Contractors vs employees in Mexico

At a glance

Key figures with the official source for each, checked November 2026.

The legal test: subordination

The Ley Federal del Trabajo defines a worker as an individual who provides personal, subordinate work to another (Art. 8). Article 20 says an employment relationship exists when that work is performed for pay, whatever act gave rise to it. Article 21 adds a presumption: a contract and an employment relationship are presumed between the person who does personal work and the person who receives it. Article 26 puts the lack of a written employment contract on the employer.

So the question is how the work is done, not what the agreement is called. Indicators that point to subordination include:

• Fixed hours or required availability set by the client.
• Instructions on how to do the work, not only on the result.
• Reporting to a manager, performance reviews and discipline.
• Company email, equipment and titles.
• A single client providing most or all of the person's income.
• Regular fixed payments that look like salary.
• Work that is part of the client's ordinary business and continues with no end date.

A services contract, invoices and a tax registration as an independent professional are useful evidence. They do not override the facts if the day to day picture is one of direction and dependence.

Who decides, and how cases start

Several authorities can reach the conclusion that a contractor is an employee, each for its own purposes.

• Conciliation centres and labor Tribunals. Most cases begin when a contractor is let go and claims unjustified dismissal. The claim must be filed within two months. Because of the Article 21 presumption, once personal services are shown the company has to prove that the relationship was not one of employment.
• IMSS. The institute can determine that workers should have been registered and assess the unpaid contributions. If an unregistered worker has an accident or illness, the employer must also reimburse the cost of the benefits (capitales constitutivos), plus 5% for administration.
• INFONAVIT. It collects the unpaid 5% housing contributions on the same salary base.
• SAT. The tax authority can review whether payments booked as fees were in substance salaries subject to withholding.
• Labor inspectors (STPS). Inspections review contracts, payrolls and IMSS registrations and include interviews with staff. Refusing an inspection is fined 250 to 5,000 UMA.

These authorities share data. A subcontracting inspection protocol issued by the labor ministry in November 2025 provides for cross-checks between the STPS, SAT, IMSS and INFONAVIT on payrolls, fees and contracts.

The 2021 subcontracting reform and REPSE

The reform published on April 23, 2021 rewrote Articles 12 to 15 of the LFT and the matching tax and social security rules.

• Article 12. Subcontracting of personnel is prohibited. That means a person or company supplying its own workers for the benefit of another.
• Article 13. Specialised services or specialised works may be contracted if they are not part of the client's corporate purpose or main economic activity, and the provider holds the Article 15 registration. Shared services inside a corporate group are treated the same way.
• Article 14. The contract must be in writing. The client is jointly liable if the provider fails to meet its obligations to its workers.
• Article 15. Providers register with the labor ministry in the public registry known as REPSE and renew every three years.

To register, a provider has to be up to date with the SAT, IMSS and INFONAVIT and show that its activities are specialised. Anyone can check a provider's status and authorised services on the REPSE portal without logging in.

On the tax side, Article 15-D of the Código Fiscal de la Federación denies the deduction and the VAT credit for payments for subcontracted personnel. Providers also report their contracts to the IMSS by the 17th of January, May and September.

What this means for EOR structuring

In many countries an EOR is a staffing arrangement: the provider employs the person and places them with the client. In Mexico that description collides with Article 12. The structuring points are:

• The provider needs a REPSE registration that covers the specialised services it delivers, and it must keep the registration current.
• The services must fall outside the client's corporate purpose and main economic activity. This test is applied to the party that receives the services, so the client's own profile matters. A foreign company with no Mexican entity and no Mexican operations is in a different position from one with a local subsidiary doing the same work.
• The service agreement must be written and describe the specialised service, not a supply of people.
• The client is jointly liable for the provider's obligations to the workers, so evidence of payroll, IMSS and INFONAVIT compliance should be available on request.

These rules are why role and industry eligibility is checked before an offer is made in Mexico. They are also why the contract and the invoices describe a service. A provider without a valid registration exposes the client to fines of 2,000 to 50,000 UMA and to the loss of the tax deduction.

Penalties and back-payments for misclassification

When a contractor is found to be an employee, the costs come from several directions.

• Labor claims. The person is owed the benefits of an employee for the period worked: aguinaldo, vacation, vacation premium and profit sharing. If the relationship was ended, severance for unjustified dismissal applies, with back pay of up to 12 months if the case is lost in court. Labor claims in general lapse after one year (LFT Art. 516).
• Social security. Unpaid IMSS and INFONAVIT contributions are assessed with surcharges and fines. The cost of any medical care or subsidy given in the meantime is charged to the employer.
• Tax. Income tax that should have been withheld on salaries, with surcharges, and possible loss of the deduction.
• Labor fines. General breaches of the LFT are fined from 50 to 5,000 UMA. Breaches of the subcontracting rules are fined from 2,000 to 50,000 UMA, which is about MXN 234,620 to MXN 5,865,500 at the 2026 UMA of MXN 117.31.

In serious cases of simulation, tax or criminal offences may also apply. A foreign company with no Mexican entity is still exposed. The contractor can claim against whoever received and directed the work, and the engagement may also raise questions about a taxable presence in Mexico.

Recent changes and enforcement

The direction of travel since 2021 has been tighter rules and more data sharing.

• REPSE renewals. Registrations last three years, so providers that registered after the 2021 reform have already faced renewal. A provider that does not renew loses its registration, and its clients lose their legal basis for the contract.
• Digital platform workers. A chapter added to the LFT in December 2024 treats app-based drivers and couriers as employees in any month in which their net income reaches one monthly minimum wage. Platforms must register them with the IMSS and contribute to INFONAVIT. The IMSS began a pilot programme for these workers on July 1, 2025. Fines for platforms reach 25,000 UMA.
• Inspection protocol. In November 2025 the labor ministry issued a protocol for subcontracting inspections. Inspectors check contracts, IMSS registrations, payrolls and whether the contracted activity is really specialised, and they interview staff on site.
• Working time records. From January 1, 2027 employers must record working hours electronically. A person who appears in those records is hard to present as independent.

The IMSS also runs a voluntary scheme that lets independent workers enrol themselves in the social security system. It gives a real freelancer cover. It does not change the status of someone who works under subordination.

When a contractor is safe, and when to convert

A contractor relationship is defensible when the person is in business on their own account. Typical features:

• Several clients, with no single one providing most of their income.
• A defined deliverable or project with an end date.
• Freedom to decide how, when and where the work is done, and to use their own tools.
• The ability to delegate or subcontract.
• Invoices under their own tax registration, with their own tax and social security arrangements.

For tax purposes, the Ley del Impuesto sobre la Renta treats a person as mainly serving one payer when more than 50% of the prior year's income came from that payer and the services are rendered at its premises. That is a tax rule, but it is a useful warning sign.

Conversion to employment is the cautious course when:

• The role is ongoing and full time.
• The person reports to your managers and follows your schedule.
• The work is part of your core operations.
• You want exclusivity, non-compete terms or control over working methods.
• The engagement has run longer than the project it started with.

Conversion can be done through a local entity or through an EOR structured within the specialised services rules. Seniority from the contractor period is often claimed later, so agree how prior service is treated at the point of conversion.

Frequently asked questions

More on hiring in Mexico

Employer of record and hiring guide for Mexico · Payroll and taxes · Termination and notice · Benefits and leave · Cost calculator · EOR vs PEO vs entity

Sources

• Ley Federal del Trabajo (Cámara de Diputados, last reform DOF 14-05-2026)
• STPS, REPSE portal
• Código Fiscal de la Federación (Cámara de Diputados)
• Ley del Seguro Social (Cámara de Diputados)
• Ley del Impuesto sobre la Renta (Cámara de Diputados)
• IMSS, social security for digital platform workers
• IMSS, voluntary scheme for independent workers
• Garrigues, subcontracting inspection protocol of November 2025 (secondary)

This page is general information, not legal, tax or immigration advice. Rates, thresholds and procedures change, and how they apply depends on the facts. Confirm current figures with a qualified adviser or with Dryft before acting. Checked November 2026.