Reform: Mexico says it will strictly limit outsourcing

The US, China, and Japan lead as countries with the highest number of outsourced employees. Mexico is in fourth place.

Reform: Mexico says it will strictly limit outsourcing
The 'spirit' of the reform lies in the prohibition of the outsourcing of personnel but allows the outsourcing of specialized services. Photo by Austin Distel / Unsplash

The Chamber of Deputies approved the reform that regulates labor subcontracting or outsourcing in the private sector and the federal public sector, and consequently, the ruling was sent to the Senate for its analysis and approval and, with this, to conclude its legislative process so that it may be enacted by the Executive. The "spirit" of the reform is the prohibition of the subcontracting of personnel but allows the subcontracting of specialized services or the execution of specialized works that are not part of the corporate purpose or the predominant economic activity. Seven laws were amended: Federal Labor Law, Social Security Law, Infonavit Law, Federal Tax Code, Income Tax Law, VAT Law, and Federal Law of Workers in the Service of the State, however, most of the changes were concentrated in the labor law.

Subcontracting of personnel is prohibited, i.e., when an individual or legal entity provides or makes available its workers for the benefit of another. Employment agencies or intermediaries involved in hiring may participate in the recruitment, selection, training, and/or qualification, but in no case shall they be considered as employers. The subcontracting of specialized services or specialized works that are not part of the corporate purpose, nor of the predominant economic activity of the beneficiary thereof, will be allowed, provided that the contractor companies are registered in the public registry that will be in charge of the Ministry of Labor and Social Welfare (Secretaría del Trabajo y Previsión Social, STPS).

Complementary or shared services or works rendered between companies of the same business group will also be considered as specialized as long as they are not part of the corporate purpose or of the predominant economic activity of the company that receives them. There will be harsher penalties for illegal outsourcing: it will be equated to tax fraud; fines ranging from 173 thousand to 4 million pesos were set for those who fail to comply with the new provisions, and tax deductions will be prohibited. Deputies approve reforms on outsourcing; they are now passed to the Senate.

The STPS will have the power to request information regarding compliance with labor obligations, even when in an inspection process the employer refuses to comply with the labor authorities, and may also impose sanctions in case of refusal to provide such information. Subcontracting must be formalized using a written contract stating the purpose of the services or works to be performed. Companies that provide subcontracting services must be registered with the STPS, which will be public and available for consultation on the internet. The registration must be renewed every three years.

Joint and several liabilities are established in the sense that the company that contracts the provision of services or the execution of works with a company that fails to comply with its social security obligations will be liable to the workers used for the execution of such contracts. The amount of the Employee Profit Sharing (PTU) will have a maximum limit of three months of the employee's salary or the average of the participants received in the last three years, whichever amount is more favorable to the employee will be applied.

Mexico ranks fourth among countries where outsourcing is a common form of employment

Mexico is the fourth country where most people work through outsourcing, according to the World Employers Confederation (WEC). Given the imminent second regulation of this form of employment, there are three points to take into account: the clear definition of the different schemes, the registration of companies, and the involvement of unions.

The confederation's "Economic Report 2021" indicates that before the Covid-19 pandemic more than 61 million people were placed in the labor market by agencies in 40 countries. Access to agency labor is one of the three forms of outsourcing that WEC takes into account. The United States is the country with the largest number of people subcontracted through this scheme. In that country, 16 million workers were hired by agencies and not by the companies in which they provided their services.

China is in second place, with 11.7 million. The third place is Japan, which, with almost 4.8 million, is not far behind Mexico, which is in fourth place with almost 4.7 million workers under the outsourcing model. According to the report, in 2019 the employment services industry was worth 495 billion euros globally, 5% more than in 2018. Different forms of outsourcing contributed more than €396 billion, 80% of the total. However, for the first half of 2020, covid-19 lowered 18% the gains of the entire sector.