Mexican Congress prohibits the personnel-outsourcing model

published on 4 May 2021 | reading time approx. 2 minutes

  
Mexican Companies have a three month transition period from now on to shift all outsourced employees to their own payroll.

   
According to the Mexican National Institute of Statistics and Geography in 2019, 13 percent of the total Mexican workforce was employed via outsourcing-models. Outsourcing is incredible popular among companies from the industrial sector, especially because it is an effective measure to gain control over the mandatory Workers Profit Sharing (Participación de los Trabajadores en las Utilidades, PTU). As previously reported in our article Guidelines for the planned labour law outsourcing reform in Mexico, the Mexican Government wants to avoid such personnel-outsourcing models.
   
Published on April 23, 2021 and starting on April 26, 2021, there will be no more outsourcing schemes. This reform will impact the Federal Labor Law (Ley Federal de Trabajo, LFT), the Federal Tax code (Código Fiscal Federal, CFF), the Social Security Law (Ley del Seguro Social), the Law of the National Institute Worker's Housing Fund (Ley del del Instituto del Fondo Nacional de la Vivienda para los Trabajadores), the Value Added Tax Law (Ley del Impuesto al Valor Agregado) and the Income Tax Law (Ley del Impuesto Sobre la Renta) in which its prohibition is described as well as a series of ancillary measures for ensuring its compliance, which must be applied by companies in no more than 90 days.
  

1. Specialized Services

The new changes made to the law prohibit outsourcing schemes but allow to subcontract specialized labor when such is not related to the company’s core business (e.g. security, IT, catering, laundry, cleaning, etc.) or are outside of its corporate purpose (stated in the Articles of Association). Apart from that, Outsourcing still will be permitted in temporary construction works. All contracts referring to specialized services must be made in written, must describe the purpose of the project, and how many workers will take part in it. The companies providing specialized services must file for a special registration at the Ministry of Work and Social Welfare.
  
The subcontracting of specialized services in companies of the same group is allowed as long as they do not share the same corporate purpose or do activities that comprise the core business of the company.
  

2. Non-deductibility

Invoices from outsourcing companies except Specialized Services shall no longer be tax deductible, if these correspond to activities that belong or are adjacent to the company’s core business (stated in the Articles of Association) or the real main business activity.

 
The same shall apply if the company’s employees were transferred to internal or external personnel-companies in the past. All activities falling in the company’s core business must be executed by own workforce from now on.

3. PTU

By abolishing outsourcing, more employees will be entitled to PTU. Still, the PTU will be limited to up to 3 months of the gross salary (without benefits and bonuses or other gratifications) or the average of the PTU-amounts received during the last 3 years, whatever is more favorable for the employee.
  

4. Tax Code

A new assumption of joint and several liability is established for subcontractors to guarantee the payment of their contributions and the provision of prohibited outsourcing services will be considered tax fraud.
  

5. Social Security

Outsourcing service providers, now named “specialized service providers” shall be registered in the National Registry of Specialized Service Providers. They and their clients must issue a series of reports to the competent authorities as well.
  
Concerning risk premiums, the employers with more than one register per class have 90 calendar days to cancel them and change the register according with the new disposition.
  

6. National Institute Worker's Housing Fund

The companies that are registered in the Ministry of Work and Social Welfare have to register the agreements conclude indicating the period, the purpose, list of employees with social security number, Unique Code of Population Register and tax ID.
  

7. Joint Obligations

For all the scenarios, the reform constitutes a joint obligation of the contractor and the company offering specialized services (or now illegal outsourcing) towards the employees in tax, labor and social security matters.
  
Companies that carry out recruiting and training services are not affected by the reform.
Non-compliant Companies now face increased fines and illegal practices may be considered as criminal offence.
   
Mexican Companies must act immediately to comply with the new provisions, and in no more than 3 months, with the following:

• Terminate all outsourcing contracts;
• Shift employees from the outsourcing service payroll to their own payroll drafting new employment contracts and recognizing previous benefits and seniority of the employees;
• Shift employee-related registrations to the main company, such as immigration, social security, banks, retirement funds, funded housing, benefits as food vouchers, health and life insurance, etc.;
• In some cases, outsourcing companies will remain without activity and purpose and shall be liquidated or merged with the operating company;
• Specialized Service Providers and construction companies must be inscribed in the Registry that will be established by the Ministry of Work and Social Welfare ("STPS");
• The employers that had requested to the Mexican Institute of Social Security the assignment of one or more employer registers per class, will have a period of 90 natural days to cancel said registrations and if applicable, request a new employer registration in terms of the new regulations.