May 18, 2021

Volume XI, Number 138

Advertisement

May 17, 2021

Subscribe to Latest Legal News and Analysis

Mexican Labor Law Amendment Abolishes Outsourcing of Personnel

On April 23, 2021, an amendment to the Mexican Labor Law was published in the Official Gazette of the Federation. Below are the key points about the amendment and how they will affect employers that outsource or subcontract work.

GENERAL PROVISIONS

According to the amendment, employers are no longer permitted to subcontract or outsource personnel. The law covers any individual or legal entity providing employees to be supervised and managed by a third-party client and that determines the services and work to be rendered. The law includes carve outs and exceptions under certain circumstances.

  • Specialized Services

    • The amendment permits the subcontracting of specialized services that are not part of the core business in terms of the company’s corporate purpose and activity registered before the Tax Administration Service (or Servicio de Administración Tributaria (SAT). Services will be considered specialized provided that they are not part of the core business of the company that receives them—the so-called “operating entity.”)

  • Companies in the Same Corporate Group

    • The amendment allows companies within the same corporate group, i.e., the “former service entity,” to render services or activities.

  • Employment Agencies

    • According to the amendment, employment agencies or intermediaries, which were previously referred to as “outsourcing companies”) may participate only in recruitment, selection, and training of candidates. The amendment states that the company receiving the services must be the one that conducts hiring.

  • Profit-Sharing Cap

    • Because some companies have attempted to avoid tax liabilities, they have adopted the practice of creating distinct companies that employ their workers. These companies are currently required to distribute 10 percent of the company’s taxable profits (PTU) to employees. The new amendment establishes a cap on these profit-sharing obligations. As a result, a maximum limit of three months’ salary or the average of the amount received in the last three years—whichever is more favorable to the employee—is now in place.

KEY OBLIGATIONS

  • Companies Providing Subcontracting Services

    • Companies that provide subcontracting services are required under the amendment to take the following actions:

  1. Obtain the registration certificate before the Ministry of Labor and Social Welfare or Secretaría del Trabajo y Previsión Social, (STPS). Among other obligations, the company must evidence that its tax and social security obligations are up to date. Companies are required to renew the certificate of registration every three years.

  2. Execute a contract for the provision of the specialized services.

  3. Submit a quarterly report to Mexico’s Social Security agency (Instituto Mexicano del Seguro Social or IMSS ) and Mexico’s housing agency, Instituto del Fondo Nacional de la Vivienda para los Trabajadores or INFONAVIT on the specialized services contracts executed.

  4. Provide the contractor with a copy of the registration certificate before the STPS, tax receipts for payments of salaries, payment of withholding taxes and employer’s contributions and the value-added tax return, and a copy of the corresponding payment voucher.

  • Companies Contracting Specialized Services

    • Companies that provide specialized services are required under the amendment to take the following actions:

  1. Verify that specialized services are not part of company’s core business.

  2. Verify that the company providing the subcontracting services is registered before the STPS.

  3. Collect copies of:

    1. registration certificates before STPS;

    2. tax receipts for payments of salaries;

    3. receipts of payments of withholding taxes and payments of employer contributions; and

    4. value added tax returns and their corresponding payments.

CONSEQUENCES OF NONCOMPLIANCE

  • Labor

    • In the case of noncompliance, companies may be subject to fines of up to USD$222,000 and even incarceration of a company’s representatives.

  • Tax

    • Companies will not be able to credit or deduct taxes for subcontracting services, unless they fulfill the above requirements.

  • Criminal

    • Companies that do not comply with subcontracting obligations and attempt to deduct or credit taxes for the services of subcontracted personnel, or use simulation schemes for the provision of specialized services, will be subject to criminal liability for fraud.

    • Both the company that subcontracts and the one that employs subcontractors may be held jointly and severally liable for all labor, social security, and tax obligations, which they would have otherwise been obligated to pay.

      Advertisement
© 2021, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.National Law Review, Volume XI, Number 124
Advertisement
Advertisement

TRENDING LEGAL ANALYSIS

Advertisement
Advertisement

About this Author

Pietro Straulino-Rodriguez , Labor, Employment, Attorney, Ogletree Deakins Law Firm
Managing Partner

Pietro Straulino-Rodríguez is the managing partner of the Mexico City office of Ogletree Deakins. Before starting at Ogletree Deakins, Pietro worked for a number of years as a partner in private practice at a leading law firm in Mexico City in the firm’s Labor, Social Security and Immigration practice group. Previously he worked for a major labor boutique in Mexico City, in which he participated as an advisor and litigator in several matters. In addition, Pietro worked in the legal and government relations department of Ford Motor Company in Mexico. He has successfully combined his...

(+52)55-9171-1496
Oscar Margáin Vega Labor & Employment Attorney Ogletree, Deakins, Nash, Smoak & Stewart Mexico City, Mexico
Of Counsel

Oscar Margáin Vega joined Ogletree Deakins in January 2016. Prior to that, Oscar worked at a local boutique as Senior Associate of the Labor Litigation and Employment Consulting Area (2015), during such time, Oscar focused his practice in all kinds of high risk litigation proceedings whether individual or collective before the Local or Federal Labor Boards and Amparo appeals.

Oscar has a lot of experience advising on all kind of employment matters, hiring and termination processes of employees and executives, corporate labor reorganizations, implementation of work policies, codes of...

52 55-9156-4211
Rodrigo de la Concha Alvarez, Ogletree Deakins Law Firm, Mexico, Labor and Employment Attorney
Associate

Rodrigo de la Concha Alvarez joined Ogletree Deakins in September of 2014. Previously, Rodrigo worked in private practice at a leading law firm in Mexico City in the Labor, Social Security and Immigration Practice Group and for two years at one of the most prestigious law firms in Mexico City in its collective and individual labor litigation practice, where he appeared before federal and local Conciliation and Arbitration Labor Boards around Mexico. Rodrigo began his legal career as a law clerk at Notary Office Number 29 in México City. Rodrigo speaks both Spanish and...

5255-9156-4212
Ana Paula Delsol Espada, Ogletree Deakins Law Firm, Labor and Employment Law Attorney
Associate

Ana Paula Delsol Espada joined Ogletree Deakins in September of 2014. Previously, she worked in private practice at a leading law firm in Mexico City with the Labor, Social Security and Immigration Practice Group. She has also previously worked at the Civil Board on Altamira, Tamaulipas as an Agreements Secretary’s assistant from 2008 to 2010. Ana speaks both Spanish and English.

5255-9172-3043
Nora M. Villalpando Badillo Employment Litigation Attorney Ogletree, Deakins, Nash, Smoak & Stewart Mexico City, Mexico
Of Counsel

Nora M. Villalpando Badillo joined Ogletree Deakins in July 2019. Previously, she was a partner in a local boutique firm where she led the Labor Practice in consulting and litigation (2019). Previously, she worked in the legal area of labor relations of the telecommunications company Telmex (2011) and prior in an important labor firm in Mexico City as an adviser and litigator. Nora is fluent in Spanish and English.

Practice Groups

  • Employment Law
  • Litigation
52 559 1564213
Advertisement
Advertisement