Informality is widespread in most developing countries. In Latin America, 50 percent of salaried employees work informally. Three stylized facts characterize informality: 1) small firms tend to operate informally while large firms tend to operate formally; 2) unskilled workers tend to be informal while skilled ones have formal jobs; 3) Ceteris paribus, secondary workers are less likely to operate formally than primary workers. We develop a model that account for all these facts.