Mexico close to impose strict restrictions on employment outsourcing. Many companies will need to change their contracting schemes in the country

On 23 April 2021, a Bill to amend several provisions on outsourcing and profit-sharing of the Federal Labor Law; the Social Security Law and the Law of the National Workers’ Housing Fund; together with the Federal Tax Code; the Income Tax and the Value Added Tax laws; among others, was published in the Federal Official Gazette.

According to the sponsors of the Bill, the amendments intend to put an end to abusive practices or simulations that have affected employees’ rights and promoted tax evasion.

I. Amendments to the Federal Labor Law regarding outsourcing employment structures.

Among the main amendments to the Federal Labor Law regarding outsourcing employment structures, are the following:

1. Articles 15-A through 15-D, which currently regulate work performed under the outsourcing practice will be derogated.
2. Outsourced personnel, understood as the situation in which an individual or entity provides or makes its own employees available for the benefit of another party, will be prohibited.
3. Employment agencies or intermediaries intervening in the personnel hiring process will be able to participate in recruitment, selection and training activities, among others. They would not be considered as employers, as this capacity is assumed only by the services beneficiary.
4. As exemptions to the above-mentioned prohibition, the outsourcing of specialized services or the performance of specialized works that are not included in the corporate purpose or the main economic activity of the service beneficiary will be permitted, provided that the contractor is registered before the public registry of the Department of Work and Social Welfare, and provided that certain procedural requirements are fulfilled.
5. Complementary or shared services or works provided among companies belonging to the same business group shall also be considered as specialized services as long as they do not intervene in its corporate purpose or the main economic activity of the beneficiary entity. A business group is understood as a group of companies organized under a direct or indirect equity structure, in which the same company control said entities. Likewise, financial groups incorporated according to the Law to Regulate Financial Groups shall also be considered as business groups.
6. Outsourcing agreements must be formalized through the execution of a written contract stating the scope of the services to be provided or the works to be performed, and the approximate number of employees needed for the provision of tasks stated in the agreement.
7. It settles a joint and several liability towards an individual or company outsourcing specialized services or the execution of specialized works, and the contractor who fails to comply the obligations arising from the labor relationships with its employees.
8. Individuals or companies providing outsourcing services shall be registered before the public registry of the Department of Work and Social Welfare and said registry shall be renewed every three years. To obtain the registry, individuals or companies shall prove to have complied with all its tax and social security obligations.
9. For an employer’ substitution to become effective, assets of the former employer shall be transferred to the substitute employer.
10. It settles more severe economic penalties for employers who do not allow inspections or reviews performed in its facilities by labor authorities, performed illegal outsourcing, or individuals or entities who provide outsourcing services without the suitable registry.

II. Profit Sharing.

Furthermore, an agreement was reached on the issue of profit sharing to avoid possible distortions in capital-intensive companies, creating two modalities for calculating the distribution. Therefore, the Decree settles that the amount of payable employee profit-sharing (“PTU”) shall have a maximum limit equal to three times months of the employee’s salary or the average amount of PTU received during the last three years, whereby the most convenient amount for the employee shall be applicable.

III. Validity and terms.

The Decree settles, among others, the following terms:

1. The amendments to the Federal Labor Law, Social Security Law and Law of the National Workers’ Housing Fund shall enter into force the following day of its publication in the Federal Official Gazette.
2. The amendments to the Federal Tax Code, Income Tax and Value Added Tax laws shall enter into force on August 1st, 2021.
3. The Department of Work and Social Welfare shall have thirty calendar days following the entry into force of the Decree to issue the provisions on the procedures to register outsourcing services providers.
4. Individuals or companies providing outsourcing services shall have ninety calendar days after the issuance of the abovementioned provisions to be registered before the public registry of the Department of Work and Social Welfare.
5. For employer’ substitution purposes, companies operating under an outsourcing practice shall not be required to transfer assets within ninety calendar days from the date the Decree enters into force, provided that the contractor transfers the employees within such term to the beneficiary company.

The Bill became in force the day after its publication in the Federal Official Gazette, therefore, we advise companies operating in Mexico to review its corporate and labor structures and the hiring regime of its employees to perform the suitable modifications to comply with the new provisions on labor outsourcing practices.