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Mastering Payroll in Mexico: Employer Contributions to Payroll Taxes

August 15, 2024

Mastering Payroll in Mexico: Employer Contributions to Payroll Taxes

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Calculating IMSS and employer contributions in Mexico is a critical aspect of managing payroll and ensuring compliance with the country’s labor laws. These contributions, which fund essential social services like healthcare, retirement, and housing, are mandatory for employers and play a vital role in supporting the well-being of employees. Understanding how to accurately calculate these contributions is not only important for legal compliance but also for effective financial management within your organization.

To accurately calculate the employment costs of an employee in Mexico, you need to follow a structured approach. First, understand the key payroll concepts, including the Salario Base de Cotización (SBC) and the Unidad de Medida y Actualización (UMA). Next, calculate the IMSS and social security contributions based on the employee’s salary. Finally, factor in employer payroll taxes, such as the state payroll tax (Impuesto Sobre Nómina) and any additional benefits or obligations. By following these steps, you can accurately determine the total cost of employing a worker in Mexico.

Understand the concepts

Understanding the payroll concept in Mexico involves grasping two essential components: the Unidad de Medida y Actualización (UMA) and the Salario Base de Cotización (SBC).

Unidad de Medida y Actualización (UMA)

The UMA is a reference unit used to calculate various payments, fines, and contributions, including social security and housing fund obligations. It is updated annually by the government and is crucial for determining the limits on certain benefits and taxes.

The UMA is updated annually by the National Institute of Statistics and Geography (INEGI) to reflect inflation and economic conditions.

As of the latest update, the daily value of the UMA for 2024 is MXN 108.57.

Salario Base de Cotización (SBC)

On the other hand, the SBC is the employee’s integrated salary, which includes their base salary and other compensations like bonuses, commissions, and benefits in kind. The SBC serves as the foundation for calculating Social Security contributions, which both employers and employees must pay.

Together, UMA and SBC form the backbone of Mexico’s payroll system, ensuring that contributions are fair, consistent, and aligned with legal requirements.

Factor de integración

The Factor de Integración is a multiplier used in Mexican payroll to calculate the Salario Base de Cotización (SBC), which is the daily salary used to determine social security contributions. The Factor de Integración takes into account various mandatory benefits that employees receive, such as the annual bonus (aguinaldo), vacation days, and vacation bonus. By incorporating these benefits, the Factor de Integración adjusts the daily salary to reflect the true cost of employment, ensuring that contributions to social security are accurately calculated based on the full compensation package.

Step-by-Step Guide to Calculating IMSS and employer Contributions in Mexico

Step 1 - Obtaining the Factor de Integración

This factor varies depending on the specific benefits provided by the employer and the number of vacation days an employee is entitled to.

Example 1 : Assume that the employee has standard benefits:

Annual Work Days = 365 days
Aguinaldo Days = 15 days
Vacation Days = 12 days
Vacation Bonus Days: 25% of 12 days = 3 days

Total Days with Benefits: $days$

The Factor de Integración is calculated by dividing the total days with benefits by the number of actual workdays in a year (365 days):

Step 2 - SBC Calculation

The Salario Base de Cotización (SBC) is the base salary used to calculate social security contributions in Mexico. It represents an employee’s integrated salary and includes not just their base pay but also any additional compensation that is considered part of their regular earnings. Here’s how you calculate the SBC:

Apply the Factor de Integración to the Daily Salary

If the employee’s daily salary is MXN 300, the Salario Base de Cotización (SBC) would be:

This SBC (MXN 324.66) is the amount used to calculate social security contributions, reflecting the true cost of employment including all mandatory benefits.

⚠️The SBC, which is used to calculate social security contributions, has a maximum limit set at 25 times the current Unidad de Medida y Actualización (UMA).

Maximum SBC (2024) = 25×108.57 = MXN 2,714.25 per day

This cap means that no matter how high an employee’s actual salary is, the employer’s social security contributions will be calculated as if the employee’s daily salary is capped at MXN 2,769.50 (2024). This limit helps manage the costs of social security contributions for higher-paid employees.

Step 3 - Calculate IMSS and Employer Social Contributions in Mexico

The IMSS (Mexican Social Security Institute) contribution table is a crucial tool for understanding the social security obligations of both employers and employees in Mexico. This table outlines the various percentages that must be contributed towards social security benefits such as healthcare, disability, pensions, and more. The contributions are divided between the employer and the employee, with each responsible for specific percentages based on the employee’s salary, also known as the Salario Base de Cotización (SBC).

Step 4 - Calculate Employee Contributions in Mexico

Calculating employee contributions in Mexico is essential for both compliance and accurate payroll management. Employees in Mexico contribute to various social security programs, including IMSS, retirement savings, and income tax, which are deducted directly from their salaries. Understanding these contributions is key to ensuring that both employers and employees meet their legal obligations. This guide breaks down the components of employee contributions, helping you navigate the complexities of payroll in Mexico with ease.

For more details, you can check out our in-depth article on Employee Contributions in Mexico.

Calculating employer payroll taxes in Mexico (ISN)

Understand the concept

The Impuesto Sobre Nómina (ISN), also known as the Payroll Tax, is a state-level tax in Mexico that employers must pay based on the total payroll they disburse to their employees. Unlike other social security contributions that are split between the employer and employee, the ISN is solely the responsibility of the employer. The tax rate varies by state, typically ranging from 1% to 3% of the total payroll.

ISN TABLE (2024)

Aguascalientes: 2.5 %
Baja California: 4.25 %
Baja California Sur: 4 %
Campeche: 2 % a 3 %
Coahuila: 3 %
Colima: 2 %
Chiapas: 2 %
Chihuahua: 3 %
Ciudad de México (CDMX): 3 %
Durango: 3 %
Guerrero: 2 %
Guanajuato: 3 %
Hidalgo: 3 %
Jalisco: 3 %
Estado de México: 3 %
Michoacán: 3 %
Morelos: 2 %
Nayarit: 3%
Nuevo León: 3 %
Oaxaca: 3 %
Puebla: 3 %
Querétaro: 3 %
Quintana Roo: 4 %
San Luis Potosí: 3 %
Sinaloa: 2.4 % al 3 %
Sonora: 1.5 % (actividades agrícolas, silvícolas, ganaderas o de pesca) y 3 % (resto)
Tabasco: 2.5 %
Tamaulipas: 3 %
Tlaxcala: 3 %
Veracruz: 3 %
Yucatán: 3 %
Zacatecas: 3 %

Calculating ISN

To calculate the ISN, you first determine the total amount of wages, salaries, and other compensations paid to employees, including bonuses, commissions, and overtime. Once you have the total payroll amount, you multiply it by the applicable ISN tax rate for your state. For example, if your total payroll is MXN 100,000 and the ISN rate in your state is 2%, the ISN owed would be MXN 2,000. It’s essential for businesses to be aware of the specific ISN rate in their state and ensure timely payment to avoid penalties.

Conclusion

In conclusion, mastering payroll in Mexico requires a solid understanding of various legal and financial obligations, particularly when it comes to calculating IMSS and employer social contributions. These contributions are essential for ensuring that employees receive the social security benefits they are entitled to, while also keeping employers compliant with Mexican labor laws. By thoroughly understanding concepts like the Salario Base de Cotización (SBC) and Unidad de Medida y Actualización (UMA), and accurately calculating the different components of payroll, employers can efficiently manage their payroll processes. Ultimately, staying informed and diligent in these calculations not only protects businesses from penalties but also fosters a fair and supportive work environment for employees.

Simplify payroll and taxes in Mexico with Europortage

Payroll and taxes in Mexico are complex especially when it comes to compliance. That’s why we recommend working with a direct and local partner like Europortage.

Our team of local experts is on hand to support you throughout the entire employee lifecycle. We can give you clear advice on business incorporation and global hiring, in addition to handling employment contracts, payroll, and benefits. That way, you can focus on growing a world-class team and business.

Get in touch to find out more and start hiring top talent in Latin America!