On 3 December 2019, the Mexican government approved a proposed reform to amend outsourcing contracting regulations to better protect subcontractors and ensure more transparency of the outsourcing regime.
The new bill would enter into effect in 2020. The exact implementation date is not yet determined.
If passed, the bill would amend the outsourcing provisions in the Federal Labor Law and the Social Security Law.
Despite the existence of a comprehensive legal outsourcing regime, this area has been widely abused and has led to significant corruption and exploitation of outsourced workers. In practice, outsourcing entities and beneficiary companies have not respected the law as it is common practice to subcontract the entire workforce regardless of whether the outsourced jobs are specialized or identical to those carried out in the workplace by regular employees.
While the bill has not been very popular among employer organizations, the Mexican government expects it to save up to MXN 500 million.
Outsourcing includes subcontracting and any type of services provided by a third party through a services agreement. The proposed legislation would make the following changes:
- The outsourcing entity would be mandated to provide its employees (the subcontractors) with a copy of the services agreement with the beneficiary company (hiring the subcontractors through the outsourcing entity).
- An enforcement authority would be created to ensure compliance with the existing outsourcing regime. The National Registry of Outsourcing Companies by the Ministry of Labor and Social Welfare (STPS), in coordination with the Federal Tax Authority and the Mexican Social Security Institute, would carry out regular preventive inspections to verify that outsourcing entities comply with their labor and social security obligations. The current equal liability of beneficiary companies and outsourcing entities regarding outsourced workers’ labor rights and social security requirements will be maintained and better enforced with the new STPS.
- The beneficiary company that does not comply with the outsourcing rules would be required to distribute a profit-sharing amount to the outsourced workers. Outsourced workers would then have the same right to profit-sharing as employees. This would apply retroactively for all the subcontractor’s years of service with the beneficiary company. The yearly total profit-sharing that companies are required to distribute is equal to 10% of taxable profits.
Employers should ensure compliance with the existing outsourcing rules which require the following:
- The entire workforce may never be subcontracted.
- The outsourced job may be acceptable only when it is a specialized job.
- Outsourced jobs may not be essential to the underlying nature of the business. Core positions or occupations may not be outsourced.
To avoid joint liability with the outsourcing entities as well as profit-sharing with subcontractors, employers should review their services agreements and ensure that the outsourcing entity is compliant with the outsourcing regulations.
Employers should monitor the implementation timeline of the reform and ensure compliance. In addition, employers may want to start reviewing their subcontracting agreements to ensure they are compliant with the existing outsourcing rules.