Payroll and Benefits Guide Mexico
Last updated: Jul 24, 2025
Contribution
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Employer Payroll Contributions
|
|
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24.00%-38.00%
|
Social Security (IMSS), this includes Retirement and National Housing Fund (maximum annual contribution 234,199.80 MXN)
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| up to 3.00% | State Payroll Tax |
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27.00%-41.00%
|
Total Employment Cost
|
|
Employee Payroll Contributions
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| 10.00-30.00% | IMSS (Social Security) are influenced by various factors, such as minimum wage, UMA, the worker’s age, industry, number of working days per month, fringe benefits, and the location of the employer or the worker’s residence. Typically, the deduction range varies between 10% to 30%. |
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1.125%
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Retirement/Old Age Insurance
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10.00%-31.125%
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Total Employee Cost
|
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Employee Income Tax
|
|
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1.92%
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Up to 8,952.49
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6.40%
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8,592.50 – 75,984.55
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10.88%
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75,984.56 – 133,536.07
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16.00%
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133,536.08 – 155,229.81
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17.92%
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155,229.81 – 185,852.57
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21.36%
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185,852.58 – 374,837.88
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23.52%
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374,837.89 – 590,795.99
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30.00%
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590,796.00 – 1,127,926.84
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32.00%
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1,127,926.85 – 1,503,902.46
|
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34.00%
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1,503,902.47 – 4,511,707.37
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35.00%
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Over 4,511,707.38
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Profit Sharing
Companies must divide 10% of profits equally amongst all employees as profit sharing.
However, in order to be eligible, an employee must have worked for the business for at least 60 days during the preceding fiscal year.
For active employees, the profit sharing is paid every year in May.
Employer taxes
Employee taxes
Minimum Wage
General
As of January 1, 2026, the national minimum wage in Mexico is 315.04 MXN per day and the New UMA value is 117.31 MXN. Find out more here.
The Northern Border Zone has a different minimum wage of 440.87 MXN per day; the Border zone is a defined set of municipalities in Mexican states bordering the USA.
MINIMUM WAGE (PER MONTH)
Payroll
Payroll Cycle
The payroll cycle is semi-monthly, and employees are generally paid on the 15th and the last day of each month.
13th Salary
A 13th-month salary payment is mandatory in Mexico; this is a bonus payment paid by December 20th (Aguinaldo). The Aguinaldo is calculated as 15 working days of salary, plus an allowance, based on a 365-day year. The 13th salary is accrued as of the first day of employment.
Authority Payments
|
Authority Payment |
Paid To |
Due Date |
Method |
|
Social Security |
Instituto Mexicano del Seguro Social (IMSS) |
17th of the following month |
Local account owned by client & overseas account under the Mexican entity name |
|
Housing |
Instituto del Fondo Nacional de la Vivienda para los Trabajadores (INFONAVIT) |
17th of the following each two months |
Local account owned by client & overseas account under the Mexican entity name |
|
State tax |
Gobierno del estado |
17th of the following month |
Local account owned by client & overseas account under the Mexican entity name |
Working Hours
General
Regular working hours are from Monday trough Saturday not exceeding 48 hours a week.
- Day shifts may comprise 48 hours per week (between 6 am to 8 pm)
- Night shifts may comprise 42 hours per week (between 8 pm to 6 am)
- Mixed shifts may comprise 45 hours per week
- The maximum weekly and daily working hours can differ as stipulated in employment contract/collective bargaining agreements
Overtime
The maximum legal working hours depend on the shift classification (LFT Articles 60–61):
| Shift Type | Time Period | Maximum Daily Limit | Maximum Weekly Limit |
| Day Shift (Diurna) | 6:00 AM to 8:00 PM | 8 hours | 48 hours |
| Night Shift (Nocturna) | 8:00 PM to 6:00 AM | 7 hours | 42 hours |
| Mixed Shift (Mixta) | Combines day and night work | 7.5 hours | 45 hours |
Overtime Limits and Caps (LFT Article 66–68)
The LFT places a very strict limit on the amount of overtime that can be legally scheduled, known as “time of extraordinary work” (tiempo extraordinario).
| Aspect | Regulation Details |
| Daily Overtime Cap | Overtime is limited to 3 hours per day. |
| Weekly Overtime Cap | Overtime cannot be performed more than 3 times per week, resulting in a strict legal cap of 9 hours per week. |
| Beyond the Cap (Illegal) | Any work exceeding the 9 hours per week limit is technically prohibited (illegal overtime). The employer must still pay for these hours at the highest triple-time rate and may face sanctions or penalties. |
| Emergency Exception | In cases of force majeure or imminent danger to the worker’s life or the company’s existence (LFT Article 65), the workday may be extended for the strictly necessary time. These hours are compensated at the normal hourly rate, not a premium. |
| Exemptions | Managerial and supervisory employees who exercise functions of direction, inspection, or vigilance are generally exempt from the standard maximum working hours and overtime pay requirements. |
Mandatory Overtime Pay Rates (Tiered System)
Overtime compensation is mandatory and is calculated as a tiered minimum premium percentage of the employee’s regular hourly wage.
| Overtime Hours Worked | Minimum Premium Rate (Supplement) | Total Pay Rate | Notes |
| “Double Time” (Tier 1) | +100% of the regular hourly wage. | 200% | Applies to the first 9 hours of overtime worked in a week (up to 3 hours/day, 3 days/week). |
| “Triple Time” (Tier 2) | +200% of the regular hourly wage. | 300% | Applies to all hours worked exceeding 9 hours in a single work week. |
Compensation for Rest Days and Holidays
The compensation for work performed on the weekly rest day or a public holiday is separate from and often supersedes the standard overtime tiers.
| Day/Condition | Minimum Compensation Rate (Statutory) | Total Pay Rate | Notes |
| Weekly Rest Day (Sunday Work) | The employee must be paid the normal wage for the day, PLUS a premium of 25% of the daily wage (Prima Dominical). | 125% of the daily wage | This applies when Sunday is a scheduled workday for the employee. Overtime hours on Sunday are compensated under the general overtime rules (200% or 300%). |
| Statutory Public Holiday | The employee must be paid the normal wage for the day, PLUS a double wage for the hours worked. | 300% (of daily wage) | The employee effectively receives triple pay for working on an official holiday. This is treated as the highest-tier compensation. |
Leave
Annual Leave (vacation)
Paid leave in Mexico is outlined in the employment contract as a minimum of 12 days paid holiday per year, plus an additional two days per year of service, following completion of 1-year service. Following the completion of 5 years of service, two additional days are added every five years as detailed in the table below. Unused leave can carry over for 6 months.
A vacation premium must be given at an extra 25% pay for each day of leave.
| Service Length | Annual Leave Entitlement (working days) |
| 1 year | 12 days |
| 2 years | 14 days |
| 3 years | 16 days |
| 4 years | 18 days |
| 5 years | 20 days |
| 6+ years | 22 days, increasing by 2 days for every 5 years of service, capped at 32 days. |
PTO carryover
In Mexico, statutory vacation does not automatically carry over year to year. Vacation must be granted and taken within 6 months after the work anniversary.
Note:
- For SGF Global, PTO is accrued based on the anniversary (start date), employee has 6 month after the anniverasy date to use the balance
- For Papaya Direct, if after these 18 months the EE hasn’t enjoyed the PTO accrued, it expires by law, and the counting is restarted.
Public Holidays
Holidays falling on Saturday or Sunday are usually lost. However, certain holidays might be shifted to the nearest Monday to create a long weekend (commonly referred to as “puentes“).
| Date | Day | Holiday | Notes |
|---|---|---|---|
| 1 January 2026 | Thursday | New Year’s Day | Standard holiday |
| 2 February 2026 | Monday | Constitution Day Memorial | Standard holiday |
| 16 March 2026 | Monday | Benito Juárez’s Birthday Memorial | Standard holiday |
| 1 May 2026 | Friday | Labor Day | Standard holiday |
| 16 September 2026 | Wednesday | Independence Day | Standard holiday |
| 16 November 2026 | Monday | Revolution Day Memorial | Standard holiday |
| 25 December 2026 | Friday | Christmas Day | Standard holiday |
Sick Days
Paid by Social Security (IMSS). Eligible employees are entitled to up to 52 weeks of paid sick leave at 60% of the regular salary when verified by IMSS affiliated medical authorities. If it is a work-related injury, the employee is entitled to 100% of the regular salary.
Maternity Leave
All female employees are entitled to 12 weeks of paid maternity leave, which the employee must take six weeks before the birth and six weeks after that. The maternity pay is calculated at full pay, capped at 25 times daily UMA, and covered by the IMSS. The application for maternity leave must be supported by a medical certification issued by an IMSS approved clinic or a private medical institution.
Female employees are also entitled to six weeks of paid adoption leave after the child (a minor) is handed to them.
Paternity Leave
The father is entitled to mandatory paid paternity leave of 5 days.
Parental Leave
There is no additional parental leave in Mexico.
Other Leave
There is no statutory additional leave in Mexico.
PAID MATERNITY LEAVE (DAYS)
Termination
Termination Process
At-will employment does not exist in Mexico, and termination at-will clauses are only applicable to the employee. Therefore, employers may not terminate employment relationships without just cause. The Mexican Federal Labor Law stipulates a closed list of reasons and sets the procedure to terminate an employee at any time without incurring liability. The list of reasons can be found below:
- False statements about work qualifications
- Breach to the disobedience or honesty principles
- Vandalism
- Sexual harassment
- Alcoholism in the workplace
- Revealing company secrets
- Refusing to comply with safety procedures
- Four unexcused absences in 30 days
When terminating workers there are several payouts and considerations (finiquito) to take into account upon termination, including:
- Unused PTO
- Aguinaldo (Christmas bonus)
- Commission payments (where applicable)
- Bonuses (where applicable or contractually agreed)
- Severance (where applicable)
A worker’s final paycheck upon termination must include any accrued wages, benefits, and severance pay, made immediately upon termination, particularly in cases of termination without cause. The employer must settle all payments right away on the worker’s last day.
Additionally, where required, a meeting must be held at the courthouse so that the termination agreement or MTA can be signed before a labor court judge and with the consent of the worker.
It is not permitted to terminate workers during vacation, sick leave or maternity leave.
| Salary payment interval / date | Final payment on termination | Bank account payment requirement |
|---|---|---|
| Salaries must be paid in Mexican pesos; common practice for pay frequency is bi-monthly (on the 15th and last day of the month) or monthly. | On termination, the employer must pay all earned wages, accrued vacation, proportional Christmas bonus (aguinaldo) and if dismissed without cause: severance of 3 months’ salary + 20 days’ salary per year of service + seniority premium for ≥15 years. | Wages must be paid in Mexican pesos (not foreign currency); payment methods such as bank deposit, payroll card or cash are used—there is no universal statutory requirement that only bank-account deposit be used in all cases. |
Notice Period
There are no statutory minimum notice periods in Mexico; however, federal labor law states that should the circumstance dictate, the company must provide the employee with notice in writing within 30 days of knowing about the misconduct. The written notice must explain the grounds for dismissal, or the labor board must issue a termination notice. Two weeks notice is commonly be given as courtesy where there is ‘termination without cause’ or resignation.
Severance Pay
In Mexico, any contract that last more than 3 months becomes an indefinite contract per law. To compliantly terminate an indefinite contract without cause, workers must be paid full severance. Full severance consists of the following:
- 3 months’ salary.
- 20 days for each year worked,
- Seniority premium equal to 12-days of wages for each year of service rendered.
Workers who voluntarily resign with 15 plus years of service and workers who are terminated for cause receive a seniority premium equal to 12-days of wages for each year of service rendered (the premium is often capped at a maximum of twice the daily minimum wage).
The seniority premium is mandatory in cases of dismissal (with or without cause) and also for employees who resign after a certain period of service (usually 15 plus years of service) it is also for workers who are terminated for cause. They too are entitled to receive a seniority premium. However, note that termination for cause is an extremely high threshold and most terminations are without cause.
Probation Period
The probation period in Mexico is optional but it is common to include a trial period, which can be between 30 to 180 days.
A 30 day probationary period is used for basic or lower level positions. Longer probationary periods are for managers, directors or employees with specializations.
Minimal Statutory Termination Costs
Any contract that lasts for more than 3 months becomes by law an indefinite contract and full severance will be required.
3 months of salary, plus 20 Days Integrated Salary for each year of service rendered,
a seniority premium equal to 12 days wages for each year of service rendered (subject to a limitation up to twice the minimum wage)
and accrued benefits
(Mexico Labor Laws)
Article 162 III. The seniority premium will be paid to workers who voluntarily separate from their employment, provided they have completed fifteen years of service, at least. Likewise, those who separate for just cause and those who are separated from their employment will be paid, regardless of the justification or unjustified of the dismissal;
Article 436. In the cases of termination of the work indicated in article 434, except for that of section IV, workers will be entitled to compensation of three months’ salary, and to receive the seniority premium referred to in article 162.
Setting Up a Business
Setting up a legal entity
- Choose the location of the company
Identify the aspects that make a location the ideal place for the operation to run smoothly and the flow of customers, suppliers and employees to be optimal. - Open company bank account
Recognize the types of bank accounts and follow the step by step to sign, according to the needs and goals of your business, a contract with the bank of your choice. - Obtain operating permits
Determine, according to the line of business, the environmental impact of your business and other factors- what are the permits that you must manage with the municipal, state and federal authorities before operating. - Register the company in the IMSS
Know in a few steps the complete process and the cost to grant social security to your employees. - Register trademarks and patents at the IMPI
Register the commercial name of the company, trademarks and inventions before the IMPI and protect the intellectual property of your company with the legal support of the authorities.
Registration as an Employer
Registration with the following authorities is essential to commence business activities:
- Tax Registry Number (Registro Federal de Contribuyentes – RFC)
- Tax Authorities (Sistema de Administración Tributaria – SAT)
- Mexican Social Security Institute (IMSS)
- National Worker’s Housing Fund Institute (INFONAVIT)
- Individual retirement savings accounts for the employees (Afore)
- National Business Information Registry (Sistema de Información Empresarial – SIEM)
New Employee Registration
New resident employees must apply to the Mexican Tax Administration Service for a tax identification number (RFC). New employees must also lodge their details with the Unique Population Registry
Code (CURP) to obtain an associated unique ID.
The employer must register new employees with the IMSS within 5 days of the employment start date, and once the employer has registered the employee with the IMSS, the employee must submit this confirmation to a corresponding health clinic (for medical care purposes).
Common Benefits
- Private Health Insurance up to 7,100 MXN per month depending on age, gender, scope of cover.
- Internet Allowance, approx. 1500 MXN per month,
- Cell phone allowance, approx. 1500 MXN per month,
- Meals voucher/card, approx. 2600 MXN per month, Wellness/Fitness Allowance, approx. 2,000 MXN per month,
- Computer allowance, approx. 4,000 MXN per month,
Immigration
Any foreigners coming to work in Mexico will need to apply for a work permit and resident visa.
The National Institute of Immigration oversees all immigration in Mexico and issues work visas.
Mexico has a temporary and permanent visa; the employee should apply for both jointly with the prospective employer. A temporary resident visa is for foreign nationals who want to live in Mexico for more than 180 days. In addition to the Mexico work permit, people with a temporary resident visa can live and work in the country for up to four years with a Mexico work visa.
After completing four years of service (with the same company), a foreigner may apply for a permanent resident visa.
Remote Work
The Mexican Government passed federal labor laws on teleworking, which applies to any worker who performs paid work activities at least 40% of the time outside the employer’s workplace, either at home or another location chosen by the employee.
The contract should state if the employee is performing work outside the employer’s workplace in order to be eligible for teleworking benefit.
Employers must provide, install, and maintain the necessary working equipment and training needed by the employee to perform the work and, Pay for any appropriate telework-related cost, and record teleworking arrangements in a written agreement.
VAT
General
The standard rate of VAT in Mexico is 16%.
Stay up to date on payroll & employment law changes
Version History
Employee income tax rates were adjusted.
Questions & Answers
See how Papaya can help you automate your global payroll or EoR whilst staying 100% compliant with local labor laws
Payroll and Benefits Guide
in Mexico
What’s covered in this guide:
- Employer/employee contributions
- Minimum wage
- Working hours
- Visa requirements
And more...
Public Holidays Calendar
| Date | Day | Holiday | Notes |
|---|---|---|---|
| 1 January 2026 | Thursday | New Year’s Day | Standard holiday |
| 2 February 2026 | Monday | Constitution Day Memorial | Standard holiday |
| 16 March 2026 | Monday | Benito Juárez’s Birthday Memorial | Standard holiday |
| 1 May 2026 | Friday | Labor Day | Standard holiday |
| 16 September 2026 | Wednesday | Independence Day | Standard holiday |
| 16 November 2026 | Monday | Revolution Day Memorial | Standard holiday |
| 25 December 2026 | Friday | Christmas Day | Standard holiday |
If a new mother wants to extend maternity leave beyond 3 months, does the government continue to pay her salary?
If a mother extends her maternity leave, the government will continue to pay at a rate of 50% for an additional 60 days.
Is it standard practice to grant a vacation bonus to employees? If so, what is the standard amount.
Hi Peter,
It is a common practice and a very strong expectation in Mexico that employees will receive a 25% bonus for at least 6 days of their vacation.
Can payroll payments to employees be made by a payment service provider on behalf of the employer?
Hi Matt, thank you for your question. In large, yes, it is possible.
Hi, We have a travel related business in Mexico and we have be shut down by the government due to unpaid Social Security for employees. We have been closed/struggling for 1 year due to Covid and no tourism and no income, but we have continued paying our employees with loans and credit cards. However, we owe 1 year of employee Social Security payments to the government. I was told that if we can not pay the past Social Security debt and ‘release’ our employees, that the employees will lose ALL their pension they’ve earned for the last 22 years they have worked for us. They will have no retirement monthly pension coming in from what we have paid toward their retirement. This doesn’t seem right. Is this false information?
Hi Patricia, this is out of the scope of things that we cover and do not offer legal advice. We recommend that you seek legal counsel in Mexico to understand how you as a company are liable.
Are employers required to provide health insurance in Mexico? Our company currently provides health insurance stipends to staff to purchase private health insurance plans. Is this common and/or allowed? If allowed, how is it taxed?
Hi, employers are not required to provide health insurance. If this is offered as an allowance, then it is treated as a salary component and is taxed as such with the regular payroll.
If employees incur business expenses on behalf of the company, can the employees receive reimbursement via the payroll company as a non-taxable element of their paycheck?
Employees can be reimbursed for expenses tax-free in Mexico as long as they provide a detailed electronic invoice (not a paper invoice) in the name of the company (not the employee) and the total is under a certain limit, usually 2,0000 MXN. It must be invoiced as an expense for the company, not a form of income for the employee. The electronic invoice should include the company’s name and tax ID number, the amount of the expense, the payment method, and date of the expense, and should in either PDF and XML format. The expense should be made by credit card or e-transfer.
In case of a dispute with the termination fee, who is responsible for covering it, me as a customer or Papaya? is there any kind of deposit? Thank you!
The customer/client is responsible for any termination cost and there is no deposit.
Hello!
How does mileage reimbursement in Mexico work for an employee? Is there are part which is tax-free and a part that will be taxed?
Milage reimbursement in Mexico is subject to taxes.
At what rates is PTO or vacation paid to the employee. Is it the rate based on 48 hours per week or 56 hours per week considering the rest day.
Employees should be paid their normal salary while on vacation, as well as a 25% vacation bonus (Prima).
If a worker in Mexico does not show up for work, can his/her pay be discounted?
If there is clear evidence that the employee did not show up to work, yes, it can be done. Discounts can only be applied to full days.
Thank you for your response.
Do new employees not get Vacation until they reach their 1 year anniversary? If so, what do new employees do if they need to take time off?
Hello, this is correct. The company, however, can decide to agree to workers taking paid time off before reaching 1 year or allow workers to take unpaid time off.
Is there Spanish language available in the software?
Hello, Papaya Global is currently only available in English.
Does Papaya have an office in Mexico? Also, does Papaya cover blue-collar workers?
Papaya does not have an office in Mexico, though some of our Local Partners do. Blue collar workers can be hired depending on the location and nature of their work – this should be assessed on a case by case basis.