After several months of analysis and negotiations, the Mexican government published a decree on April 23, 2021 impacting labor outsourcing activities. The main objective of this initiative is to combat bad practices related to outsourcing. In certain cases, the Mexican government felt that labor policies violated the rights of workers established in the Federal Labor Law. The constitutional labor reform intends to create balanced worker-employer relations, favoring the worker.
The decree affects outsourcing provisions of multiple federal laws, including but not limited to the Federal Labor Law, Social Security Law, the Federal Tax Code, the Income Tax Law, and the Value Added Tax Law.
If you answer yes to any of the below questions, this reform may impact you!
- Do you have operations in Mexico?
- Do you use an outsourcing company for personnel?
- Do you have a separate entity apart from your operational entity with all your personnel?
- Are you thinking of expanding to Mexico?
Highlights of Reform Provisions
- Subcontracting of personnel is prohibited. “Subcontracting” occurs when a company or an individual provides or makes its workers available for the benefit of another.
- Subcontracting of specialized services or the execution of specialized works if it is not part of the corporate purpose or the predominant economic activity of the beneficiary company.
- The possibility of contracting complementary or shared services or works, provided they are between companies of the same business group. This will be considered “specialized,” if the tasks are not part of the core activities defined within the company’s articles of incorporation.
Specialized Services Considerations
- The specialized services or the execution of specialized work allowed must be formalized within a written agreement stating the scope of the services to be provided or the services to be carried out and the approximate number of workers who will participate
- The company that subcontracts with a contractor failing to comply with obligations relating to workers will be jointly and severally liable to its workers
- Employment agencies or intermediaries can intervene in the personnel hiring process, being able to participate in the recruitment, selection, training, and qualification, among others
- Employee Profit Sharing – Is limited to a maximum of three months of the worker’s salary or the average of the participants received in the last three years; applying the most favorable to the employee
- Penalties – Whoever provides or makes their workers available for the benefit of another (without being specialized services or works) will be sanctioned
- Tax Considerations – One of the main changes on the tax front, and perhaps the most important, is the inclusion of a paragraph with the tax code which established that the payments or compensation made for the subcontracting of personnel to perform will not be deductible
It is important to mention that this modification does not eliminate subcontracting operations. The deduction or accreditation of payments, or compensation for subcontracting specialized services, or the execution of specialized works will continue to be allowed as long as the activities performed are not part of the core of their business as defined in the company’s articles of incorporation.
The deadline to comply with these reforms is August 1, 2021.
Now is a great time to plan for the implementation of the outsourcing reform, making sure that provisions for such services are addressed. This planning will help prevent issues with your subcontractors and with labor issues among your employees. To learn more reach out to us today.