Employer of Record in Mexico
Mexico combines a moderate contribution burden with an unusually protective dismissal regime and a mandatory profit-sharing obligation, which together make the Employer of Record decision less a payroll question than an exit-liability question.
| Employer contribution burden | Roughly thirty per cent of gross salary across IMSS, INFONAVIT and retirement Instituto Mexicano del Seguro Social https://www.imss.gob.mx/ · Verified 2026-07-20 · Next review 2027-01-20 |
|---|---|
| State payroll tax | Between two and three per cent depending on the state State treasury departments · Verified 2026-07-20 · Next review 2027-01-20 |
| Statutory paid leave | Twelve working days in the first year, rising with service Ley Federal del Trabajo, Article seventy-six · Verified 2026-07-20 · Next review 2027-01-20 |
| Aguinaldo | Minimum fifteen days of salary payable before the end of December Ley Federal del Trabajo, Article eighty-seven · Verified 2026-07-20 · Next review 2027-01-20 |
| Statutory severance | Three months of salary plus twenty days per year of service for unjustified dismissal Ley Federal del Trabajo, Article fifty · Verified 2026-07-20 · Next review 2027-01-20 |
| Profit sharing | Ten per cent of taxable profit, capped by a service-based formula Ley Federal del Trabajo, Article one hundred twenty-seven · Verified 2026-07-20 · Next review 2027-01-20 |
Employer cost in Mexico is assembled from several separate registrations rather than one contribution. Social insurance runs through the Instituto Mexicano del Seguro Social, housing contributions through INFONAVIT, retirement savings through the SAR system, and a payroll tax is levied separately by each state on the employer. A quote that reports only the federal social-insurance percentage will therefore be short by the state payroll tax, which varies by the state in which the worker is registered.
The labour reform that restricted personnel subcontracting reshaped the market for outsourced employment in Mexico. Providing personnel is now permitted only for specialised services that fall outside the client's core business purpose, and specialised providers must be registered on the public REPSE register. Any Employer of Record operating in Mexico should be able to produce its registration number on request, because an unregistered arrangement puts deductibility of the client's payments at risk as well as exposing both parties to penalties.
Paid leave was substantially increased by the reform known as vacaciones dignas, which raised the first-year entitlement and set an escalator tied to years of service. On top of the days themselves, Mexican employees receive a vacation premium calculated as a percentage of the salary payable during leave, which is a genuinely additional cash cost rather than an accounting reclassification. Budgets built from a foreign template that assumes leave is cost-neutral will be wrong in Mexico.
Aguinaldo is the statutory year-end payment, and unlike a discretionary bonus it is a floor rather than a target. It is payable before the end of December and is calculated on the daily salary, so a mid-year hire receives a prorated amount. Where a client pays a discretionary bonus in addition, the statutory minimum still applies and cannot be absorbed into the discretionary payment unless the contract is drafted to do so from the outset.
Dismissal in Mexico requires cause that is both statutorily recognised and documented at the time, communicated to the employee in a written notice. Without that, the dismissal is unjustified and the employee is entitled to constitutional compensation plus a per-year-of-service component and accrued benefits, or reinstatement in some circumstances. Because an Employer of Record signs the employment relationship, that liability sits with the provider and flows back to the client contractually, which is why exit terms deserve more scrutiny than the monthly fee.
Mandatory profit sharing is the obligation most frequently missed by first-time employers in Mexico. It is calculated on the taxable profit of the employing entity, which for an Employer of Record engagement is the provider rather than the client, and the reform introduced a cap based on the employee's own service and prior payments. Model the full landed cost with the total employer cost model, and compare against a domestic arrangement on the US state PEO pages.
What this doesn't cover
This page covers the statutory employer obligations for a worker employed in Mexico through an Employer of Record. It does not price a specific provider, does not model employee income tax withholding under the ISR schedule, and does not address independent-contractor engagements, which carry their own reclassification risk. Union collective agreements and the applicable contrato colectivo may exceed every floor described here. Method notes sit in the how each field is verified; comparable markets are listed on the country comparison table.