Ninja Excel BlogPeople ManagementGross and net salary in Mexico 2023: this you need to know

Gross and net salary in Mexico 2023: this you need to know

Find out in this article what is the gross salary that exists in Mexico

For every people manager it is essential to calculate the gross salary and net. In this way, the worker will know the discounts for social security, Income Tax (ISR) or other associates. However, the salary itself can be complex due to the number of variables to consider. 

Calculating net salary is also a fundamental task for any human resources staff.. This is the total money that the worker will receive in their bank account. However, there may be confusion regarding the gross salary. Both types of payroll are very different. 

Do you have a small or medium business?Maybe you still don't have budget for automated payroll systems? Don't worry! In this Ninja Excel article, we will explain the essential things you need to know about gross salary.  

Federal Labor Law: What is salary?

According to article 82, salary is defined as “the remuneration that the employer must pay to the worker for his work.” 

This salary can be set per unit of time or per unit of work, commission or lump sum. 

According to article 84, the salary according to the Federal Labor Law in Mexico must be composed of: 

  • daily fee 
  • Perks
  • Perceptions 
  • Room
  • Cousin
  • commissions
  • Benefits in kind 
  • Any other amount or benefit

In addition, the following condition must be considered according to article 86:

“For equal work, performed in the same position, hours and conditions of efficiency, there must be equal pay.”

Therefore, it is important to know what the gross salary is made up of when you have to do the Payroll

What is gross salary?

The gross salary is the total amount of money that an employee earns without applying deductions or withholdings for taxes and Social Security contributions.l. It is usually the amount of money that a company offers in full. 

What withholdings or discounts are made from the gross salary?

According to the job portal Indeed Mexico, withholdings or discounts towards the gross salary in Mexico are classified in this way:

    • Withholdings required by the Federal Labor Law: such as federal or state taxes. Contributions to the Mexican Social Security Institute (IMSS) and work risk insurance, disability, among others, are also considered. 

    • Discounts requested by the employee: Personal loans or salary advances are included. It also includes pension funds, which the employer must authorize. 

    • Withholdings intended for a third party: The worker accepts that an amount of money goes towards a specific payment. For example, the credit from the National Housing Fund Institute (Infonavit). Also for payments to the National Fund for Workers' Consumption (Fonacot).

    • Discounts by collective agreement: They are deductible from workers to savings accounts or payment of union dues. 

How is gross salary calculated in Mexico?

The gross salary is the economic remuneration offered to the worker without considering discounts. Therefore, the gross salary will be all the money agreed between the worker and the employer. 

What is net salary?

Net salary is the money that a worker receives after the corresponding withholdings have been deducted. These withholdings include federal and state taxes, social security contributions, discounts for benefits, insurance or others agreed upon with the employer. 

How is net salary calculated?

The calculation of net salary depends on several deductions that must be made. This will depend on the type of salary. The calculation is done as follows:

Deduct the ISR

To deduct Income Tax, you must follow the following steps:

    1. Identify the person's total income.
    2. Select the ISR percentage according to the salary level provided by the Tax Administration Service (SAT). Next, we attach the following salary level table for monthly income.

Lower limit ($) Upper limit ($) Fixed fee % Over and above the lower limit
0.01 746.04 0.00 1.92
746.05 6,332.05 14.32 6.40
6,332.06 11,128.01 371.83 10.88
11,128.02 12,935.82 893.63 16.00
12,935.83 15,487.71 1,182.88 17.92
15,487.72 31,236.49 1,640.18 21.36
31,236.50 49,233.00 5,004.12 23.52
49,233.01 93,993.90 9,236.89 30.00
93,993.91 125,325.20 22,665.17 32.00
125,325.21 375,975.61 32,691.18 34.00
375,975.62 Onwards 117,912.32 35.00

Ninja Fact:

The salary level tables vary if they correspond to biweekly or annual payments. You can review in detail the tables here

    1. Subtract the lower limit from the gross salary according to the salary level. This will be called the base. 
    2. To the result obtained, the rate located in the table previously shown must be applied.
    3. To the result you must add the fixed fee established by the SAT and thus you will obtain the ISR.

Example:

For a salary of 11,000 pesos, the lower limit is subtracted according to the salary level table (11,128) and it would be 128. From this, the percentage of the surplus of the lower limit is subtracted, which would be 16, leaving as a result for the moment 112. To this number we add the fixed quota of 893, leaving it at 1005. Therefore, the salary of 11,000 pesos We subtract the 1005, leaving us with 9995. 

Gross salary – lower limit = BASE

BASE – % excess of lower limit = X

X + fixed fee = Y

Gross salary – Y = net salary discounted from ISR

IMSS discounts

To determine social security discounts, you must do the following:

1. Calculate the Contribution Base Salary (SBC): is the average of what a worker earns per day. This will include the concepts of: daily quota, bonuses, perceptions, food, housing, bonuses, commissions, benefits in kind and any other amount or benefit that the employer grants to the worker.

It is calculated by adding your base salary plus legal benefits and other additional benefits, 365 days a year. 

2. Determine the quotas: According to Indeed The value of the SBC will be used to determine the fees that the employer must assume in the following:

  • Occupational risk
  • Disability and life
  • Retirement, unemployment in advanced age and old age
  • Kindergarten
  • Illness and motherhood

According to the percentage that the worker and employer must contribute, the IMSS discount will vary. 

The institution itself provides for employers the Single Self-Determination System (SUA). This is a software that aims to "determine amounts and concepts for the payment of worker-employer contributions for IMSS, Retirement, Unemployment and Old Age and INFONAVIT." This is mandatory for employers who have 5 or more employees in charge. 

What is the difference between gross salary and net salary?

The gross salary is the money that is agreed upon in the employment contract before applying any type of reduction. Instead, the net salary is the money the worker actually receives after deductions.

Therefore, the gross salary is the total amount that a recruiter publishes in a job offer. Meanwhile, the net salary will be the money that the worker will see in his bank account.  

It is relevant to understand the differences between these salaries. This must be clearly communicated to workers and stipulated in the contract.. For the employer, it will be useful to understand the discounts that apply, such as credits, food vouchers, insurance or others.

Conclusions 

The gross salary is a concept that must be explained to any new employee. Although it is a greater amount than the net salary, it is important to remember that the deductions described above must always be applied. 

Meanwhile, for calculate net salary in Mexico, it is necessary to make discounts for Income Tax and fees for the Mexican Social Security Institute. Also, other voluntary employee discounts must be considered. Therefore, the net salary varies depending on these and more variables. 

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