Article
10 min read
How to Run Payroll in Mexico
Global payroll
Author
Shannon Ongaro
Published
October 17, 2024
Last Update
October 17, 2024
Table of Contents
How payroll is processed in Mexico
Common challenges in payroll management in Mexico
Deel Global Payroll in Mexico makes payroll simple
Key takeaways
- When running payroll in Mexico, managers must consider its setup, processing, and payment frequency.
- Key challenges include poor system integrations, reliance on multiple outsourced vendors, navigating local labor laws, and ensuring high security standards.
- Employers hiring in Mexico can use Deel to simplify onboarding, payments, benefits, and more.
If you're planning to hire talent in Mexico and are concerned about managing payroll, it's important to first understand the country's payroll system. Each state and region has its own rules, laws, and regulations, which can differ significantly from those in other countries. Every legal and tax detail is crucial, and errors can result in serious consequences.
In Mexico, payroll must comply with regulations set by the Tax Administration Service (SAT) and the Ministry of Labor and Social Welfare (STPS). HR professionals need to stay updated on relevant laws such as the Federal Labor Law (LFT), Social Security Law (LSS), Federal Tax Code (CFF), and Income Tax Law (LISR) to ensure compliance.
This guide highlights the key aspects of managing payroll in Mexico, provides answers to common questions, and offers best practices for compliance.
How payroll is processed in Mexico
Understanding how payroll functions in Mexico involves considering three key elements: setup, processing, and payment frequency.
1. Setup
Setting up payroll in Mexico is tied to several requirements:
Establishing a legal entity: This includes defining the company type, registering under the appropriate tax regime, opening a business bank account, and obtaining the Federal Taxpayer Registry (RFC).
See also: A Guide to Setting up a Local Entity
Registering with social security: Employers must register their company and employees with the Mexican Social Security Institute (IMSS) and the National Workers' Housing Fund Institute (INFONAVIT). Employee registration requires collecting their CURP (Unique Population Registry Code), a key identifier for tax and employment records.
To ensure payroll processing complies with local regulations, employers must stay up to date with Mexico’s labor and tax laws. Proper compliance stabilizes your business, provides security for your employees, and enhances your reputation as an employer.
Continuous Compliance™
2. Processing
Processing payroll in Mexico involves several steps, ensuring accurate compensation and compliance with local laws.
Employee onboarding and documentation: Collect necessary documents like a government-issued ID, social security number, background checks, bank details for direct deposit, and other documentation required by either your company or the Mexican tax authorities.
Regular and statutory deductions: You need to calculate deductions according to Mexican law. This includes income tax (ISR), social security contributions (IMSS), INFONAVIT contributions, and other deductions as agreed upon, such as pension contributions or insurance premiums.
Compliance with labor laws: Ensure compliance with laws regarding minimum wage, overtime pay, holidays, and employee rights such as paid vacation.
Free template: Employment Contract in Mexico
Payroll tax and social security filing: Employers must file payroll taxes and social contributions within the deadlines set by authorities like the SAT and IMSS. For example, employer-employee contributions must be processed via the Single Self-Determination System (SUA).
See also: Employer costs for an employee in Mexico
3. Payment frequency
The frequency with which you pay your workers in Mexico depends on the arrangement established within your company. The most common payroll frequencies are:
- Weekly: Payment every seven days, usually at the end of the workweek
- Fortnightly: Payments are made every two weeks, often on Fridays
- Biweekly: Payments every 15 days, typically on the 15th, 30th, or 31st of the month
The chosen frequency can vary depending on the type of company, the position, and the nature of the work performed.
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Common challenges in payroll management in Mexico
Poor integrations
When your payroll system isn't integrated with other key business systems—such as HR management, benefits, insurance, and time-tracking systems—it can lead to delays, data duplication, and inaccurate payroll calculations. This lack of integration hampers your finance team’s ability to make informed decisions based on real-time financial data.
Solution:
Deel Global Payroll integrates seamlessly with 68+ HR and accounting systems, unlike traditional providers that offer fewer options. This ensures smooth data flow, reduces errors, and saves time on manual data entry.
Multiple outsourced vendors
Managing payroll with multiple local providers in Mexico (or other markets) can lead to reporting inconsistencies and fragmented employee experiences. Additionally, if you operate in multiple regions, using different vendors per region makes it difficult to consolidate company data, analyze financials, and maintain a clear view of your business’s financial health.
Solution:
Deel offers a unified payroll solution with standardized reporting across all countries, eliminating the need for multiple local providers and making global payroll management seamless.
See also: All-in-One Payroll: Why 300+ HR and Finance Leaders Say It’s The New Standard
Understanding local laws
Labor and tax regulations vary by country, and managing payroll in Mexico requires knowledge of specific local laws. For example, Mexico’s overtime regulations differ from those in other Latin American countries—100% additional pay for each overtime hour worked, compared to 50% in Argentina. Keeping up with changes to minimum wage or compliance regulations can be a daunting task.
Solution:
Deel’s in-house payroll managers in 100+ countries ensure compliance with local labor laws. Our team of legal experts stays current with any regulatory changes, so you don’t have to worry about legal non-compliance.
Lack of process automation
Many traditional payroll providers lack automation, relying on manual data entry and increasing the risk of human errors. Manual data handling also leads to inconsistencies in payroll records, making it harder to spot discrepancies or correct errors in time.
Solution:
Deel’s platform automates your entire payroll workflow, from employee data entry to payment processing, saving time and reducing the risk of costly errors.
Fragmented payments for employees and freelancers
Companies often manage separate payroll processes for employees and freelancers, which complicates payment operations and increases administrative burdens.
Solution:
Deel simplifies this by combining employee and freelancer payments into one platform, allowing you to manage your entire global team in one place, whether they are full-time employees or independent contractors.
Uncertain security standards
Outsourcing critical payroll functions to third-party vendors can raise concerns over data security. Payroll providers that lack robust security measures could expose your sensitive employee data, including personal and financial information, to breaches.
Solution:
Deel prioritizes data privacy and security, with compliance certifications such as GDPR, SOC2, and ISO 27001. Our platform includes custom permissions, approval settings, and detailed data logs, giving you full control over who can access sensitive information.
Limited scalability and support
As your team grows, non-scalable payroll systems can slow down operations, requiring frequent changes in payroll providers. Managing fragmented systems also increases processing times, which could delay payroll cycles and affect overall efficiency.
Solution:
Deel provides scalable solutions that grow with your company. You get direct support from a dedicated customer success manager, as well as 24/7 assistance for your payroll teams, ensuring smooth operations regardless of your company’s size.
See also: How Deel Achieves Industry-Leading Customer Satisfaction
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FAQs
What are the basic components of a payroll in Mexico?
The basic components of a payroll in Mexico are:
- Base salary: From which deductions are made
- Legal deductions: Federal and state taxes, IMSS, and INFONAVIT
- Benefits: Christmas bonus, vacation, vacation bonus, and profit sharing (PTU)
- Other discounts: Pension plans, insurance, unions, etc
How is the minimum wage calculated in Mexico and how does it affect payroll?
In 2024, the minimum wage in Mexico is 7,468 Mexican pesos, equivalent to 400 USD. This amount affects the payroll because all companies are required to pay a salary that is not less than the established minimum.
How are payroll deductions calculated?
Deductions are calculated based on current tax laws, company agreements, and mandatory contributions to entities such as IMSS (for health), INFONAVIT (for housing), and the retirement system. It should be noted that these depend on the type of employment contract. Some may be income tax and employer-employee contributions, for example.
Always consult with a legal and accounting expert regarding the specific case of each employee.
How is the Christmas bonus calculated in Mexico?
To calculate the Christmas bonus in Mexico, you have to take into account the time your employees have been working in the company and the type of compensation they receive (fixed salary or variable monthly salary).
Who is entitled to the Christmas bonus?
All workers under an employment relationship have the right to a bonus. If a worker has worked for less than a year, he or she is entitled to a proportional payment. However, those who are hired on a fee basis do not have this right.
What is the mandatory payment frequency in Mexico?
The frequency of payment in Mexico depends on the agreed periodicity. It can be weekly, biweekly, or fortnightly. According to Article 88 of the Federal Labor Law in Mexico, "The terms for payment of wages can never be longer than one week for persons who perform material work and fifteen days for other workers."
What records must be kept with each payroll process?
Companies must record and retain details such as wages paid, taxes withheld, social security contributions, and other related documents for a minimum of five years.
What laws regulate payroll in Mexico?
There are several laws that regulate payroll in Mexico. These include the Federal Labor Law, the Federal Tax Code, the Social Security Law, the INFONAVIT Law, and the Income Tax Law, among other local and federal regulations.
What are the employer's obligations regarding payroll?
Among the main obligations of the employer regarding payroll are issuing timely payments, making the correct deductions, complying with tax and social contribution declarations and payments, and providing digital payroll receipts (or paystubs).
When managing payroll with Deel, payroll receipts are automatically generated following Mexican laws and complying with the standards requested by the SAT.
What is a payroll CFDI?
The Digital Fiscal Receipt for Payroll on the Internet (CFDI) is a digital document required by the tax authority that validates the legality of salary payments and deductions applied in Mexico.
What is required to set up payroll for a new company in Mexico?
Setting up payroll for a new business in Mexico requires employer registration, employee data collection, and compliance with local tax and labor laws.
What are the types of contracts in Mexico?
According to the Federal Labor Law, there are five types of contracts in Mexico, such as open-ended or indefinite-term contracts, contracts for a specific work or time, seasonal employment contracts, employment contracts for initial training, and trial period contracts.
What are the penalties for non-compliance in payroll processing?
Penalties for failing to comply with payroll processing range from potential fines and legal action to reputational damage.
Just as non-compliance can result in significant financial penalties, as well as legal action by affected employees, the reputational damage generated by unethical or illegal labor practices can affect the company's image and credibility with employees, customers, and the general public.
Learn more about managing payroll in Mexico
Global Payroll Bootcamp is the opportunity to learn everything you need to know about efficient international payroll management in Mexico: the most common mistakes, the power of centralizing payroll for multiple countries, and how to achieve this with the help of a strategic partner in global payroll.
Deel Global Payroll in Mexico makes payroll simple
Whether your workforce is entirely in Mexico or spread across multiple countries, Deel Global Payroll can help. Deel allows you to manage every aspect of payroll in one place—from onboarding new talent to processing final payments—making the entire process seamless.
- Visibility in a single platform: Manage payroll anywhere through a modern, easy-to-use platform
- Unlock Continuous Compliance: Deel is the only platform that actively helps you monitor and flag regulatory changes, with recommended actions before they become an issue
- Run accurate and timely payrolls: Automatically sync employee details from your HR platform to avoid duplicate data entry and keep your information up to date. You can also pay your entire team with a single, lump sum payment in seconds
- Connect and build powerful integrations: Connect Deel to your favorite tools to reduce manual tasks and streamline workflows, or build custom integrations with our API
- Stay on top of spending with real-time, global reporting: Consolidate currency discrepancies with a unified view of all costs in your preferred currency. Use the variance view to quickly spot any errors between payroll cycles
- Customer support: Maintain direct communication with a dedicated CSM, as well as 24/7 support, live chat, Slack integrations, phone and video support, and more
About the author
Shannon Ongaro is a content marketing manager and trained journalist with over a decade of experience producing content that supports franchisees, small businesses, and global enterprises. Over the years, she’s covered topics such as payroll, HR tech, workplace culture, and more. At Deel, Shannon specializes in thought leadership and global payroll content.
