In Mexico, payroll is governed primarily by the Federal Labour Law (Ley Federal del Trabajo), the Income Tax Law (Ley del Impuesto Sobre la Renta), and the Social Security Law (Ley del Seguro Social). Employers act as the withholding agent: each pay run, the employer deducts income tax (ISR) and the employee's share of social security (IMSS) from gross pay, then remits both to the authorities on the employee's behalf. On top of salary cost, the employer also pays its own — much larger — IMSS, INFONAVIT housing, and retirement (SAR) contributions, plus a state payroll tax.

Mexico taxes employment income under a progressive scale from 1.92% to 35% (Impuesto Sobre la Renta, or ISR). Each rate applies only to the slice of income within its band. Rather than a simple percentage, each bracket carries a fixed quota (cuota fija) plus a marginal rate on the amount exceeding the bracket's lower limit. Employers withhold ISR from every payroll run using the monthly tariff, and reconcile it in an annual calculation.

An individual is a Mexican tax resident if Mexico is their main home or centre of vital interests (broadly, presence of more than 183 days and Mexican-sourced income). Residents are taxed on worldwide income; non-residents are taxed only on Mexican-sourced income. The annual resident table below (in force for 2026) shows how the brackets work.

All employees must be registered with the Mexican Social Security Institute (IMSS), which funds healthcare, maternity, disability, life, occupational risk, childcare, and pensions. Contributions are shared between employer and employee but are heavily weighted toward the employer, and are calculated on the Salario Base de Cotización (SBC) — base salary plus benefits — capped at 25 UMA. The employee's combined IMSS share is roughly 2%–3% of pay, while the employer's IMSS, INFONAVIT, and retirement burden typically pushes total on-top employer costs to around 25%–35% of salary.

Separately from federal taxes, each of Mexico's 32 states levies a payroll tax (Impuesto Sobre Nómina, or ISN) on the total remuneration an employer pays. It is an employer-only cost, is deductible for ISR purposes, and is filed monthly with the state treasury. Rates typically fall in the 2%–3% range, though they vary by state — Mexico City (CDMX) raised its general rate to 4% from 1 January 2025, with partial subsidies for micro and small employers.

Mexican payroll must account for two statutory annual payments — the aguinaldo (Christmas bonus) and PTU (profit sharing). Both are partly tax-exempt, so the ISR treatment matters when you run the corresponding pay period.

Employers are legally responsible for withholding ISR and the employee's IMSS share from each payment, and for filing and remitting them — together with the employer's own social security and state payroll tax — on the statutory calendar. Missing these deadlines exposes the company to surcharges (recargos) and penalties, so most employers automate the schedule below.

Because payroll in Mexico ties together the SAT (ISR and CFDI de nómina), IMSS and INFONAVIT (social security, housing, and retirement), the state treasury (payroll tax), and the Federal Labour Law (wages, overtime, aguinaldo, and PTU), many companies outsource processing to a local expert or an Employer of Record. A specialist provider can register employees with the IMSS, run the bi-weekly cycle, stamp CFDIs, calculate and remit withholding tax and social security, and keep the business compliant as rates, UMA, and thresholds change each year.