Independent Contractors & Employment Guidelines in Mexico
Contractor length allowance
There are no limitations to a genuine independent contractor if the contractor has multiple clients, their use can be justified by the contractor’s specific know-how and skills, and the company can show that the task cannot be accomplished by their own staff.
Individuals or legal entities providing specialized services or performing specialized works and wishing to supply a third party (contractor) must be registered with the Secretaría del Trabajo y Previsión Social (Ministry of Labour and Social Security) on the REPSE platform. In order to obtain the registration, they must prove that they are up to date with their tax and social security obligations. Such registration must be renewed every three years.
Fixed-term contract limitation
The fixed-term contract is required by the nature of the work to be performed — for example, when the purpose is to replace an employee for a certain time, such as in cases of maternity or illness resulting from an occupational hazard, occupational illness, general illness of an employee, and other absences due to various causes.
In the case of commissioned work, a third party may commission a specialist to produce an artistic work, with the commissioning party having the ownership of the patrimonial rights, corresponding to their faculties related to the disclosure and integrity of the work.
What makes someone an employee
According to the Mexican Federal Labour Law (FLL), an employee is a natural person who performs subordinate personal work for another natural or legal person. Work is understood as any human, intellectual, or material activity regardless of the degree of technical preparation required by each profession or trade.
A professional degree is required to practice a profession and specialties. Law will determine in each state of the Mexican territory which professions require a degree for their exercise.
The contractor is the natural or legal person who undertakes to perform a work or service by contract in exchange for an agreed price within a specified period.
Employee vs contractor
Independent contractors are not considered employees, because they are not performing any subordinate personal work for another natural or legal person and are therefore not subject to the same regulations and protections. The essential difference between employees and contractors is that employees go onto your company’s payroll, while contractors do not and work around a commission or a specific amount to be paid by the client. With employees, you withhold payroll taxes from their paycheques for every pay period. You also make the required contributions to social security, retirement pensions (if the case is applicable), unemployment payments, and disability funds.
Employees typically receive benefits such as paid time off, health insurance coverage, and retirement plans. Contractors generally do not gain access to these benefits.
Contractors and employees also differ in the way they receive work and compensation.
Employees usually receive a much higher level of employer oversight. They get training and supervision from the company and have tasks assigned to them, and the company has significant control over their labour.
Contractors are more likely to submit quotes or bids for the projects they wish to take on than to receive assignments. They have more freedom in the way they accomplish their tasks and can manage themselves. They often submit invoices for payment rather than receive paycheques through a company’s payroll department.
Penalties for misclassification in Mexico
When the company hires the services of a contractor and the contractor can prove the existence of the subordinate personnel working for the company, the contractor may demand their labour rights.
The employee will have the right to claim all the labour rights established in FLL, which are set forth in the Mandatory Benefits section of this guide.
The subcontracting of specialized services or the execution of specialized works must be formalized by means of a written contract indicating the object of the services to be provided or the works to be executed, as well as the approximate number of employees that will participate in the performance of such contract.
Individuals or legal entities that provide subcontracting services must be registered with the Ministry of Labour and Social Welfare.
Individuals or legal entities that provide subcontracting services without having the aforementioned registration and persons who subcontract personnel will be fined in the amount ranging from Mex$192,440.00 to Mex$4,811,000.00.