Unlock Online Signature Legality for Independent Contractor Agreements in Mexico

How to eSign a document: online signature legality for Independent Contractor Agreement in Mexico

independent contractors in Mexico this is always a hot topic we're going to cover four things in this discussion in regards to independent contractors in Mexico and that is our independent contractors legal in Mexico number one number two can foreign companies engage in a service contract with a legitimate independent contractor number two number three what risk in Rama ramifications exists for a foreign company that engages with a non qualifying independent contractor in a foreign Mexico number four what is the only legal way to employ and employ in Mexico those are the four points we're going to cover number one our independent contractors legal in Mexico an independent contractor relationship is defined by the exclusion of an employment relationship now think about that that's how its defined so it's an exclusion of an employment relationship in other words an article 20 I'm not going to try to get too technical here we are not a law firm we are basically conveying information that we in the process of doing our business ten years in Mexico paid thousands and thousands of dollars in legal fees to to get the answers of these questions for our clients and for ourselves so I always urge you to seek qualified legal advice in Mexico with labor attorneys and tax attorneys but let's discuss this an article 20 of the federal labor statute defines an employee employment relationship as the rendering of a subordinated personal services for a salary okay that's an employee relationship thus a service agreement entered into with an entity with an entity so listen to this where services will be provided by the entity and not a specific person qualifies as an independent contractor relationship okay so many in the United States think of an independent contractor is an individual 1099 person that works on their own and the end the and the client company has no labor legal responsibility we're talking apples and oranges here an independent contractor here in Mexico for the most part generally speaking we're talking about in a legal entity not an individual now when hiring an individual the relationship may be that of an independent contractor if there is no subordination whatsoever okay or that of an employer employee relationship of subordination in other words persuade the article 21 of the federal labor statute the law presumes the existence of employment relationship between the beneficiary of a personal service and the individual providing the service the beneficiary of the service which is the client company or their clients has the burden to prove the lack of subordination okay typical criteria to prove the lack of subordination and the latter are the lack of integration of the person doing work for the company in other words are they integrated all right do they have a designated email address do they have a designated job title they're definitely not an independent contractor okay the individual is free to organize the services that they provide at their own time at their own place okay the individual is providing services for several other clients in other words if the person is only providing services to you the client or the company they are not an independent contractor in Mexico and the individual is using his or her own tools in other words their own cell phone their own vehicle their own computers their own tools to be able to provide the services thus a valid independent contractor relationship with an individual is determined by the lack of subordination rather than the type of job okay so there exist specific provisions believe it or not for sales personnel we guarding the existence of an employment relationship in article 285 or the federal art of the federal labor statute determines that listen to this salespeople are always considered employees of the company for which they provide the services ok except if said services are not rendered personally or if the salesperson only intervenes in isolated operations and now that that might be like a manufacturer's rep someone could be an independent contractor in Mexico if they're providing the service to many different clients ok many different clients they're not subordinate they have no integration into your company in other words they don't use your business card they don't use your email address they don't use their website they use all their tools and the only intervene to make sure that the order is placed and the order is delivered as a manufacturer's rep or something like that and that they are personally in compliant with the tax laws in Mexico they could be an independent contractor but there are always salespeople are always considered employees otherwise now a service agreement with an individual salesperson will always be considered an employment relationship except if the person only intervenes in the isolated bases as we talked to know number two can foreign companies engage in a service contract with a legitimate independent contractor well pursuant again without getting technical these these articles of the law are gonna be down here in that little box right here persuade articles 25 sub clause 7 26 and 27 36 now I sound like an attorney of the federal Civil Code foreign private companies are recognized as legal entities in Mexico and may enter into contracts for the purpose of reaching their objectives and goals now get this though this is really interesting however for the legal capacity of a foreign company okay to enter into in a contract with an independent contractor in other words an entity in Mexico let's say it's a law firm let's say it's a cpa firm or other it's a similar type of service that's a company that has many other clients they're not subordinate to your company you can enter into a contract with them as an independent contractor under the federal Civil Code in Mexico okay as long as you're reaching or attempting to reach your goals as a company and get this the legal capacity of a foreign company to enter into contracts the Mexican laws refer to the laws of the place of the incorporation of the foreign company this is interesting for example a California corporation may enter into contracts in Mexico including service contracts with independent contractors provided the contract is for the purpose of reaching the company's goals and California law does not prohibit it that's the key so in other words as long as in the base country the laws of that country do not prohibit that foreign entity of contracting services or independent contractors in Mexico a foreign company can do so now remember generally speaking an independent contractor is a company providing services not an individual okay now depending on the tax laws at the tax domicile of the foreign company in other words let's say under this circumstance the state of California the country in the United States and whether or not that country the United States has a tax treaty in Mexico the foreign tax laws may require that the company withhold income taxes of the independent contractor in Mexico but again it's going to depend on the laws of the state of where that foreign company is is located now number three what risk and ramifications exist for a foreign company who engages in a net with a non qualifying independent contractor this is important for you understand the service contract with the non qualifying independent contractor will become null and void and the company would be at risk of a lawsuit number one number two the foreign company is at risk of having a permanent establishment in Mexico ing to article two of the federal income statute income tax statute and the foreign company risk becoming involved in a labor trial in Mexico and having to pay accrued salaries and social security contributions for the entire duration of the relationship okay so there are definitely ramifications in exposure for your foreign company to engage with a non qualifying contra independent contractor in Mexico now get this though this is really going to affect you if you are not in compliance with this because of the labor court here in Mexico may deny the capability of your company to be able to fulfill the obligations as an employer in Mexico for doing business with a non qualifying independent contractor ie having your business registration in Mexico your Social Security tax ID number your tax income tax tax ID number in other words if you don't have an entity here and you're a foreign company the court might say hey you can't even live up to this obligation therefore your clients in Mexico who were beneficiaries of this service of the non qualifying independent contractor could be on the hook as joint employers okay so very important that if you think of hiring independent contractors in Mexico or if you already have independent contractors in Mexico that are in all reality not qualifying you are putting your company in tremendous tremendous risk I mean you really are and not only your company your clients you're putting at risk okay and these things can happen and do happen and will happen number four what is the only way of hiring an employee in Mexico well obviously the employer has to have the means to fulfill all the obligations in Mexico as an employer including the obligation to register the employee with the Social Security Administration and pay social security contributions pay income tax withholding to the tax authority and pay profit sharing to be fully recognized as an employer by Mexican law otherwise again we're gonna repeat any beneficiary of the subordinated services may become liable as a joint employer this is article 15a of the Social Security statute article 13 of the federal labor statute thus the only way of hiring an employee in Mexico is to a Mexican entity or an individual that is capable of complying with all the obligations in Mexico this is Franklin D fret ii general manager and principal of human resources mexico the most trusted PEO in 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