If you are looking to start a business and hire staff in Mexico, whether as a legal entity or an individual, it is essential to understand the additional obligations beyond salaries that you will incur due to your workforce. This will help you create an accurate operational budget.
The main legal obligations employers face when hiring personnel include social security, a housing fund for workers, a pension fund, and state payroll taxes. Each of these is mandatory, and failure to comply can result in fines imposed by the relevant authorities. Below, we explain each of these obligations:
- Social Security: This is paid to the Mexican Social Security Institute (IMSS), which provides public health services to all private sector workers. Social security is funded through contributions from the employee, the employer, and the state. However, we will focus on the employer's contribution. For the employer, the cost of social security is approximately 17% of the employee's gross salary, and it is paid monthly to the health institute.
- Housing Fund: The housing fund is paid to the National Workers' Housing Fund Institute (INFONAVIT). This public body provides loans to workers for purchasing or renovating homes. The employer must contribute 5% of the employee's gross salary to the employee's individual housing subaccount. When the employee decides to use their right to acquire housing with the credit offered by the institute, this savings is applied to the home loan, and the institute provides the remaining loan amount to the worker. INFONAVIT manages the workers' housing subaccounts and ensures that the workers' savings maintain their value by generating returns. This obligation is paid bimonthly to the institute.
- Pension Fund: The fund for the Retirement Savings System (SAR) equals 2% of the employee's gross salary. The employer is responsible for covering this cost and submitting it through the Mexican Social Security Institute, which then allocates it to the so-called AFOREs. AFOREs are financial institutions that manage workers' pension funds and invest the workers' savings in various investments to ensure that, upon meeting the legal retirement requirements, the worker can retire with a decent pension.
- Payroll Tax: Almost all states in Mexico levy this tax, which ranges from 2% to 5%. It is paid monthly to the state treasuries, calculated on the employees' gross salaries.
Considering all the above, we can deduce that under current legislation in 2024, the additional cost to employers for maintaining a workforce in a service-oriented company will be approximately 29% of the salary. This percentage can increase to 31% if the hiring company is in the construction industry, as the safety risk premium is higher due to the high-risk nature of the work. It is important to note that these are the minimum legal obligations. However, employers may provide additional benefits to employees as they see fit, and we recommend consulting with your tax and social security advisor for further guidance.
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