriately classified.
3. Track employee time and attendance
- Use a reliable system to record working hours, overtime, and absences, as these impact payroll calculations.
- Ensure compliance with maximum working hours (48 hours per week) and calculate overtime pay accurately.
4. Calculate gross pay
- Determine employees’ gross pay based on:
- Agreed salary (hourly, daily, or monthly).
- Overtime and additional allowances, such as meal or transport benefits.
- Any bonuses, such as the statutory Christmas bonus (Aguinaldo) or performance-related bonuses.
5. Deduct taxes and contributions
- Calculate statutory deductions, including:
- Income tax (ISR): Progressive tax rates depending on employee earnings.
- IMSS contributions: Covering healthcare, pensions, and risk insurance (approximately 25–30% employer portion, 2.5% employee portion).
- INFONAVIT contributions: For employee housing funds.
- Subtract other voluntary deductions (e.g., loans or benefits plans).
6. Generate payslips
- Create detailed payslips for each employee showing:
- Gross pay.
- Deductions for taxes, social security, and housing.
- Net salary.
- Provide payslips in compliance with local labour laws and ensure they are accessible to employees.
7. Distribute salaries
- Deposit net salaries directly into employees’ registered bank accounts.
- Payments must be made bi-weekly or monthly, as per the employment agreement.
8. Submit payroll taxes and contributions
- Pay payroll taxes to the SAT by the 17th day of the following month.
- Submit employer and employee social security contributions to IMSS and INFONAVIT within their respective deadlines.
9. Maintain payroll records
- Retain all payroll records, including contracts, payslips, and tax submissions, for at least five years, as required by Mexican law.
- Ensure records are easily accessible for audits or inspections.
10. Comply with audits and reporting requirements
- Respond promptly to audits or information requests from the SAT or IMSS.
- Submit annual payroll reports, including profit-sharing calculations, if applicable.
Employee benefits in Mexico
In addition to competitive salaries, employers are expected to provide statutory and optional benefits to attract and retain talent.
Statutory benefits
- Paid holidays: Employees are entitled to:
- 6 days after the first year of employment.
- An additional 2 days every subsequent year (up to 12 days), increasing by 2 days every 5 years.
- Public holidays: 8 mandatory holidays annually.
- Christmas bonus (Aguinaldo): Employers must pay at least 15 days’ salary before 20th December each year.
- Profit-sharing: Companies are required to distribute 10% of annual profits to employees.
- Maternity and paternity leave:
- Maternity leave: 12 weeks (6 weeks before and after birth).
- Paternity leave: 5 working days.
Optional benefits
- Private healthcare plans
- Meal vouchers
- Transportation allowances
- Life insurance
Hiring employees in Mexico
The recruitment process in Mexico typically involves several steps:
1. Posting a job
Leverage local job boards (e.g., OCCMundial, Computrabajo) or global platforms like LinkedIn.
2. Screening and interviews
Incorporate Spanish-language proficiency assessments where relevant and consider cultural alignment.
3. Background checks
Verify education, previous employment, and references while complying with data privacy regulations.
4. Onboarding
Ensure employees receive clear documentation of their role, salary, benefits, and workplace policies.
Best practices for paying employees in Mexico
To simplify payroll management and ensure compliance, consider the following best practices:
1. Use local payroll providers
Outsourcing payroll to a Mexican payroll provider or partnering with a global Employer of Record (EOR) ensures accurate calculations, compliance, and cost efficiency.
2. Implement technology
Adopt payroll software tailored to Mexican laws, offering features like payslip generation, tax compliance, and automated calculations.
3. Stay updated on regulations
Monitor changes in labour and tax laws to avoid penalties and ensure proper employee benefits.
Common challenges and how to overcome them
1. Navigating labour laws
- Challenge: Complexity of the Federal Labour Law.
- Solution: Work with legal counsel or HR consultants familiar with Mexican regulations.
2. Managing bilingual communication
- Challenge: Language barriers during recruitment or onboarding.
- Solution: Hire bilingual HR personnel and translate key documents into Spanish.
3. Compliance with tax regulations
- Challenge: Frequent updates to tax laws.
- Solution: Partner with tax specialists or payroll providers to stay compliant.
Conclusion
Hiring and paying employees in Mexico requires a strong understanding of the country’s labour laws, payroll systems, and employee expectations.
By following this guide, businesses can streamline their operations, ensure compliance, and foster a productive and satisfied workforce.
For companies unsure about navigating these complexities, partnering with local experts or payroll providers is a reliable solution.
FAQ
Yes, foreign employees must have a valid work visa or residency permit to be employed in Mexico. Employers are also required to ensure that no more than 10% of their workforce consists of foreign workers, with certain exceptions for specialised roles.
Employment contracts in Mexico must be written in Spanish to be legally enforceable. If a bilingual contract is used, the Spanish version will take precedence in case of disputes.
Employers are obligated to provide the necessary training and skills development to their employees to meet job requirements. This ensures compliance with the Federal Labour Law and supports workplace productivity.
As of 2025, the general minimum wage in Mexico is region-specific. For the northern border zone, the rate is higher than in other regions. Employers should verify the current rates as they are reviewed annually by the National Minimum Wage Commission.
Mexico has robust data privacy regulations under the Federal Law on Protection of Personal Data Held by Private Parties. Employers must obtain employee consent to collect and process personal data and ensure data security.
Penalties can include fines, legal action, and reputational damage. Employers may face fines for late tax submissions, failure to provide benefits, or improper employee classifications. Severe violations could lead to business suspension.
Yes, remote workers are covered by the Federal Labour Law, including regulations on contracts, benefits, and working conditions. Employers must ensure compliance even when employees work from home or other remote locations.
Profit-sharing is calculated as 10% of the company’s taxable income for the previous year. Companies are exempt if they are newly established or meet certain size and industry criteria.
Employees in Mexico must be paid in Mexican pesos (MXN) to comply with local laws. Employers can use foreign currency for additional bonuses or allowances if stated in the contract, but the primary salary must be in pesos.
Disputes are typically handled through the Conciliation and Arbitration Boards (Juntas de Conciliación y Arbitraje). Both parties are encouraged to settle disputes through mediation before pursuing formal arbitration or legal action.
While the IMSS provides healthcare for employees, many companies offer private healthcare plans as an additional benefit to attract and retain top talent, especially in competitive industries.
Temporary or seasonal workers can be hired using fixed-term contracts, and payroll must include the same benefits proportionally, such as bonuses and holiday pay, based on the duration of their employment. Employers must also register them with the IMSS.
Yes, certain industries, such as construction, agriculture, and transport, have additional labour regulations. These may include specific safety protocols, working hours, or collective bargaining agreements.
Unions play a significant role in Mexico, particularly in industries like manufacturing. Employers may need to negotiate collective bargaining agreements and ensure compliance with unionised labour terms.
Payroll must comply with both federal and state-level tax and labour laws. Employers should ensure proper withholding and reporting for the specific state where the employee works or resides.