Key Concepts for Calculating Social Security in Mexico

When calculating Social Security contributions in Mexico, it's essential to understand three critical elements:

1. The Base Listed Salary (BLS) of the employees.

2. The Measurement and Updating Unit (UMA).

3. The current minimum wage in Mexico.

Understanding the Base Listed Salary

According to Article 27 of Mexico’s Social Security Law, the Base Listed Salary (BLS) is the foundation for determining employee benefits. This salary must include all mandatory employee benefits, such as vacation pay, vacation premium, and the Aguinaldo (Christmas bonus).

Key points to consider:

- Christmas Bonus: Employees with more than one year of service are entitled to a Christmas bonus of at least 15 days’ salary.

- Vacations: Employees earn 12 days of paid vacation after one year of service, with an additional two days for each subsequent year until the fifth year. After that, the vacation period increases by two days every four years.

- Vacation Premium: Employers must pay an extra 25% on top of the regular salary during vacation periods.

The Measurement and Updating Unit (UMA)

The Unidad de Medida y Actualización (UMA) serves as an economic reference point, adjusted annually in line with inflation. The National Institute of Geography and Statistics (INEGI) determines the UMA, which is used in various financial calculations, including social security contributions.

For 2023, the daily UMA is MXN $103.74 (approximately USD $5.50), and the monthly UMA is MXN $3,153.70 (about USD $167.20). The maximum Base Listed Salary allowed for social security purposes is capped at 25 UMAs.

Minimum Wage in Mexico

Mexico's minimum wage varies depending on the region. The country has a standard minimum wage and a higher rate for the northern border area to discourage workers from migrating to the United States. The minimum wage is crucial for several legal calculations, including the employer's contribution to the Advanced Age Severance fee.

As of 2023, the general minimum wage is MXN $248.93 (USD $14.83), while the northern border minimum wage is MXN $374.89 (USD $22.34).

Advanced Age Severance Fee

A significant update in Mexico's Social Security Law took effect on January 1st, 2023, altering how the employer’s Advanced Age and Severance fee is calculated. This fee is tiered based on the employee's salary, with the percentage ranging from 3.15% to 11.88%. For example, if an employee’s daily BLS is MXN $360.73, the applicable fee is 9.57%.

How to Calculate Social Security Contributions in Mexico

To calculate social security contributions for an employee, you first need to determine the risk premium based on the type of work performed. For administrative tasks, the risk premium falls under Class I, with a rate of 0.54355%.

Next, calculate the surplus fee for the Disease and Maternity Insurance. With these components in place, you can calculate the total contributions for both the employer and the employee.

For instance, with a monthly BLS of MXN $10,821.92, the social security contributions might look as follows:

- Company Contribution: MXN $2,997.32

- Employee Contribution: MXN $262.46

Conclusion

In Mexico, social security is a fundamental right for employees, requiring contributions from both the employer and the employee. These contributions are calculated based on the employee’s Base Listed Salary and, in certain cases, the current UMA. Understanding these components ensures accurate and compliant calculations of social security obligations.