By Martina Perez Blanco
We have all heard about the new Mexican outsourcing law decree published this year, which has not only caused confusion but also worry amongst national and international companies. The legal sector has too, made several attempts to understand the extent of this new reform in order to provide our clients with the best legal advice in this regard. Yet an important question still hunts us all to this day, and that is, what exactly does this new law decree state? And probably the most important question of all, to whom does it apply?
On April 23, 2021, a decree was published in the Mexican Official Gazette of the Federation amending, adding and repealing several provisions of the Federal Labor Law; the Social Security Law; the Law of the National Workers’ Housing Fund Institute; the Federal Tax Code; the Income Tax Law; the Value Added Tax Law; and the Federal Law of Workers in the Service of the State, in connection with labor subcontracting or outsourcing practices.
This reform was created with a sole objective; to eliminate the subcontracting practices through an outsourcing scheme, which can and has been used for tax evasion and lack of worker’s security. Through this decree the Mexican government has attempted to avoid illegal tax practices as well as to ensure that all workers benefit from the mandatory legal benefits and equal job security as those who work directly for the companies.
The main focus of this reform includes the following aspects: (i) the prohibition of subcontracting of personnel when directly related to the company’s corporate purpose, (ii) the creation of the Registry for Special Services or Specialized Works providers (iii) a new provision stating that employment agencies or intermediaries that intervene in the personnel hiring process will not be considered employers, and (iv) the creation of two new modalities for the calculation of profit sharing. In this regard it is important to note that the reform does allow the subcontracting scheme of specialized services. Although the reform does not state specifically which services may be included under this category, it does specify that specialized services will be those that do not conform the corporate purpose or main economic activities of the contracting company. In this regard, companies will be allowed to carry out this practice so long as the hired services differ from the contracting company’s services and corporate purpose.
Furthermore, this reform also states the requirement that all individuals and legal entities that provide specialized services or perform specialized works must be registered before the Ministry of Labor and Social Welfare (Secretaría del Trabajo y Previsión Social “STPS” for its acronym in Spanish). While the registration process may be a speedy procedure, it is important to note this is not always the case. Since the Covid 19 pandemic, several government entities have been faced with work overload, which has led to a significant delay, therefore we advise our clients to carefully read all the terms and conditions stated in the registration application and make sure that all applicants are in full compliance of these terms; in order to speed up the process and prevent the corresponding authorities from denying the applicant’s submission, thus further delaying the registration process.
In this regard it is also important to note that the Ministry is authorized to deny an applicant’s registration in some cases, which include the following; (i) the applicant’s failure to prove the specialized nature of the contracting services, (ii) the applicant’s failure to be up to date in all tax and social security obligations, (iii) the applicant’s failure to comply with all the requirements, terms and conditions set forth in the application form, (iv) provision of false information or apocryphal documents, or submission of unreadable documents and (v) refusal to comply with any requests pertaining to complimentary information or documentation issued on behalf of the Ministry.
The amendments made to the outsourcing reform have generated much unease among national and international companies alike; as many and for several time, these companies have been subcontracting labour in order to carry out their contractual obligations, more so in the construction industry. While it is important to state that strict interpretation of this new reform, has given way to a better understanding of what types of industries fall within its subcontracting obligations reach; it is to our understanding that the law is not applicable to construction industry workers. The reason for this is that they fall within the specialized services category. Regardless, as this is not an actual fact, but mere interpretation, we have advised our clients to carry out the registration process and given the case, to amend their corporate purposes to comply with this new law.
In this regard, several of our clients have approached us in pursuit of an effective and efficient solution. It is important to note that although these guidelines are still not clear as to which services fall under the qualification of specialized services, COMAD S.C. has advised its clients to review and if applicable, to modify their corporate purposes, in order to make sure that they are in full compliance with the law. Likewise given the case in which a company does carry out outsourcing services in the construction industry and is unaware of doing so, COMAD, S.C. is prepared to aid in this situation, recommending our clients the creation of a separate company which provides the outsourced services, the amendment of its corporate purpose, as well as many other actions that can be taken, in order to be in full compliance with this law, making sure to also fulfill our client’s needs.