Payroll in Mexico: A Comprehensive Guide for 2026

Introduction

Payroll in Mexico is calculated on integrated salary, which combines the daily wage with the value of benefits granted in cash or in kind, and reported to three separate authorities: the tax administration (SAT) for income tax, the Mexican Social Security Institute (IMSS) for social security, and the national housing fund (INFONAVIT) for housing contributions. Employers withhold income tax and the employee share of social security at source, then pay their own share monthly.

The harder part is that the rates and the rules keep changing. The minimum wage is reset every January. A 2026 reform steps the ordinary workweek down in annual stages, and salaries cannot be cut to match, so the same pay buys fewer hours each year. Electronic time registration arrives with penalties attached. A cost model built on this year's figures dates quickly.

In this guide, we walk through the payroll process in Mexico, compliance duties, statutory pay and leave, 2026 tax and contribution rates, termination and severance, and how to outsource payroll in Mexico.

What is the payroll process in Mexico?

If you want to hire workers in Mexico, you have to follow the guidelines for payroll processing. Although not the same, the payroll process in Mexico is similar to what you would do in most other countries, with one difference that shapes everything else: a salary payment is only complete once a digital payroll receipt has been issued and validated by the tax authority. You'll have to:

• Collect employee information and register the hire: When you hire a new employee or contractor, you must collect the necessary information from them. This can include personal information, such as addresses and tax numbers, or additional information required by local laws. In Mexico, the process goes beyond data collection, as employers must register employees with the Mexican Social Security Institute (IMSS) before payroll can be processed.
• Calculate gross pay: Gross pay is what you owe workers for the hours worked at the hourly rate you said you'd pay. With salaried employees, this number is usually the same every time. Base pay is not the only figure that matters. Social security contributions and severance are both calculated on the integrated salary, which is composed of the daily wage plus the value of the benefits granted in cash or kind to the employee throughout the last 12 months of employment. Bonuses, vacation premium, and benefits in kind all pull that figure above base salary.
• Calculate net pay: The net pay you owe workers is the gross pay minus any taxes or other deductions, such as benefits. This is the amount you will pay them. Two deductions are statutory: income tax (ISR) and the employee share of social security, which is withheld at source alongside the employer's own contribution.
• Pay your workers: Once you have determined the net pay, you have to process payroll and pay your workers. Most payments are digital through direct deposit, but submitting checks may be a requirement in some locations. Transferring the money is only half of the step. Issuing a digital payroll receipt, the CFDI de nómina (Digital Tax Receipt over the Internet), is an obligation for taxpayers who make salary payments to their workers, and the receipt has to be validated by the tax authority before the payment counts as properly documented. The format is actively maintained: SAT published modifications to version 1.2 of the payroll CFDI that took effect on 1 January 2026.
• File taxes with the proper authorities: Businesses are responsible for filing taxes, social security, and other taxes withheld to the proper authorities. In Mexico, that means three separate bodies rather than one: the tax administration (SAT) for income tax, IMSS for social security, and the national housing fund (INFONAVIT) for housing contributions.

What is payroll compliance in Mexico?

Typically, payroll is bi-monthly, with employees paid on the 15th and the last day of the month. Compliance runs on a separate rhythm from the pay cycle, and across three authorities rather than one.

All three work to the same monthly date. Social security contributions accrue monthly in arrears, and the employer has to determine the amounts and pay them no later than the 17th of the immediately following month.

The calculation obligation is separate from the payment obligation, so it stands even where the payment itself is not made in time. Employers must pay into the national housing fund monthly, and that runs on the same cycle and the same date. Income tax withheld from salaries is remitted on the 17th of the following month as well.

To pay employees in Mexico, a business must register with the social security office and have a tax identification card. The clock is tight on the employee side: employers must register themselves, enrol their workers, and report joiners, leavers, and salary changes within no more than five working days. The same five-day window applies to the housing fund.

Two duties apply to every run:

• The employer acts as withholding agent, since it must deduct the employee's share when paying salary, and income tax on salary is likewise withheld at source.
• Payroll records, including the payroll registers themselves, have to be kept for the five years following their date.

Missing a deadline compounds. Where contributions are not paid on time, the employer owes inflation adjustment and surcharges from the date the debt became due, without prejudice to any applicable penalties. The charge runs from the due date rather than from the day the authority notices.

Where a resident individual receives a salary from a non-resident employer, Mexican law requires the filing of personal monthly provisional tax returns to pay an amount equal to the tax withholding applicable to those wages, generally due by the 17th day of the following month.

Paying a Mexican employee from abroad moves the filing burden onto the employee rather than removing it.

For an employer running the cycle in-country, the load is the cadence. Three authorities reporting to one monthly date, a five working day window for every joiner, leaver, and salary change, a digital payroll receipt validated before any payment counts as documented, and five years of records to hold.

Skuad helps teams carry that reporting load through a single global payroll platform.

Here is what Skuad helps with:

• Supports payroll processing in 70+ currencies, with tax withholding and statutory deductions applied at the point of calculation
• Helps generate and issue payslips for every pay cycle across supported markets
• Facilitates statutory contribution workflows across supported markets, covering applicable social insurance and pension obligations
• Assists with payroll record keeping and year-end documentation across supported markets
• Helps payroll teams stay aligned with local filing requirements as those requirements change across 160+ countries

What are the main payroll components in Mexico?

Below are the components that make up a Mexican payroll calculation. Several are statutory costs added on top of base salary rather than deductions from it, so they belong in any budget for a Mexican hire.

Mexico's minimum wage

The national minimum wage is (Mexican pesos) MXN 315.04 per day, and MXN 440.87 per day in the Northern Border Free Zone, both effective from 1 January 2026. Minimum wages do differ based on location, industry, and job title. Rates reset every January, and the general rate rose 13% for 2026, so a cost model built on last year's figure will understate the floor.

Working hours in Mexico

Mexico labor laws have three sets of guidelines about working hours. In general, the maximum workweek is 48 hours, capped at 8 hours per day. But it's also broken down by shifts.

• Day shift between 6 am and 8 pm is 48 hours a week
• Night shift between 8 pm and 6 am is 42 hours a week
• Mixed shifts are 45 hours per week

Daily limits sit underneath those weekly figures at eight hours for a day shift, seven for a night shift, and seven and a half for a mixed shift, with one paid rest day for every six days worked.

The weekly cap is on a timer. A reform published on 1 May 2026 sets the maximum ordinary workweek at 40 hours, reached in annual steps from 1 January of each year.

Two consequences follow for cost. The reduction may never reduce salaries or benefits, so the same pay buys fewer ordinary hours each year.

The same reform also requires employers to register each worker's start and finish times electronically, backed by a fine of 250 to 5,000 times the daily UMA value, with the detailed rules taking effect on 1 January 2027.

Overtime in Mexico

The first 9 hours of overtime are paid at 200% of the regular wage. Any hours past 9 are paid at 300% of regular wages. In statutory terms, that is 100% above the ordinary hourly rate within the permitted limit and 200% above it beyond, and ordinary plus overtime hours may never exceed twelve in a day. Sunday work carries a separate premium of at least 25% on top of the ordinary daily rate.

Annual leave

Employees are entitled to 12 days of paid annual leave after one year of service, rising by two days for each subsequent year to a maximum of 20 days after five years, and by two days every five years beyond that. Leave costs more than the days themselves, since employees are also entitled to a vacation bonus of at least 25% of the salary corresponding to the vacation days.

Aguinaldo

The annual Christmas bonus is a statutory payroll cost rather than a discretionary one. Employees are entitled to at least 15 days' salary, payable no later than 20 December each year, prorated where the employee has not worked the full year.

Sick leave

Employees missing work due to work injury or illness are entitled to 100% of pay, calculated on the salary they were contributing to when the risk occurred. Employees with other illnesses are entitled to 52 weeks of paid leave at 60% of regular wages, more precisely 60% of the last daily contribution salary, paid by social security from the fourth day of incapacity and extendable by a further 26 weeks.

Parental leave

Female employees are eligible for 12 weeks of paid maternity leave. The employee must take 6 weeks before the birth and 6 after.

Payment comes from social security rather than the employer: the insured employee receives a subsidy equal to 100% of her last daily contribution salary across the 42 days before and the 42 days after the birth, and drawing that subsidy relieves the employer of the obligation to pay full salary.

One exception matters for budgeting: where the employee has not met the contribution requirement, the full salary falls to the employer.

Female employees can also get 6 weeks of paid leave following the adoption of a child, running from the day they receive the child. Adoption leave carries no social security subsidy, so that six weeks is an employer cost. Fathers receive a mandatory paid leave of 5 days, on the birth or the adoption of a child.

What are the Mexico public holidays in 2026?

In Mexico, the public holidays that carry a pay entitlement are the statutory rest days set out in federal labour law. Employees receive full pay for these days without working them, and anyone who does work one is entitled to a double salary for the work on top of the salary already due for the rest day, which comes to triple pay in total. Seven statutory holidays fall in 2026.

What are the payroll taxes in Mexico?

Employers must calculate and remit taxes for themselves and their employees, and ensure they are correct. Payroll taxes break down into three parts: income tax withheld from the employee, social security contributions paid by both the employer and the employee, and employer-only costs that include the housing fund, a state payroll tax, and the statutory profit share.

What are the income tax rates in Mexico?

Income tax works on a fixed amount per band plus a marginal rate on the excess, so both columns are needed to calculate a deduction. The following rates apply to resident individuals for calendar year 2026:

Non-resident employees follow a separate and simpler scale. The first MXN 125,900 of employment income received in a 12-month floating period is exempt, then 15% applies up to MXN 1,000,000, and 30% above that.

How much are social security contributions in Mexico?

Contributions run in both directions, and neither side pays a flat percentage. Employee contributions are withheld at source; the employer also contributes, and both are calculated at varying rates subject to limits based on multiples of the UMA (Unit of Measurement and Update), the inflation-linked unit Mexico uses for statutory thresholds.

What other payroll costs do employers carry in Mexico?

Three employer-only costs run alongside social security.

• Housing fund: Employers contribute 5% of the employee's salary to the national housing fund, paid on the same monthly cycle as social security.
• State payroll tax: This one is easy to miss, because it is not federal. Most Mexican states levy a relatively low rate of tax on salaries, in most cases payable by the employer, and Mexico City imposes a 4% payroll tax that is a tax-deductible expense for the employer. The rate depends on where the employee works, so a distributed team can carry several different rates.
• Statutory profit share: Employees have a right to share in company profits, and the share is 10%, applied to taxable income determined under the income tax law. Individual exposure is bounded: the payment is capped at either three months of the employee's base salary or the average profit share that employee received over the prior three years, whichever is more favourable to the employee. Payment falls due by 30 May for companies and 29 June for individual employers.

Employer social security capped at MXN 227,286 a year for a low-risk company, 5% of salary to the housing fund, a state payroll tax that changes with the employee's work location, and a 10% profit share all land above base pay. Social security and severance are both calculated on integrated salary, so benefits granted in cash or in kind pull the base for those figures above the number on the offer letter.

Skuad's employee cost calculator helps you model that gap before an offer goes out. It estimates total employment cost across 160+ countries, covering gross salary and applicable employer contributions, and supports cost comparison between markets in 70+ currencies while the salary number is still moving.

Estimate the cost of a Mexico hire.

What are the termination and severance rules in Mexico?

Mexico has no at-will dismissal. Ending employment is either for a cause the employer can prove, which carries no severance, or without cause, which does. There is a third route, collective redundancy, and that requires court authorisation.

When can an employer dismiss without severance in Mexico?

Employers must pay severance pay if an employee is terminated without a reasonable cause. The acceptable reasons include:

• False statements about qualifications
• Policy breaches
• Vandalism
• Sexual harassment
• Alcoholism at the workplace
• Conveying company secrets
• Not complying with safety procedures
• More than three unexcused absences in 30 days

Having a cause is not enough on its own. Summary dismissals are not allowed under Mexican law, and failure to provide the corresponding notice to the employee will lead to the dismissal being considered as a dismissal without just cause. A procedural slip converts a defensible dismissal into an expensive one.

How much is severance pay in Mexico?

Where an employer terminates an employee without a justified cause, the employee is entitled to severance pay, built from these elements:

Severance must be calculated on the employee's integrated salary, which includes base salary and also all benefits and payments, including those in kind, granted by law or contract. A package built on base salary alone will understate the liability.

The 20-day element is conditional in law and routine in practice. Its statutory trigger is where reinstatement is ordered, and the employer refuses to comply, so a negotiated exit may settle without it.

Contesting a dismissal carries its own exposure. A wrongfully terminated employee can claim statutory severance, or reinstatement plus back wages, which are capped at one year, and where litigation runs beyond 12 months the employee can claim 2% monthly interest on a 15-month salary base.

Collective redundancy works differently. It requires authorisation from the Labour Board, and once approved, the package is three months of salary without the 20 days of daily wage per worked year.

What is owed on every termination in Mexico?

Two payments exist, and they are not alternatives. Severance is commonly referred to as liquidación, while accrued but unpaid benefits are referred to as finiquito.

• The finiquito is owed whenever employment ends, including on resignation and on dismissal for cause, and covers unpaid wages, unused vacation with its premium, and the proportional Christmas bonus.
• The liquidación is additional and arises only where the termination was without justified cause.

For budgeting, that means a dismissal for proven cause still costs the finiquito, and a dismissal without cause costs both.

Skuad helps reduce that exposure through the Shield platform, a compliance layer covering employer obligations across supported markets.

Here is what Skuad helps with:

• Assists with termination and offboarding aligned with local labor requirements across supported markets
• Helps calculate notice periods and severance in line with local statutory minimums
• Supports employment contract generation across 160+ countries, so terms are documented from the start
• Helps flag worker classification risk before it turns into a compliance issue
• Helps keep employment records and documentation in order across the full employment lifecycle

How to outsource payroll in Mexico?

Outsourcing payroll services in Mexico can make your job simple and allow for flexible hiring. The question underneath it is who carries the obligations set out above, since they follow the legal employer rather than whoever runs the payroll.

• The first option is in-house payroll through a Mexican entity: You incorporate, register with all three authorities, and build a team to run the monthly cycle and the digital payroll receipts. Full control, and the slowest and most expensive route to a first hire, since every registration has to exist before anyone can be paid.
• The second option is remote payroll: Here, your parent company pays the Mexican employee from outside Mexico. Cheaper to start, and it moves an obligation onto the employee rather than removing one. Where a resident individual receives a salary from a non-resident employer, Mexican law requires the filing of personal monthly provisional tax returns to pay an amount equal to the tax withholding applicable to those wages, generally due by the 17th day of the following month. Your new hire inherits a monthly filing duty.
• The third option is a Mexican payroll bureau: They know the filing calendar, the receipt format, and the three-authority split. What stays with you is the employment relationship and everything priced into it, from employer social security and the 5% housing fund through to three months of integrated salary plus a seniority premium if the relationship ends without cause. A bureau processes the payroll. It does not become the employer.

All three routes leave the obligations where they started. The entity, the registration with each authority, the monthly filings, and the employer-side costs stay with your business, and so does the severance exposure if the relationship ends without cause.

A fourth option moves the employment relationship itself. Skuad acts as the legal employer across 160+ countries, so your company can hire, onboard, and pay people without setting up a local entity.

Here is what Skuad helps with:

• Supports employment contract generation across 160+ countries, aligned with local labor laws and statutory requirements
• Supports payroll processing in 70+ currencies, with tax withholding and statutory deductions
• Facilitates statutory contribution workflows across supported markets, covering applicable social insurance and pension obligations
• Helps administer statutory benefits, paid leave, and parental entitlements in line with local requirements
• Assists with termination and offboarding, including notice periods and severance calculations as required locally
• Supports work permit and visa applications for foreign nationals joining your team

Get the full employment picture beyond payroll in Skuad's Mexico hiring guide.

Start running payroll in Mexico the right way

Payroll in Mexico is only complete once the paperwork behind each payment is in order, and the obligations behind it keep running while a team is hiring, restructuring, or offboarding.

Skuad supports the operational side of employing people internationally, covering employment contracts, payroll processing in 70+ currencies, statutory contribution workflows, benefits administration, and offboarding, all from one platform.

Companies across SaaS, manufacturing, logistics, and technology use Skuad to support hiring in new markets and to keep payroll operations in one place as headcount grows across 160+ countries.

Book a demo to see how Skuad supports payroll and employment across 160+ countries.

FAQs

1. How does payroll in Mexico work?

Payroll in Mexico is calculated on integrated salary, the daily wage plus benefits in cash or kind, and reported to three authorities: SAT for income tax, IMSS for social security, and INFONAVIT for housing. A payment only counts once a digital CFDI receipt is validated by the tax authority.

2. What taxes and contributions do employers withhold for Mexican payroll?

Employers withhold income tax (ISR) and the employee share of social security at source, then pay their own IMSS share, a 5% housing fund contribution, and a state payroll tax that varies by location. Most contributions are remitted monthly, generally by the 17th of the following month.

3. What is integrated salary and why does it matter for payroll in Mexico?

Integrated salary combines the daily wage with the value of benefits granted in cash or kind over the prior twelve months. It matters because social security contributions and severance are both calculated on it, so bonuses, the vacation premium, and benefits pull the base above base salary.

4. What statutory benefits must Mexican payroll include?

Beyond salary, payroll must fund the aguinaldo, a Christmas bonus of at least 15 days' salary due by 20 December, a vacation premium of at least 25% on annual leave days, and the annual statutory profit share of 10%. These are legal costs, not discretionary ones.

5. What does it cost to end employment on Mexican payroll?

The finiquito, covering unpaid wages, unused vacation with premium, and the proportional Christmas bonus, is owed on every exit, including resignation. A dismissal without justified cause adds the liquidación: three months of integrated salary, a seniority premium, and 20 days per year of service. Both are calculated on integrated salary.

6. Can a company run Mexican payroll from abroad without a local entity?

Running payroll directly generally requires a Mexican entity registered with SAT, IMSS, and INFONAVIT. Paying an employee from abroad does not remove the burden; it shifts a monthly provisional tax filing onto the employee. An Employer of Record becomes the legal employer, which moves those obligations off your company.