Reviewed by Victor Anaya, LATAM CEO at Rivermate, with more than 15 years of experience in Employer of Record services and hiring across Latin America. Last updated: October 27, 2026

The gap between the number in the offer letter and the amount leaving your company bank account is where businesses make a mistake. The smart move is to understand Mexico's full employer costs before you sign a contract. Not after the first payroll run.

We’ll cover the main costs every employer should budget for, to help you set realistic payroll expectations. You’ll also find a worked example in USD so you can better understand how the costs add up in a real-world scenario.

Quick overview

When budgeting for an employee in Mexico, you need to account for IMSS, INFONAVIT, retirement contributions, and state payroll tax on top of gross salary. The exact cost depends on salary level, state, and workplace risk class. ISR is withheld from the employee's salary rather than paid as an additional employer contribution.

Understanding the additional costs of employment in Mexico

Mexican payroll law separates costs into two buckets. The first bucket is employer contributions, which are mandatory payments the company makes on top of salary. The second bucket is employee deductions that are withheld from pay and sent to the authorities.

For this article, we’ll focus on the first bucket. When choosing an EOR partner, it’s important they understand these labor laws.

Here are the five main factors contributing to extra salary costs for employers:

• IMSS contributions: Health, maternity, disability, life insurance, retirement, childcare, and workplace risk.
• INFONAVIT contributions: 5% of the employee’s registered salary base, paid into the employee’s housing subaccount.
• SAR retirement savings: 2% employer contribution into the employee’s retirement account.
• State payroll tax (ISN): State-level tax on the payroll total, with rates that vary by state.
• Employee income tax withholding (ISR): Employee-side deduction.

Note: Additional bonuses like aguinaldo (year-end bonus) and prima vacacional (vacation premium) sit alongside these costs. They are not payroll taxes in the strict sense, but they belong in the same budget conversation.

IMSS: Mexican social security contributions

IMSS social security contributions are typically the largest additional cost employers must absorb when hiring in Mexico. These contributions cover several branches of social insurance, each calculated separately.

Health, maternity & fixed UMA charge

The health and maternity branch carries a fixed 20.40% charge on the Unidad de Medida y Actualización (UMA) for every registered employee.

Additional employer contributions include:

• 1.10% employer contribution on SBC above three UMA
• 0.70% cash-benefit charge
• 1.05% charge for pensioner medical cover

The UMA daily value for 2026 is MXN 117.31. These components apply even to minimum wage employees.

Retirement and old-age cover

The retirement branch carries a flat 2% employer contribution on SBC. Old-age and severance cover is progressive. This means 3.150% for salaries up to one minimum wage. It rises through brackets to 7.513% above four UMA.

The 2020 pension reform phases this rate up through 2030, so you need to update each year’s payroll tables. Finally, the employee contributes 1.125% to the same branch, but that’s withheld from pay rather than paid by the employer.

Workplace risk

Workplace risk premium depends on the company activity class. That’s from 0.51% for offices to 7.59% for mining and explosives. It’s also adjusted annually for claims history.

The SBC is capped at 25 UMA, or MXN 2,932.75 daily in 2026. High salaries stop generating additional IMSS contributions once they hit that ceiling. This compresses the employer burden percentage as gross pay rises.

Disability, life, and childcare

Two smaller branches complete the IMSS bill, and neither depends on the company’s risk record.

Disability and life insurance (invalidez y vida) costs the employer 1.75% of SBC, with the employee contributing 0.625%. Childcare and social benefits (guarderias y prestaciones sociales) cost the employer 1% of SBC, and the employee contributes nothing.

Together they add 2.75% to the employer's payroll costs. It’s calculated on the same SBC as the larger branches and reported in the same bimonthly billing.

INFONAVIT

INFONAVIT is the housing subaccount, and it operates on a flat 5% of the SBC. Also, there are no salary bands or risk classes to complicate the math. The employer registers the employee with the institute and pays the contribution into the Subcuenta de Vivienda.

These contributions go into the employee's individual housing account and can be used to buy, build, or renovate a home. Article 29 of the INFONAVIT Act establishes this obligation and applies to every registered employment relationship.

The contribution shares the same 25-UMA ceiling as IMSS, so high salaries stop generating additional housing fund contributions at the same threshold. For budgeting, treat INFONAVIT as a separate 5% line and not as part of the IMSS bundle.

SAR

You can think of SAR as part of Mexico’s pension system, and here is what employers need to know about their obligations:

• Rate: The employer’s core SAR obligation is a 2% contribution on the SBC for the retirement subaccount. It’s paid bimonthly through the same payroll system used for IMSS and INFONAVIT.
• Double-counting: The 2% SAR retirement contribution is already part of the IMSS retirement branch. Therefore, avoid a cost model that lists IMSS and SAR 2% as separate additions. Otherwise, you’ll risk counting the same money twice.
• Employee share: Employees contribute 1.125% of SBC to the same retirement subaccount. Note that the employer withholds it from pay rather than paying it. The government also adds a smaller contribution, bringing the tripartite total to roughly 6.5% of SBC.
• AFORE account: SAR balances sit in the employee’s individual AFORE account. It’s invested through generational SIEFORE funds that adjust risk by age. Employees generally choose their own AFORE rather than having their employer select one. This distinction is important when administering retirement contributions.
• Budget line: The employer’s SAR line is exactly 2% of SBC, subject to the same 25-UMA ceiling that caps IMSS and INFONAVIT contributions. It’s reported separately from INFONAVIT’s 5% housing contribution even though both flow through payroll.

State Payroll Tax (ISN)

ISN is an employer-side cost. The company pays it, and it does not come out of the employee’s salary. Each Mexican state levies its own payroll tax, with rates varying by location. Depending on the state, rates may range from 2.0% to 4.25%.

It sits on top of gross salary in the cost model, alongside IMSS, INFONAVIT, and SAR. Therefore, if an employee earns MXN 87,500 a month and the state rate is 3.00%, the employer owes MXN 2,625 in ISN.

Employee-Side Deduction (ISR)

You can think of ISR as Mexico’s personal income tax (Impuesto Sobre la Renta). The tax is on the employee’s side of the ledger and we’ll share the key information international employers need to know.

Progressive monthly table

ISR withholding uses a progressive monthly table with rates running from 1.92% to 35.00%. Each bracket has a lower limit, a fixed charge, and a percentage applied to the excess above that limit.

For each monthly salary of MXN 87,500, the employee falls into the 34% bracket. That produces a withholding of roughly MXN 19,986 per month before any subsidy is applied. The table is also updated for inflation each year, so limits shift even when headline rates do not.

Employment subsidy

Employment subsidy (subsidio para el empleo) is a fixed monthly credit that reduces ISR for lower-income workers. For 2026, the monthly amount is MXN 536.22, calculated as 15.02% of the current UMA. The subsidy applies only to incomes up to MXN 11,492.66 per month.

Therefore, a mid-tier salary doesn’t qualify, so the withholding calculation for higher earners uses the table alone with no offset. Note that the subsidy is not an employer contribution, but a reduction in the employee’s tax bill.

Employee IMSS withholdings

Employees also contribute to IMSS, and employers withhold those amounts from pay alongside ISR. The main employee rates are:

• 0.625% for disability and life insurance
• 1.125% for old-age and severance cover
• 0.250% for cash health benefits
• 0.375% for pensioner medical cover
• 0.400% for in-kind health benefits above three minimum wages

On an SBC of MXN 91,814, the total employee IMSS tax deductions are about MXN 2,161 per month. Those withhold lower net pay but leave the employer’s cost unchanged.

A worked example in USD

Consider a Mexico-based employee in Tamaulipas with an annual gross salary of USD 60,000. At an illustrative exchange rate of 17.5 MXN/USD, that’s MXN 1,050,000 per year, or MXN 87,500 per month.

Let’s use the standard SBC integration factor of 1.0493 for an employee with minimum statutory benefits. It makes the monthly SBC MXN 91,814.

At that salary level, the employee’s SBC exceeds four UMA, so the employer rate for old-age and severance is 7.513%.

The table below breaks down the monthly employer cost. Note that the calculation uses a 3.00% state payroll tax (Tamaulipas) and a low-risk office classification for workplace risk. It also excludes the cash aguinaldo and prima vacacional payments, which are additional statutory costs.

Cost item	Monthly MXN	Monthly USD	Annual USD
Gross salary	87,500	5,000	60,000
IMSS - health and maternity	3,227	184	2,213
IMSS - disability and life	1,607	92	1,102
IMSS - old-age and severance	6,898	394	4,730
IMSS - childcare and social benefits	918	52	630
IMSS - workplace risk	499	29	342
SAR retirement (2% of SBC)	1,836	105	1,259
INFONAVIT housing (5% of SBC)	4,591	262	3,148
Tamaulipas state payroll tax (3%)	2,625	150	1,800
Total employer contributions	22,201	1,269	15,224
Total employer cost	109,701	6,269	75,224

The employer burden in this example is around 25.4% on top of gross salary. In reality, the exact number depends on salary level, state, risk class, and the composition of the SBC.

Therefore, a higher salary can push the percentage down because IMSS contributions are capped at 25UMA. Likewise, a higher-risk salary industry or high-tax state pushes the percentage up.

Finally, USD 75,224 is not the full cost of employing this person. It’s salary plus contributions and nothing else. It leaves out the year-end bonus, vacation premium, benefits, and employer-paid items.

This example doesn't include Mandatory Profit Sharing, a cost that international companies often overlook. Here’s what Labor and Employment Law Attorney, Paulina Navarez De Santiago has to say about it:

“Companies must distribute 10% of taxable profits to employees annually. For profitable entities, this can be a significant cash-flow event.”

Simplify Mexico payroll taxes today

Managing payroll in Mexico requires accurate calculations, timely contributions, and an understanding of local tax and employment regulations. Mistakes can lead to compliance issues, unexpected costs, and extra administrative work.

Rivermate helps international businesses manage Mexican payroll requirements, including employer contributions, tax withholdings, and ongoing employment administration.

It handles the payroll administration and compliance calendar, so your team can focus on the hiring decisions rather than the paperwork behind it. Speak with Rivermate's team to understand the payroll costs and employment requirements involved in hiring in Mexico.

Frequently Asked Questions

What percentage should I add on top of gross salary for Mexico payroll?

Budget 25% to 35% above gross for standard office roles, with 30% as a safe planning figure. IMSS caps at 25 UMA, so the percentage compresses as salaries rise.

Payroll costs vary between employees as the Mexican labor laws steer away from blanket rates.

Does ISR withholding increase the employer’s cost?

No, ISR is an employee income tax that employers withhold from pay and remit to SAT. It reduces the employee’s net salary but does not add a peso to the employer’s contribution bill.

Which IMSS branch costs employers the most?

For mid-to-high salaries, old-age and severance cover is the largest branch, reaching 7.513% of SBC in 2026. Note that it rises annually through 2030, so year-one models need revisiting.

Can the employer deduct payroll contributions from corporate income tax?

Employer IMSS and INFONAVIT contributions are generally deductible as strict business expenses. However, the benefits that are tax-exempt for employees face a 47% education cap under ISR law.

You’ll need to confirm how this law is applied with a local tax advisor.

What is the single biggest budgeting mistake for Mexico hiring?

Using a national multiplier instead of building from components. Salary level, state ISN rate, workplace risk class, and SBC composition all move the number. Therefore, a 30% assumption can miss by five percentage points either way.

EOR services in Mexico can help you avoid these budgeting mistakes, as they know the local landscape.