Dealing With Employees & Independent Contractors

A condo often needs to hire people such as an Administrator, accountant, people to look after the common property (like gardeners or a pool maintenance contractor), and even security guards.

There are two different ways a condo can hire someone to do work, and it’s important to clearly understand the differences:

  1. employee; or
  2. independent contractor

Let’s deal with each separately.

Employees

All employee/employer relationships are governed by the Mexican constitution (Article 123) and the Ley Federal de Trabajo (Federal Labour Law). The labour law was last updated on November 30, 2012. Mexican labour laws are much more stringent than north of the border, and are strictly enforced. All Articles quoted in this post are from this law.

Employees can be hired for either an indeterminate or a fixed period of time. Different benefits apply to these two groups.

Most employees fall into the first category: when hired, it’s not known if they’ll be doing the job for a month or 15 years. Employment ends when the employee quits or is terminated. Or else, it continues indefinitely.

Under special circumstances outlined in the law (Article 37), your condo can hire an employee for a fixed time period (6 months, for example), or for a specific project (sort and file boxes of documents into a filing cabinet). In both of these cases, if the employee doesn’t quit or is terminated, employment automatically stops at the end of the set time period or the end of the project.

Cost of terminating an employee

When employment is terminated, the employee is entitled to any wages owed up to the date of termination, vacation pay (Article 76) plus a vacation bonus (Article 80), a pro-rated portion of their aguinaldo (Christmas bonus – Article 87), and a seniority bonus (Article 162).

Most employees are also entitled to severance costs. The exceptions are covered in Article 53: employment ended by mutual consent (get this in writing!), the employee died, an employment for a set time period or specific project has ended as agreed, or the employee has been terminated for cause (Article 46).

The reasons for termination for cause are limited (Article 47), are serious wrongdoings (such as dishonesty, drug or alcohol abuse, insubordination, and unjustified absenteeism), do not include poor work, and require concrete proof on the part of the employer. In general, this is very hard to do.

The condo must notify any employee in writing of offences listed under Article 47, and have the employee sign the copy kept in the condo files. If the condo wants to terminate this employee for cause, you must have these documents.

The condo must give the employee advance notice of termination in writing, or the termination will be automatically considered as unjustified. If the condo fails to prove that it had a right to terminate the employee for cause, it’ll have to pay severance costs, and can be liable for wages from the date of the termination until the final payment is made to the ex-employee.

A termination “without cause” (most terminations) for an employee working for an indeterminate time always results in severance costs. These typically consist of (Article 50): 20 days salary for each year worked, plus three months salary, plus wages from the date of termination until the date the employee has been paid severance and other costs.

If an employee hired for a specific time period or project is terminated without cause before the agreed end of the time or project, then they’re owed severance of 50% of the wages already paid to them, plus 20 days salary for each year worked over one year.

The finiquito

If a condo terminates an employee, it must have them sign a dated and witnessed document (the finiquito) containing a brief statement of their employment and salary, and detailing the amounts and calculations of the various wages, benefits, and severance amounts being paid.

It must also say that the employee agrees, and that this is the total compensation. However, it’s important to note that any waiver by the employee to wages earned, or to benefits or severance to which they are legally entitled is null and void (Article 33).

Ideally, have this document prepared beforehand, then have it signed and pay out the worker on the day of termination. Any delay in finalising the employee’s compensation payment past the date of termination results in more costs to the condo. The condo will owe wages for each day between the date of termination and the payment of compensation to the employee (Article 50 III).

Ongoing costs of employees

While an employee is working for a condo, certain items must be deducted at source from the employee’s wages and remitted to the government:

  • income tax
  • IMSS (social security)
  • INFONAVIT
  • SAR pension fund

The condo must keep accurate records of these deductions and their filing with the government. If a condo fails to make these deductions and remit them, a disgruntled employee can cause serious problems by reporting this omission to the government.

It’s also a good idea to get a signed receipt for all wages paid to an employee. The more employment records the condo has for the employee, the better.

Your condo must also give all employees a paid vacation, and pay an annual Christmas bonus (aguinaldo). Be aware of overtime regulations and statutory holidays. The condo is also required to have adequate work space for the employee to carry out their work, the tools needed to do the job, and deliver all training needed to do the job.

Employment contract

Workers hired for a specific time period or project must have a contract, or there’s no way of proving when the employment ended, and the employee will become a regular employee entitled to severance.

All other employees should also have an employment contract to protect the condo. Without a formal contract (Articles 20, 21, & 26), Mexican labour laws favour the employee over the employer, and the burden of proof about the details of the employment relationship is always on the employer.

For example, if your condo terminates an employee and pays him three years severance, but he then claims he worked for the condo for five years, the condo must be able to prove a three year employment with documentary evidence.

The dated employment contract must include (Article 25):

  • personal details of the employee and the employer;
  • type of employment (indefinite time or specific time or project, or seasonal work), and any initial training or trial periods;
  • the work to be done by the employee, described as precisely as possible;
  • the place(s) where the work must be carried out;
  • the length of the workday (be aware of overtime rules);
  • the form and amount of wages (must be paid weekly);
  • the day and place for payment of wages;
  • a statement that the employee will be trained as needed; and
  • any other employment terms such as days off, vacations, or other items agreed to by the worker and the employer.

The agreements in an employment contracts are binding on both parties, as long as they’re consistent with the labour law, good faith, and equity. Despite what an employment contract says, it’s always governed by the Federal Labour Law. Any terms in an employment contract that contradict the labour law will be considered null and void. In particular, any waiver of an employees rights to overtime, benefits, or severance is invalid.

Independent contractors

Independent contractors have many advantages over employees.

Unlike an employee, there are no deductions at source that have to be remitted, there are no benefits to be paid, and a condo can terminate them without severance.

Must be contracted

For a service provider to be considered as an independent contractor, rather than an employee, a properly executed and dated contract for services must exist. This must include:

  • personal details of the employee and the employer;
  • fact that this is a contract for services, that the worker isn’t an employee, and isn’t entitled to benefits or severance;
  • the work to be done, described as precisely as possible;
  • the form and amount of fees for services (usually monthly);
  • the day and place for payment of fees; and
  • any other contract items agreed to by the service provider and the employer.

Note that if your condo is contracting a condo Administrator, the contract can only be for one year (Civil Code Article 1011).

Who can be an independent contractor?

Be careful! Your condo can’t just have all its employees sign service contracts, and get out of paying them overtime, benefits, or severance.

If a subordinate relationship exists between the service provider and the condo, Mexican law will decide that an employee/employer relationship exists. In this case, all employee benefits and compensation will apply!

An independent contractor is a service provider hired to carry out a specific task, with the ability to choose their own method of doing the work. They’re under the control and direction of the condo administration only insofar as the end result of their work is concerned, and not as to the way in which the work is carried out.

An independent contractor can be either a person or a company.

There are certain criteria that a service provider must meet to be considered an independent contractor, rather than an employee (the existence of a contract for services doesn’t guarantee this):

  1. has “authoritative control” to do their work the way they want, in their professional or expert capacity (not constantly supervised and instructed except as far as the end result is concerned);
  2. is free to set their own schedule and hours (not required to be at the condo three days a week from 9:00 to 5:00, for example)
  3. provides their own office (or work base) and office supplies, provides their own tools, pays their own business expenses, and hires their own assistants or employees;
  4. are paid only for work done (such as by a monthly fixed fee), and has no paid vacations or holidays, and doesn’t receive the annual aguinaldo (Christmas bonus); and
  5. has other paying clients (performs similar services for other people besides the condo), and markets their services to the public.
Garry Musgrave
Writer of books about running a condo in the Mexican state of Jalisco, and following the state condo laws. Also the laws and processes involved in buying and owning real estate in Mexico. Author of the "Jalisco Condo Manual" and the "Jalisco Condo Law in English." His web site: JaliscoCondos

4 Responses to Dealing With Employees & Independent Contractors

  1. How does this apply to a contact with an Administrator, “is free to set their own schedule and hours (not required to be at the condo three days a week from 9:00 to 5:00, for example)”. For owners to know a time the Administrator will be available onsite it would be nice to have set days and times; give owners a warm fuzzy feeling.

    • The contract can, for example, simply require that the Administrator set at least one day a week to be available at the condo offices for owners, based on the Administrator’s schedule. Or, for example, it could require office hours of at least 16 hours a week split amongst sessions of at least four hours each.

      There are many variations, but I think you can see the concept. List the minimum requirements that the condo needs, and leave the scheduling up to the contractor. Then the Administrator has the ability to decide which day(s) these will be, and to set the office hours.

      Obviously, the requirements and desires of the condo would be discussed and agreed to before the contract was signed, so that both parties are on the same page. The key is that the contract doesn’t attempt to set specific days and hours, or it could be determined that the Administrator was actually an employee.

      This doesn’t matter in the normnal course of events. It only becomes important if a time comes when you choose to change Administrators, and the previous one is not happy about this. The previous Administrator could then demand a large severance package based on the realtionship of an employee.

      BTW, if you need an Administrator to be at the condo five or six full days a week, then you really need an employee and not a contractor. That said, in my experience, the job of Administrator is not a full time job – but your mileage may vary.

      • One solution to the problem raised by John Halada is to hire a corporation, not an individual, as the administrator and to provide in the contract with the corporate administrator exactly what services should be provided and at what times. These services could include those normally carried out by an individual administrator as well as other services like gardening, cleaning, security. This would free the condo from all the liabilities and headaches involved in a condo’s having its own employees. Of course, there is a risk in all this. How does one find a reliable and professional corporate administrator? Is the condo willing to have people working at the condo who might be less loyal and less under its control than if it had its own employees? The pros and cons have to be worked out for each condo taking into account the preferences of its owners.

        Jim Rizzo

        • Yes, I should have made it clear that an independent contractor can be a person or a company (I’ve edited the post to reflect this). And, yes, the condo law also allows the Administrator to be either an individual or a company.

          You’re right. You can contract a management company to act as Administrator.

          In theory, this management contractor could also provide the entire labour force for the condo as well. However, you still need to be careful.

          If this labour force is truly their own employees who are doing other work for the contractor, then you might be OK. For example, if you no longer needed the services of one of these employees, and if this had no effect on their employment with the contractor, then I don’t think you should pay severance.

          However, if the contractor were to hire someone on your behalf, who works only at your condo, then they are acting as an intermediario (intermediary) under the Labour Law, and I believe that you would still be responsible for these workers as your employees.

          There’s another wrinkle here. Article 15 (and its sub-articles A through D – a recent addition to the Labour Law) deals with the situation of a company providing a substantial part of the labour force for another under contract. There are several rules that kick in here. Notably, the contractor cannot supply all the workers needed by the contracting company, the contracted workers must be needed because of a specialised nature of their work, and you cannot replace or transfer existing workers. In addition, the contracting company is jointly liable for the obligations of the contracted workers.

          And you’re also right that it may be difficult to find such a company, and you would lose the ability to control the hiring of the workers. Although, I believe that this model does work north of the border with HOA management companies providing more or less turn-key service to huge condos and gated communities. If you’re looking to start a business venture, and embark on an exciting new career… ;)

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