How to Manage and Pay Contractors in Mexico

Mexico’s diverse workforce makes it an ideal location for hiring independent contractors. From small startups to large corporations, hiring contractors in Mexico can prove to be a lucrative decision.

What is the Difference Between an Independent Contractor and Full-Time Employee in Mexico? 

When you hire contractors in Mexico, you’ll need to be extra careful about distinguishing full-time employees from independent contractors in the eyes of the Mexican government. In Mexico, employee-employer relationships are regulated by the Mexican Federal Labour Law (Ley Federal del Trabajo). This law regulates what commercial codes and taxes contractors are required to abide by. 

Some general distinctions between employees and contractors are: 

• Employees are on payroll while contractors are paid per project 

• Contractors file and deduct their own taxes 

• Employees are entitled to benefits while contractors are not 

• Contractors are not entitled to notice or severance

• Contractors set their own hours and completion of projects, while employees have more set working hours  

In general, employees are directly working for a company in Mexico, while independent contractors are hired by a business to complete a specific service or project. 

Misclassifying contractors

Mexico has robust laws in place that favor employees and contractors. 

Make sure you are properly distinguishing between an employee and contractor. According to the Federal Income Statue in Mexico, if you misclassify a contractor in Mexico, your company could be subject to lawsuits. You might also be required to build a permanent establishment in Mexico, which means paying additional taxes and adhering to specific laws.

Employees who are misclassified as contractors in Mexico may be entitled to accrued benefits, social security, and other compensations for the amount of time they’ve been working as an employee but labeled as a contractor. 

How to Determine if you Need a Contractor in Mexico

After deciding whether or not to hire a contractor in Mexico, determine the scope of your project and the amount of time you’ll need the contractor for. 

Although you should always be asking yourself these questions regardless of location, they become especially crucial when you’re hiring a contractor in Mexico:

• Do I want to put this person on my payroll, or should they be responsible for their own taxes? 

• Is this person going to be working enough to make them entitled to benefits? 

• What qualifications does this person have that make them specialized enough to complete a specific project? 

• Do they need to put in bids to compete for these projects, or can I assign them everyday tasks like an employee? 

• Can I give this person independence to complete this project without inserting managerial opinion along the way? 

• How long will it take to complete this project? 

Where to Find Contractors in Mexico

One of the best ways to find contractors in Mexico is through word-of-mouth referrals. But, without an established business base in the country, you may have to turn to other resources. 

Job boards for hiring contractors in Mexico include:

• Upwork

• Fiverr

• Freelancer

• LinkedIn 

These sites allow you to research what services you need a contractor for and provide reviews on the candidate you plan to hire. 

How to Onboard Contractors in Mexico

In Mexico, employment agreements are always mandatory, for both employees and contractors. 

Take this requirement as an opportunity to always create a strong independent contractor agreement that details the scope of the working relationship. Putting a clear and detailed independent contractor agreement in place protects both you and the contractor, as well as helping both parties avoid any future misclassification or liability problems. 

Independent contractor agreements outline important details between the contractor and client, including: 

• Description of the services being provided

• Length of the project or service 

• Payment and other billing details 

• Dispute resolutions

How to Pay Contractors in Mexico

Before the first invoice hits from your Mexican contractor, you’ll need to know exactly how to pay them. 

You have a few options to legally pay independent contractors in Mexico: 

• Justworks International Contractor Payments. If you are a PEO or EOR customer at Justworks, you can easily pay contractors using our simple platform. Using a third-party payroll processing service in Mexico can be tricky because they need to be properly registered with the correct local bureaucracies. 

• Set up a bank account. You can set up a bank account in Mexico to pay your contractors. However, you’ll normally need to set up an entity within the country and register with the proper organizations (which can take months). 

• International money order. One of the most common ways to pay a Mexican contractor without an entity is to set up an international money order. They can take awhile to process, and the contractor will have to physically deposit the order. This is a good option when you’re only fulfilling one invoice. 

Justworks EOR Can Help with Global Expansion

With Justworks, you can seamlessly navigate local labor laws, manage cross-border payments, and ensure compliance — all without the hassle of HR admin tasks. Let us handle the complexities of hiring and paying employees and contractors in Mexico, so you can focus on growing your business. Partner with Justworks and expand your team with confidence! Get started today.