Compliantly Engage Contractors in Mexico
Our workforce compliance guide to Mexico covers everything you need to compliantly hire, onboard, manage and pay independent contractors in Mexico.
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Our workforce compliance guide to Mexico covers everything you need to compliantly hire, onboard, manage and pay independent contractors in Mexico.
Worksuite offers a whole range of professional services and compliance tools, making it easy to compliantly engage independent contractors in Mexico
We work with the best legal partners in Mexico to create contract templates that are compliant with local laws to protect you and your contractors from fines and penalties.
Our bespoke onboarding workflows and screening questioners will help you determine the worker status in compliance with Mexican law, based on which you can decide to engage a worker as a contractor or full-time worker—all without needing to set up your business entity.
Any business hiring in Mexico should understand the important legal distinction between who classifies as an independent contractor and who can be hired as an employee. Fines or penalties may be issued to businesses that are hiring contractors under the guise of employment.
Misunderstanding worker categories and incorrectly classifying an employee as an independent contractor could result in a business becoming responsible for substantial payments in back taxes and back pay. It is important to work with a partner like Worksuite to ensure you put in place an engagement framework that accurately classifies freelancers as independent contractors for you. Engaging a partner like Worksuite ensures compliance with Mexican Civil Code, and can automatically alert you when freelance talent must be engaged directly as employees, or contractors on the payroll.
Broadly speaking, the definition of an employee in Mexico revolves around the concept of subordination (i.e. the employer’s level of control over the direction of the employee) and the payment of a recurring wage or salary. If this situation exists, the Mexican Federal Labor Law deems that employment is taking place, irrespective of any agreed contracts that may be trying to frame the relationship as one of client and independent contractor.
Employment contracts are governed by the Mexican Federal Labor Law (La Ley Federal del Trabajo). Unless agreed otherwise, all employment contracts are indefinite (non-fixed term).
All agreements with independent contractors must comply with Mexico’s civil laws.
During the recruitment and interview process, employers in Mexico are generally free to ask any questions they deem relevant to the candidate’s suitability for the position. Once a written contract has been signed by both parties, the employment is confirmed.
Each contractor in Mexico must be registered with the Secretaría del Trabajo y Previsión Social (STPS) as a provider of specialized services.
The hiring business and the independent contractor must work together to agree, finalize, and sign an acceptable contract to both parties.
Contractors must periodically report their contracts to both the Instituto Mexicano del Seguro Social (IMSS) and INFONAVIT.
Employers must withhold and pay several taxes at source, deducting these sums from a worker’s pay and detailing the contributions on the worker’s payslip.
All employees must file an annual tax return to the Mexican authorities.
Contractors in Mexico are required to independently pay income tax (Impuesto Sobre la Renta, or ISR) on their profits and charge Impuesto al Valor Agregado (IVA, the Mexican equivalent of VAT) on their services. There is no minimum threshold for IVA registration. All contractors must register.
Employers in Mexico must deduct four taxes at source:
A relatively low tax on salaries is also paid by the employer. The precise payment varies between states. These payments are tax-deductible in the employer’s annual financial accounts.
A business hiring an independent contractor in Mexico can (but are not required to) make provisional income tax withholdings from the payments it makes. In general, though, almost all contractors are paid in full – without any deductions at source.
Employees receive payments in Mexican pesos into a specific payroll bank account. The account is set up by the employer at a government-approved bank. The first nine hours of overtime in any given week are paid at double the employee’s agreed base rate. Any further overtime that week is paid at triple the employee’s agreed base rate. All workers must receive at least the national minimum wage
Most independent contractors in Mexico issue invoices to cover the work or projects they complete.
Under Mexico’s Federal Labor Law, an employer can only freely terminate a worker’s employment if there are provable grounds for dismissal. In some circumstances, employees can be dismissed without cause if the employer makes a severance payment equivalent to three months’ consolidated salary, up to 32 days (depending on seniority) of consolidated salary for every year of service, plus accrued benefits earned during the last year of service.
Mexican labor legislation protects workers against discrimination in eight key areas: age, gender, race, nationality, disability, sexual preference, religion, and social/marital status.
Female workers are entitled to 12 weeks’ maternity leave at full pay, with an additional 60 days available at half-pay.
Working weeks are capped at 48 hours, with at least one rest day guaranteed each week.
Independent contractors in Mexico do not enjoy the same workplace right as employees. Effective contract negotiation is key for contractors looking to secure their rights.
The contract between an independent contractor and their client can only be terminated in line with the terms contained within the contract.
Employees in Mexico are guaranteed certain benefits under the country’s Federal Labour Law. These include:
Some employees are also entitled to paid sick leave (up to 52 weeks at 60% of salary). Female employees are entitled to 12 weeks of maternity leave.
Independent contractors are not legally entitled to any benefits from their civil or commercial contract, and any benefits given may be considered as an argument for employment.
Contractors may voluntarily contribute to health services and private pensions.
Employment payments are bi-weekly, made on the 15th and the final day of each month.
While there is no legal requirement around standard payment schedules, most invoices in Mexico use 30-day terms.
Employment contracts are governed by the Mexican Federal Labor Law (La Ley Federal del Trabajo). Unless agreed otherwise, all employment contracts are indefinite (non-fixed term).
During the recruitment and interview process, employers in Mexico are generally free to ask any questions they deem relevant to the candidate’s suitability for the position. Once a written contract has been signed by both parties, the employment is confirmed.
Employers must withhold and pay several taxes at source, deducting these sums from a worker’s pay and detailing the contributions on the worker’s payslip.
All employees must file an annual tax return to the Mexican authorities.
Employers in Mexico must deduct four taxes at source:
A relatively low tax on salaries is also paid by the employer. The precise payment varies between states. These payments are tax-deductible in the employer’s annual financial accounts.
Employees receive payments in Mexican pesos into a specific payroll bank account. The account is set up by the employer at a government-approved bank. The first nine hours of overtime in any given week are paid at double the employee’s agreed base rate. Any further overtime that week is paid at triple the employee’s agreed base rate. All workers must receive at least the national minimum wage
Under Mexico’s Federal Labor Law, an employer can only freely terminate a worker’s employment if there are provable grounds for dismissal. In some circumstances, employees can be dismissed without cause if the employer makes a severance payment equivalent to three months’ consolidated salary, up to 32 days (depending on seniority) of consolidated salary for every year of service, plus accrued benefits earned during the last year of service.
Mexican labor legislation protects workers against discrimination in eight key areas: age, gender, race, nationality, disability, sexual preference, religion, and social/marital status.
Female workers are entitled to 12 weeks’ maternity leave at full pay, with an additional 60 days available at half-pay.
Working weeks are capped at 48 hours, with at least one rest day guaranteed each week.
Employees in Mexico are guaranteed certain benefits under the country’s Federal Labour Law. These include:
Some employees are also entitled to paid sick leave (up to 52 weeks at 60% of salary). Female employees are entitled to 12 weeks of maternity leave.
Employment payments are bi-weekly, made on the 15th and the final day of each month.
All agreements with independent contractors must comply with Mexico’s civil laws.
Each contractor in Mexico must be registered with the Secretaría del Trabajo y Previsión Social (STPS) as a provider of specialized services.
The hiring business and the independent contractor must work together to agree, finalize, and sign an acceptable contract to both parties.
Contractors must periodically report their contracts to both the Instituto Mexicano del Seguro Social (IMSS) and INFONAVIT.
Contractors in Mexico are required to independently pay income tax (Impuesto Sobre la Renta, or ISR) on their profits and charge Impuesto al Valor Agregado (IVA, the Mexican equivalent of VAT) on their services. There is no minimum threshold for IVA registration. All contractors must register.
A business hiring an independent contractor in Mexico can (but are not required to) make provisional income tax withholdings from the payments it makes. In general, though, almost all contractors are paid in full – without any deductions at source.
Most independent contractors in Mexico issue invoices to cover the work or projects they complete.
Independent contractors in Mexico do not enjoy the same workplace right as employees. Effective contract negotiation is key for contractors looking to secure their rights.
The contract between an independent contractor and their client can only be terminated in line with the terms contained within the contract.
Independent contractors are not legally entitled to any benefits from their civil or commercial contract, and any benefits given may be considered as an argument for employment.
Contractors may voluntarily contribute to health services and private pensions.
While there is no legal requirement around standard payment schedules, most invoices in Mexico use 30-day terms.
Labor relationships in Mexico are regulated by the Federal Labor Law. This legislation details when a worker has been deemed an employee or an independent contractor. Understanding these differences is crucial to businesses wishing to hire an independent contractor. Failure to fully understand what constitutes an employee rather than an independent contractor could leave an employer exposed to significant financial risk.
Classifying workers as employees or contractors is a complex process in most countries around the world. In Mexico, guidelines exist under the Federal Labor Law. The main guideline relates to subordination. In 1995, the country’s Second Collegiate Circuit Court on Labor Matters in the Fourth Circuit deemed that employment was defined by an employer’s ability to issue work orders and an employee’s obligation to obey those orders.
In Mexico, an employee can only be a named person. A company cannot act as an employee. However, a company or an individual can act as an independent contractor. The most common understanding of an employment relationship in Mexico hangs on the concept of subordinance. If the employer can dictate when and how the service provider fulfills their duties, the relationship is likely to be one between employer and employee.
As a broad guide, companies wanting to hire independent contractors in Mexico should be able to answer yes to these questions:
If you are considering hiring an independent contractor, it is essential to seek professional advice to ensure your arrangement does not risk being reclassified by the Mexican tax authorities. Any use of deceptive practices around subcontracting or the provision of specialized services could carry a prison sentence of up to nine years.
Independent contractors in Mexico work under one of two main categories: self-employed freelancers, or operating as a company.
Emendations to the Ley Federal del Trabajo also define the specific types of contracts companies should use to hire contractors. The following types of contracts are permissible under Mexican federal law:
Companies that hire independent contractors in Mexico should have those workers register with the Mexican tax authorities as independent service providers. They should also provide and keep official, signed pay receipts. They should also avoid creating exclusive relationships or imposing non-compete requirements, which could indicate the presence of an employer-employee relationship instead.
Emendations to the Ley Federal del Trabajo outline the types of contracts companies should use to hire contractors. The following types of contracts are permissible under Mexican federal law:
A. Direct engagement of the independent contractor as self-employed or registered via their own limited company.
B. Third party: These firms come in two forms and both are specially designed to vet and engage freelancers compliantly as either contract employees or independent contractors on your behalf.
Companies hiring independent contractors in Mexico should avoid making payments directly through their payroll system. Beyond these guidelines, there are no specific lawful requirements related to paying independent contractors in Mexico. The contract should stipulate the preferred payment method agreed upon by both parties.
Independent contractors in Mexico are responsible for their own tax affairs. They must file a tax return with the Mexican government and pay any income tax and VAT due on their declared profits and turnover. Contractors can also voluntarily make healthcare and private pension contributions. However, they are not entitled to any unemployment benefits.
The tax affairs of employees are more straightforward. Income tax, social security, INFONAVIT, and local payroll taxes are all deducted at the source. However, employees must still file a tax return with the Mexican authorities.
Under legislation released in April 2021, contractors in Mexico must now report their contracts periodically to the IMSS and INFONAVIT.
We can simplify hiring full-time workers in Mexico by acting as the Employer of Record (EOR) on your behalf, handling everything from contracts, onboarding, documentation, payroll, benefits, and workforce management. Reduce your time-to-hire by 90%, slash your overheads, and remain fully compliant.