How to hire and pay independent contractors in Mexico

Today, it’s possible to hire independent contractors from any part of the world, thanks to improvements in technology and communications. It’s a great idea to consider Mexico if you’re looking to expand your team. Its proximity and strong economic ties to the US are definite advantages. Besides, Mexico is the 15th largest economy by GDP in the world, and home to a highly skilled and educated workforce.

However, hiring independent contractors in Mexico can be tricky. Before you hire someone from a foreign country, you need to be familiar with their country's labor laws and employment requirements. You need to correctly classify your workers, as companies often make the mistake of misclassifying workers. Plus, you’ll need to have a seamless contractor management system in place to make sure you’re onboarding and paying your contractors on time. 

But you’re in the right place. In this article, we’ll explain how you can tackle issues related to hiring and paying independent contractors in Mexico. We’ll take you through the specifics of expanding your team in Mexico, including employment law, tax and compliance practices, and how you can deal with the consequences of misclassification. 

Unique considerations of managing contractors in Mexico

If you want to hire independent contractors in Mexico, it’s essential to keep up with recent updates to Mexico’s labor laws.

Mexican labor laws are focused on combating discriminatory hiring and unfair labor practices. When you hire Mexican contractors, the responsibility falls on the employer to keep policies in place to combat issues such as discrimination, sexual, harassment, and bullying in the workplace.

Most importantly, Mexico has made misclassification laws more strict in the past decade, levying penalties if you incorrectly classify worker employment status. Besides heavy fines, you may also have had trouble reviving your company's reputation if you misclassify contractors. If you fail to comply with these regulations, you may risk triggering permanent establishment. A permanent establishment obligates you to meet specific compliance standards and pay corporate taxes in Mexico — something you would not have to worry about if you successfully avoided misclassifying your workers. 

Mexico also has a significant population of non-nationals. If you choose to hire non-nationals as independent contractors, keep in mind that the onboarding process will take three extra days.

What are the risks of misclassifying Mexican independent contractors as employees?

As already mentioned, Mexico takes misclassification claims seriously. Therefore, you should know how to differentiate between an employee and a contractor in the country. 

Employers have more authority and control over their employees, unlike contractors who can decide their own work schedule and location. The employer provides employees with equipment and tools and pays them a regular salary. Contractors can work for multiple clients, use their personal tools and equipment, and are paid once they submit an invoice to their employer. 

The Mexican government has increased misclassification penalties in the past ten years to ensure companies do not pay their employees as contractors. To avoid the risks of misclassification such as fines, bans, or legal trouble, it’s essential to make a clear distinction between your employees and contract workers. Some risks of misclassification include: 

• Unpaid taxes: If you misclassified your employee as a contractor, you might be liable to pay the employment taxes that you have withheld for the duration of the employment. 

• Penalties: You will also be charged penalties by the Mexican government. 

• Bans: Your company may be banned depending on your industry and the severity of the misclassification claims. 

Another significant risk of misclassification that most companies seem to overlook is the loss of intellectual property (IP). When worker classification is challenged, you may lose your right to the IP produced by the worker during their employment at your company. 

To minimize these risks and avoid problems associated with misclassification, why not work with an international contractor management solution like Remote? Remote can help you onboard workers compliantly and minimize the risk of misclassification in accordance with Mexican labor laws. 

What are the labor laws in Mexico?

The Mexican Constitution, and specifically the Federal Labor Law, regulates labor and employment in the country. There have been several amendments to Mexican labor laws over recent years.

Teleworking: In January 2021, the law acknowledged the role of “teleworking” and provisions were put in place to protect the rights of remote workers. However, the protections only apply to those workers who worked at a location of their choosing for more than 40% of their working relationship with the employers.

Labor unions: Workers in Mexico can be part of certain labor unions if they wish. These workers can legally go on strike in case of a failed attempt to reconcile between the employer and the union. 

Minimum wage: Mexico has two types of minimum wages. One applies to all kinds of workers, irrespective of their experience, industry, or age. Meanwhile, the other is the “professional” minimum wage, which applies to specific employees based on their craft and profession. 

• MXN 312.41 (US $17.38 per day) for workers in Mexico's Free Zone northern border municipalities 

• MXN 207.44 (US $11.54 per day) for the rest of the country

Statutory leave: Vacation days in Mexico depend on the employee’s length of service and vary between a minimum of 12 days (for one year of employment) and 20 days (five years of employment.)

Payroll cycle: Wages need to be paid in monthly installments. 

Probation period: The probation period is 30 days when the employment contract is 180 days or longer. The probation period can be extended beyond 180 days for managerial, professional, or technical professions.

Maternity leave: Pregnant employees can take up to 12 weeks of maternity leave.

Termination laws: The law distinguishes between dismissal and termination. You can dismiss a worker if their conduct justifies the dismissal, without giving notice. This is also applicable to employees, If your employee is on an indefinite contract, you do have to provide a severance package. You can terminate an employee due to economic reasons, employee death or incapacity, or termination of work.

Most of these employment laws don’t apply to independent contractors in Mexico. Contractors are not entitled to employment benefits, either.

As evident, laws can be hard to navigate if you're unfamiliar with legal jargon or don't have the time to learn about the specifics of labor laws in Mexico. If you’re considering hiring international contractors, Remote can deal with legal compliance, tax reporting, and payroll.

Remote takes most of this responsibility off your hands, managing the entire contractor process from onboarding to payments. Our user-friendly Remote platform allows you to manage everything with a few clicks, leaving you the time to focus on growing your business.

Tax and compliance practices for hiring independent contractors from Mexico

Independent contractors in Mexico are responsible for paying their taxes.

Any US company hiring in Mexico must submit specific tax forms to the Internal Revenue Service (IRS) to stay tax compliant. This guide on tax compliance for US companies covers it in detail. The IRS requires US companies hiring international contractors to collect the W-8 BEN Form from each contractor. The employer may also need to fill out Form 1096, which helps the IRS track payments made to international contractors.

Remote’s contractor management platform is designed to help companies hire and pay international contractors compliantly. If you’re worried about keeping track of tax requirements, you don’t have to be. Contractors who are onboarded through Remote will be directed to fill and submit the relevant forms. Remote makes compliance simple.

How do I convert an independent contractor in Mexico to an employee?

If you're happy with a contractor’s performance, you may want to hire them as a full-time employee. If you’re considering converting a contractor to an employee and want to know more about the pros and cons of conversion, read our helpful guide on when you should convert a contractor to an employee.

Some reasons to convert your contractor to an employee include:

• It makes sense for your business model and requirements.

• Your contractors can have a greater impact by becoming part of your organization.

• You have greater control over their schedule and performance.

• It can turn out to be a cost-effective option in the long run.

The process of conversion is not simple. You’ll have to draft compliant employment contracts, offer benefits, and set up a payroll system to onboard and pay your employees. Alternatively, you could use our contractor management service when you’re ready to convert your contractors. For more information on hiring employees from Mexico, read our helpful guide.

How do I pay an independent contractor in Mexico?

Employers must pay Mexican remote workers in Mexican pesos through a government-approved local bank. Workers can convert their currency later, but employers cannot pay them in American dollars or another currency. 

Typically, employers have to set up employee accounts specifically for receiving payroll. Employers can then send monthly payments to these bank accounts through a debit card. These accounts do not offer standard banking services, so employees need individual bank accounts too. 

Companies outside Mexico can only pay Mexican workers directly, they are independent contractors. It would be best not to pay full-time Mexican employees as contractors, as the country has stringent misclassification laws. 

Remote’s international payroll service gives you everything you need to pay your independent contractors correctly and on time. With Remote, you can pay your contractors in their local currency efficiently without hidden fees.

The best way to hire independent contractors from Mexico

Mexico has an impressive talent pool of skilled workers who can, no doubt, add massive value to your team.

But, employers who hire independent contractors from Mexico often struggle to stay compliant while dealing with onboarding, tax filing, payroll, invoice management, and other business operations. 

But, hiring contractors from Mexico doesn’t have to be complicated, as long as you’re working with an efficient contractor management system like Remote that can make the process easy for you. Remote can help you:

• Manage all your contracts on a single platform

• Onboard them quickly using our localized contracts

• Automate invoices and manage payroll processes

• Make payments to global contractors in their local currency

• Stay compliant with local labor laws

Contact our friendly team to learn how you can take your business to the next level. If you’re ready to start onboarding contractors in Mexico, sign up with Remote and get started right away!