As of May 2026, Mexico is Latin America’s second-largest economy and a strategic near-shore hiring market for North American and global organisations. Managing payroll here requires precise compliance with the Instituto Mexicano del Seguro Social (IMSS), the Servicio de Administracion Tributaria (SAT) for income tax (ISR) withholding, INFONAVIT housing fund contributions, and the mandatory profit-sharing (PTU) distribution, all governed by the Federal Labour Law (Ley Federal del Trabajo) and the Social Security Law.
A Payroll Mexico provider operating as Employer of Record manages bi-monthly IMSS filings, monthly ISR withholding via the SAT e.firma system, and annual PTU calculation and distribution, giving your organisation full payroll compliance without the cost and complexity of a Mexican Sociedad Anonima (S.A.) or S. de R.L. de C.V. entity.
The EOR Model in the 2026 Mexican Context
Mexico’s 2026 payroll landscape is shaped by SAT’s enhanced CFDI (digital tax invoice) enforcement for payroll receipts, stricter IMSS wage-base audit activity, and the continued phase-in of mandatory labour subcontracting regulations introduced under the 2021 outsourcing reform. An EOR in Mexico maintains active IMSS employer registration, SAT payroll CFDI issuance, and INFONAVIT contribution management within the SUA (Integrated Contribution System) platform.
Strategic Advantages for 2026
- ISR Withholding Accuracy: Monthly ISR is calculated on the integrated salary, including base, commissions, and most bonuses. An EOR applies the correct SAT tariff and issues a stamped payroll CFDI (Comprobante Fiscal Digital) for each payroll period.
- IMSS Integration: Social security contributions are calculated on the Integrated Daily Salary (Salario Diario Integrado, SDI), which includes base salary plus proportional parts of bonuses, vacation premium, and other benefits. An EOR computes SDI accurately to avoid IMSS re-assessments.
- INFONAVIT Administration: Employers must contribute 5% of SDI to the INFONAVIT housing fund. An EOR manages bi-monthly SUA filings and ensures any INFONAVIT credit discounts (descuentos) are applied to the correct employees.
- PTU (Profit Sharing): 10% of annual taxable profits must be distributed to employees by 31 May each year. An EOR calculates PTU entitlements, manages the two-part distribution formula (equal parts days worked and wages), and handles the tax treatment correctly.
- Christmas Bonus (Aguinaldo): Mandatory minimum of 15 days’ salary, payable by 20 December. An EOR provisions and disburses the Aguinaldo within the statutory window.
2026 Income Tax (ISR) Monthly Brackets
Mexico’s ISR is withheld monthly using the SAT tariff table. The following brackets apply to monthly taxable income.
|
Monthly Taxable Income (MXN) |
2026 ISR Rate |
|
Up to MXN 8,952.49 |
1.92% |
|
MXN 8,952.50 – MXN 15,924.11 |
6.40% |
|
MXN 15,924.12 – MXN 27,981.68 |
10.88% |
|
MXN 27,981.69 – MXN 57,978.60 |
16.00% |
|
MXN 57,978.61 – MXN 77,620.81 |
17.92% |
|
MXN 77,620.82 – MXN 254,132.86 |
21.36% |
|
Above MXN 254,132.86 |
Up to 35.00% |
Statutory Contributions (2026)
|
Contribution Type |
Employer Rate |
Employee Rate |
|
IMSS (Social Security) |
~20-25% of SDI |
~1.65-3% of SDI |
|
INFONAVIT (Housing Fund) |
5.0% |
Nil |
|
SAR/AFORE (Retirement) |
2.0% |
Nil |
|
Total Employer Social Burden |
~27-32% |
Variable |
2026 Work Standards and Leave Entitlements
The Federal Labour Law sets the maximum working day at 8 hours (diurnal), 7 hours (nocturnal), or 7.5 hours (mixed). The working week is limited to 48 hours. The 2023 reform increased vacation minimums significantly.
- Annual Leave (Vacaciones): Starting from 12 days in year 1, increasing to 14 days in year 2, and continuing to increase per the 2023 Labour Reform schedule (doubled from prior rates).
- Vacation Premium (Prima Vacacional): At least 25% of salary for the vacation days taken, in addition to regular pay during the vacation period.
- Maternity Leave: 12 weeks paid maternity leave (6 weeks pre-delivery, 6 weeks post-delivery), funded via IMSS. Employer advances pay and offsets against IMSS contributions.
- Public Holidays: 8 mandatory public holidays under the Federal Labour Law, plus 1 election day every 3 years. Work on these days is compensated at triple the ordinary rate.
Termination and Severance (2026)
- Notice Period: Not required by law on employer-initiated termination without just cause, but the employer must pay all separation entitlements immediately.
- Unjustified Dismissal (Liquidacion): Total indemnification includes 3 months’ integrated salary, 20 days’ integrated salary per year of service, and proportional seniority bonus (prima de antiguedad) of 12 days per year.
- Justified Dismissal: For termination with cause (e.g., misconduct), the employer must document the cause and notify the employee in writing. No liquidacion is owed but prima de antiguedad still applies for service over 15 years.
Conclusion
Mexico’s payroll framework in 2026 is demanding, the IMSS SDI calculation, CFDI payroll receipts, and PTU distribution are all areas where errors attract significant audit risk. The Mexican Social Security Institute (IMSS) is the authoritative source for contribution rates and filing deadlines. An EOR partner in Mexico delivers compliant payroll from the first employee, removing entity requirements, SAT registration complexity, and the full IMSS filing burden.
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