Quick Hits
- Knowing which type of salary to use for employees in Mexico is crucial for terminations, calculation of social security contributions, and the calculation of statutory benefits.
- Using the wrong salary base may lead to employee claims, fines from labor, social security, and tax authorities, and disgruntled employees.
The Three Main Purposes of Salary in Mexico
Mexican law uses salary for three main purposes: (1) paying salary and benefits, (2) paying social security contributions, and (3) paying severance. Each purpose may require a different type of salary.
Payment of salary and benefits: The daily salary is the compensation agreed upon between the employer and the employee. It is used to calculate statutory benefits such as the Christmas bonus, vacation premium, vacation pay (upon termination), and any other benefit that refers to payment of a day of salary. The daily salary can never be lower than the minimum wage (general or professional).
Minimum wage: The minimum wage is the lowest amount an employee must receive for a day of work (even for an hour of work!). Each year, the National Minimum Wage Commission sets this amount. For 2026, the general minimum wage in Mexico is MXN $315.04 (approximately USD $17.08) per day, and the minimum wage in the Northern Border Free Zone is MXN $440.87 (approximately USD $23.91) per day.
Payment of social security contributions: The contribution base salary is the salary used to calculate and pay contributions to the Mexican Institute of Social Security (Instituto Mexicano del Seguro Social (IMSS)) and the National Institute of Workers’ Housing Fund (INFONAVIT), including contributions to the employee’s individual retirement account (AFORE). It is made up of the daily base salary plus the benefits that the Social Security Law requires to be included, but expressly excludes those the law allows to be left out (such as certain savings funds and food vouchers within statutory limits). It is capped at twenty-five times the Unit of Measurement and Update (UMA), a reference value updated each year to calculate legal obligations and limits. Based on the 2026 UMA, effective February 1, 2026, the cap is MXN $2,932.75 (approximately USD $159.01) per day.
Payment of severance: Mexico does not recognize employment at will. Therefore, unless there is a justified cause under the Mexican Federal Labor Law (FLL), employers must, as a general rule, pay severance upon termination. Severance includes: accrued statutory benefits, ninety days’ pay, twenty days’ pay per year of service, and the seniority premium. The ninety days’ and twenty days’ pay are the tricky ones, as they must be calculated using the aggregate daily salary. Under the FLL, the aggregate daily salary is made up of the daily cash payments, bonuses, benefits, housing, premiums, commissions, payments in kind, and any other amount or benefit delivered to the employee for their work. In practice, this means the daily base salary plus all benefits the employee receives for services rendered (Christmas bonus, vacation premium, food vouchers, bonuses, commissions, savings funds, etc.). Unlike the contribution base salary, it has no cap and no exclusions. The seniority premium, however, is capped at two times the minimum wage.
Using the right type of salary for each purpose is key to avoiding liability. Employers may want to confirm with their payroll providers and HR departments that each payment, contribution, and severance calculation relies on the correct type of salary.
Ogletree Deakins’ Mexico City office will continue to monitor developments and will provide updates on the Cross-Border and Wage and Hour blogs as additional information becomes available.
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