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Social Security in Mexico: A Guide for Overseas Employers

When you hire employees overseas one of the required steps is to register with the local social security program and to make statutory contributions.  Some employers may be confused by this, since their expat employees may still be paying social security at home to maintain their retirement and health benefits.  But the local employment laws still need to be followed for both residents and expat employees.

If you are hiring employees in Mexico, how will you know how to learn the local social security rules, and also ensure that your employees are not paying twice for that entitlement?  At some point, you will need in-country resources to help you, but this guide will get you started on the basics. 

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Social Security Laws and the IMSS in Mexico

All workers employed in Mexico must be registered with and contribute to the following institutions that deal with different social security insurance benefits:

Mexican Institute of Social Security (IMSS):

Provides medical services, child day care, accident and sickness compensation, pregnancy benefits and disability pensions

National Workers’ Housing Fund Institute (INFONAVIT):

Provides subsidized housing to employees as well as loans, and the Retirement Savings Program (SAR). SAR provides employees with retirement benefits when they reach 65 years of age.

Employees in Mexico are covered by the Social Security Law, under IMSS who is responsible for administering social security insurance benefits and the collection of contributions.

Case Example: Employer and Employee Social Security Rates in Mexico

We had a client with new employees in Mexico, and they wanted to know the overall contribution cost of social security for both employer and employee.

We replied by giving them the following outline of contributions and rules for administration:

  • Both the employer and employee are required to contribute to social security, although the employer makes a much larger contribution and has the responsibility of withholding the employee’s contribution.
  • The Social Security Rate levied on employers is 7.58%, and the Social Security Rate levied on employees is 1.65%. These contributions fund retirement pensions, health and maternity insurance, occupational risk, day-care, disability and life insurance, and unemployment and old age insurance.

Employee Social Security Requirements in Mexico

Employee contributions are mandatory for all workers, unless there is a tax treaty with the home country of expat employees that grants an exemption or credit.  Employee social security is calculated based on the monthly compensation (salary + bonus) and set according to the number of days in the month.

Employees who have taken a mortgage through Infonavit will have an additional amount deducted from their salary. This is calculated according to a rate set by Infonavit who will inform of a set multiplier to the UMA rate.

Other Statutory Payments in Mexico

Vacation Bonus (Prima):

Minimum 25% additional pay (based on total compensation for the number of days taken) when on vacation. The employer’s policy will state whether this is paid each time the employee takes a vacation or upon them completing 1 year in the company (this second option is most common).

Unused annual leave must be paid out to the employee (including prima) when the employment ends.

Christmas Bonus:

15 days pay (based on total compensation) which is paid before the 15th of December each year.

Food Coupons:

Grocery coupons are not a statutory requirement, but it is a common benefit that employers utilize in Mexico.

Very simply, once a month all employees are provided with grocery coupons for personal use. This is like a pre-paid card they can use at the supermarket. Since 2017 food vouchers have been indexed to UMA (Unidad de Medida y Actualizacion) as the measurement unit. For 2018 UMA has been set at 80.60 MXN.

Payroll Tax:

There is payroll tax in Mexico which is levied at the state level. The rate ranges between 1% and 3% of salaries and is withheld by the employer.

The Shield GEO Solution

As you look at the many social security and other statutory payments in Mexico, it becomes apparent that your HR department could have a hard time keeping up with all of the requirements.

How will you compute the correct contribution amounts and make sure they are included in the monthly payroll?  How will you handle expat payments, especially if they are still on the home country social security program?

We can offer you a complete employment solution when hiring overseas, which includes setting up social security registration and payments, as well as running a fully compliant local payroll.  We make international employment simple for your company and our clients, in all major global markets.

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Looking to hire an employee in Mexico? Get in touch.

 

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