Doing business in a foreign country has its challenges and navigating the payroll laws can often seem daunting and confusing. We have outlined some of the key topics that business owners should be aware of when it comes to the payroll and payroll taxes in Mexico.
Registering Your Business & Your Employees
Mexico labor laws offer employees a variety of social benefits, including social security, housing, retirement savings, and more. It is important that a company not only register itself with the appropriate government agencies but that it correctly registers each employee. The result of not registering employees or incorrectly registering employees? Extremely costly fines.
Main Financial and Tax Authorities in Mexico
Let’s look at the authorities that you may have interaction with as an employer in Mexico:
- Secretaria de Hacienda y Crédito Público (Ministry of Finance and Public Credit) SHCP or Hacienda, as it is known, has supervision and regulation responsibilities of Mexico’s public and private financial services
- Servicio de Administración Tributaria (Tax Administration Service) SAT is the federal tax authority that collects taxes from corporations and individuals
- Instituto Mexicano del Seguro Social (Mexican Institute of Social Security) IMSS is a federal authority which provides public health services, pension, and social security throughout the country
- Instituto del Fondo Nacional de la Vivienda para los Trabajadores (Workers’ National Housing Fund Institute) INFONAVIT is a federal authority which requires employers to withhold a portion of an employee’s salary for housing
- Instituto del Fondo Nacional para el Consumo de los Trabajadores (Institute of the National Fund for the Workers’ Consumption) FONACOT is a federal organization that allows laborers to access credit for the purpose of purchasing durable goods and services
- Comisión Nacional del Sistema de Ahorro para el Retiro (Pension Saving System) CONSAR is the pension system available for employees in Mexico. Savings accounts with contributions from the employer, the federal government, and the employee are managed by CONSAR
Payroll & Payroll Taxes in Mexico: Understanding How It Works
Generally, Mexican employees are paid on the 15th and 30th of each month. Pay day is referred to as quincena and employees are paid for all seven days of the week, regardless of the number of days they worked. Legally, workers can work between 40 to 48 hours per week, and there are laws regulating overtime, and number of days per week they can work. They must be given at least one day off per week.
An employer is required to withhold all taxes on behalf of the employee. This includes (but is not limited to) the following:
- Federal income tax
- State payroll tax
- IMSS (social security & healthcare)
- INFONAVIT (housing) & SAR (savings)
Additional Salary-Based Considerations
Mexico’s labor laws are designed to ensure that employees are protected financially and are able to share in the company’s success that they have helped ensure. These laws are very strict and companies who do not manage their payroll appropriately will find themselves on the receiving end of some very hefty fines.
- Employee resignation or termination calculations: Employees are entitled to compensation when they resign or are terminated. Employees will receive a percentage of their salary. The percentage varies based on whether their leaving was voluntary or involuntary and the length of time employed.
- Year-end Bonus: Known as aguinaldo, every employee is entitled to this bonus. It is based on the amount of time they have been employed. Any employee who has been with the company for a year or more is entitled to 15 days pay as their year-end bonus.
- Employee Profit Sharing: Paid once a year after the employer has filed their annual tax return. Payment to employees must be made between April 1 and May 31.
- Vacation Bonus: Employees are entitled to 25% of their daily salary when they use a paid vacation day.
There are many considerations for an employer when it comes to payroll and payroll taxes. It is very easy to make even the smallest errors that could result in significant fines. We highly recommend hiring experts in payroll services to ensure you are appropriately protecting your employees and your company.
Our experienced team at Mextax can assist you with everything from registering your company and your employees with SAT and IMSS to completing all the appropriate withholding calculations monthly and bi-monthly. Contact us today for a consultation.
