How to hire and pay freelancers from Mexico

Freelancing is a viable career option in Mexico – there’s a lot of growth in the Mexican freelance market. According to the National Survey of Occupation and Employment in October 2023, this Latin country was home to 13 million talented and ambitious independent contractors.

Why is it worth hiring international contractors?

Companies that hire independent contractors in Mexico use local talent pool especially if they want to launch their product or service in this Latin country – but not only!

Hiring foreign freelancers is your chance to expand your business. Looking globally can be a game changer since you access a diverse talent pool. The international market boasts a vast array of skilled individuals you might not find locally. This broader selection allows you to find the perfect fit for your project, whether it’s a niche expertise or a specific cultural understanding.

Moreover, depending on location and skill set, international contractors can offer competitive rates. This can be a significant advantage, allowing you to find outstanding talent at a more affordable cost than those offered by local freelancers. With a lower cost of living in Mexico, you can access top-tier global contractors at a significantly reduced rate in comparison to hiring similar talent domestically.

This translates to a win-win situation: US companies benefit from cost savings, while Mexican freelancers gain access to high-value opportunities.

International contractors bring diverse backgrounds and experiences to the table. This can spark innovation, lead to new ideas, and ultimately enhance the quality of your project.

Independent contractor in Mexico – what you need to know

Before teaming up with Mexican freelancers, it’s crucial to understand the legalities related to the freelance landscape. Familiarize yourself with the relevant employment laws and regulations in Mexico, as they differ from your own. It’ll help you establish clear expectations and terms of engagement. Before hiring independent contractors in Mexico, try to find answers to these questions:

• What differentiates freelancers from employees and how that affects client relationships?
• How can you hire contractors from Mexico?
• What types of contracts are commonly used by independent contractors and what legal consequences they bear?
• Does Mexico have minimum wage requirements that apply to freelance work?
• How does invoicing work and what information do you need to provide to get invoiced?
• Do Mexican freelancers operate as individuals or established businesses?
• Does labor law give them any rights that impact their clients?
• What do Mexican freelancers specialize in?
• What are tax implications for both parties?
• How can you pay contractors from Mexico?

Our article will help you navigate through the legalities and practicalities of how to hire and pay freelancers from Mexico. While it offers valuable information, it’s not a substitute for professional legal counsel.

Hire contractors vs. hire employees in Mexico

Hiring employees and working with freelancers are two different things. Mexican freelancers don’t fall within the same rules as traditional full-time employees. They’re less expensive, meaning they’re not statutorily covered by public health care or social security. They usually don’t have the right to the same employee benefits, such as mandatory paid holidays, sick leave, or minimum wages.

Labor law in Mexico doesn’t provide a specific definition of a freelancer but an independent subcontractor appears in a few articles, highlighting the main differences between freelancers and employees. Independent contractors:

• freely organize their schedule and working hours;
• work on projects for several clients and don’t formally belong to any company;
• determine their rates and scope of work;
• can outsource their work to other contractors.

The law focuses on who’s in charge and how the worker gets paid. If you, as the employer, control how the work gets done and pay the worker a regular wage or salary, then it’s considered employment, even if your contract says otherwise.

A similar form of work to freelancing are servicios profesionales, e.g., accountants, architects, financial advisors, real estate agents, or lawyers. They work independently and enter into contracts with individual clients.

Why is it important to know the difference between a self-employed individual and a full-time employee? Law treats them differently – if you apply wrong regulations, you may have to face legal consequences. Your business relationship with an independent contractor can’t resemble a traditional employment contract or the other way round.

Failing to distinguish between a full-time employee and independent contractor can lead to financial penalties imposed by the Mexican government. You may be liable for back taxes, unpaid minimum wage, and overtime owed to the worker. In some cases, non-Mexican payers might be obliged to build a permanent establishment.

Freelancers with business entity

Some freelance contractors in Mexico, such as medics, lawyers, or architects, provide services as a persona física. It’s a form of legal entity for individuals with solo businesses. Registering as persona física isn’t obligatory – freelancers can work for clients without it. What’s obligatory is invoicing and complying with tax liabilities.

How to pay contractors in Mexico – invoicing

Freelancers are obliged to document their transactions with clients. Invoicing is obligatory. For some, it might be quite complicated – many freelancers use accounting services to meet their tax obligations. They’re required to keep a record of business income and expenditure, which is necessary to file a tax return.

Invoices from Mexican contractors have a standardized digital format, CFDI (Comprobantes Fiscal Digital por Internet – Digital Tax Receipts via Internet). To issue them, Mexicans are required to work with an authorized partner (PAC) and deliver each invoice to the Mexican tax authorities (SAT). Invoices must have:

• an electronic signature key to authenticate the taxpayer,
• a digital stamp to sign CFDI documents,
• Universal Unique Identifier – a 32-digit number for tracking,
• freelancer’s RFC number (tax ID) and the client’s RFC if they have it,
• day and place,
• service description,
• service price, VAT rate, and the total payment including service price and VAT,
• payment method.

Mexican tax agency allows sending invoices as XML files or PDFs. The law doesn’t dictate payment timelines for freelance labor relationships but most invoices give a 30-day payment deadline.

If an independent contractor wants to sign a preliminary document that outlines goods or services that haven’t been delivered yet, they can use a proforma invoice. It doesn’t bear any legal consequences because it’s not the “real” invoice used for accounting and accepted by the tax agency.

Special Q&A for you

Hiring freelancers overseas can be a difficult task. If you’ve got any questions, then we’re here to help.

Ask our team of business experts, industry specialists and lawyers – we’ll come back with the best answers.

 

Paying contractors from Mexico – contracts

One of the most common freelance contracts are service agreements, falling within the civil law (not the labor law). The contract focuses on the service provided by an independent professional for their client. The payment stated in the independent contractor agreements can be based on the effect of the project or the time spent on the project.

Contracts for service can be signed digitally, having the same legal consequences as traditional paper agreements.

Since independent contractors aren’t covered by Mexican labor laws, they don’t get the same rights and employment benefits as full-timers. Their working relationship is shaped by the contract they sign with each client, so it’s crucial for them to negotiate fair terms and state them in this document.

International payments for Mexican contractors

While full-time employees get their Mexican pesos into a specific payroll account in a government-approved bank, freelancers are more flexible and can choose their preferred payment method or agree to your terms.

If you want to process payments between the US and contractors in Mexico with an international wire transfer (SWIFT), watch out for exchange rate fluctuations and transfer fees, which can be quite costly. Moreover, international bank operations can take a while, which may not be acceptable by your independent contractor.

A more convenient and cheaper option is a digital wallet or an online money transfer provider, such as Wise, PayPal, or Payoneer, which offer mid-market exchange rates and fast withdrawals.

Taxes in Mexico – independent contractors

Although entrepreneurs who collaborate with contractors in Mexico can make provisional income tax withholdings, it’s not obligatory. Unlike full-time employees, independent contractors in Mexico handle their own taxes, eliminating the need for you to withhold any payments.

Mexican citizens, including freelancers, pay two types of taxes – income tax (ISR – Impuesto sobre la Renta) and VAT (IVA – Impuesto al Valor Agregado). Professionals who have the persona física entity can claim tax relief for job expenses documented on an invoice.

Freelancers with Mexican tax residency must pay tax on global income, which means, regardless of the client’s country. A freelancer is a resident for Mexican tax purposes when they fulfill one of these conditions:

• they live in Mexico;
• 50% of their income in a calendar year is from Mexico;
• Mexico is the primary place of their business.

How to pay independent contractors from Mexico

As you already know, managing and paying contractors in Mexico requires understanding the distinction between full-time employees and independent contractors (freelancers). If your working relationship with an independent contractor doesn’t match criteria for full-time employment, you have two options: a B2B type of contract or a third-party company.

How to pay contractors in Mexico – contract-based collaboration

When hiring contractors in Mexico, you can state rights and responsibilities of both sides in a contract. An independent contractor can sign two types of agreements: indeterminate service contract and determinate work contract. The main difference stems from the timeframe – work contract has a specific deadline and service contract doesn’t.

How to pay contractors in Mexico – third-party company

If you don’t want to handle all the administartive tasks when working with freelancers, you can use the support of a third-party service – Useme. We come in between independent contractors in Mexico and their clients from the US and other countries. Thanks to that, you don’t need to worry about complying with rules imposed by Mexican authorities because it’s on us.

You don’t hire Mexican contractors yourself because it’s Useme who handles contracts. Once on our platform, freelancers from Mexico issue invoices to their clients, regardless of their location.

How to find a freelancer – Mexico

The easiest way is to search for Mexican contractors on websites for freelancers, where they offer their services and look for clients. When choosing a platform for your talent hunt, focus on multi-purpose tools to make your collaboration with freelancers as easy and straightforward as possible.

Taking Useme, as an example, here’s what you can expect from a platform connecting independent specialists with their clients from all around the world:

• tax compliance – you’re not responsible for withdrawing taxes or paying them to the Mexican government, because all the formalities, including taxes, are managed by the freelance service;
• easy online contracts – everything happens in a few clicks, without excessive paperwork;
• fast automatic payments – the platform is at the same time a payment gateway so the remuneration is processed fast and securely.

Choosing Useme for hiring foreign freelancers, you’ll not only access a reliable and practical tool to handle international projects. You’ll also get a business partner who takes over your administrative tasks and lets you focus on what you can do best – growing your company!

Exploring specialties of Mexican independent contractors 

Most freelancers provide their services from the biggest cities – Mexico City, Monterrey, Guadalajara, or Tijuana. They excel in numerous areas, which makes Mexico an attractive talent pool for foreign clients. Top freelance services include:

• web developers and programmers,
• graphic designers and UI/UX specialists,
• copywriters and editors,
• digital marketing specialists,
• translators,
• IT consultants,
• video game designers,
• photographers and video makers,
• financial experts and accountants.

With this wide range of expertise readily available, Mexican independent contractors can be a valuable asset for businesses seeking skilled and adaptable professionals.  The combination of affordability, talent, and cultural understanding makes Mexican freelancers a compelling choice for companies looking to expand their reach.