Mexico – The Mexican government has announced sweeping changes to their labor laws and have provided new guidance on outsourcing of personnel and specialized service providers. The new rules enacted affect companies that outsource or subcontract work in Mexico.
The new outsourcing rules, which went into effect on April 24, 2021, prohibit the outsourcing or subcontracting of personnel by individuals or legal entities (“providers”) to benefit third parties (“beneficiaries”) who are in the same or similar business. Specifically, providing employees to be supervised and managed by beneficiaries who determine the services and work to be rendered.
The new legislation does not apply to recruiting companies, employment, or staffing agencies performing recruitment, selection, and training personnel. Additionally, providers will be allowed to outsource personnel for specialized services or work that is not included within the main corporate purpose or economic activity of the beneficiary, and if they form part of the same corporate group as the beneficiary, meaning under the same economic control.
Key actions for providers under this new rule include:
- Execute a specialized services contract with beneficiaries.
- Register with the newly launched Specialized Services Registry managed by Mexico’s Department of Labor.
- Registrations much be completed no later than August 22, 2021
- Executed service contracts must be included with the registration
- Registrations must be renewed every 3 years
- Proof of registration must be provided to beneficiaries
- Submit quarterly reports to the country’s social security and housing agencies
- Employment substitutions must be completed on or before July 23, 2021
- Providers under the same corporate group as beneficiaries and opt to dissolve or liquidate the entity:
- Employees must be transferred to the beneficiary through an employer substitution/transfer agreement, upholding all employee rights, including severance if they wish to not substitute.
- Transfer its assets to the substitute employer.
- Providers under the same corporate group as beneficiaries and opt to dissolve or liquidate the entity:
- Independent providers:
- Employees can be transferred to any previous beneficiary, so long as the provider legally terminates their employment.
- If employees do not wish to substitute, they are entitled to severance.
- Assets need not be transferred
An important aspect of the new rule includes changes to profit-sharing amounts distributed to employees. The previous regulation required that companies distribute 10% of their before-tax profits to their employees. Under the new rule, companies must distribute the greater amount of either:
- Three months of the employee’s last monthly salary.
- The average of the profit share that the employee received in the past three years
Penalties for noncompliance
- Failure to complete the registration can incur fines from US $9,000 up to $225,000
- Failing to file or late filing information required for quarterly reports can incur fines from US $2,250 to $ 9,000
- Failing to allow Labor Authority inspections can incur fines from US $1,125 to $225,000
- Companies will not be able to credit or deduct taxes for subcontracting services
- Companies and their representatives not complying with the new regulation may be subject to criminal charges
Beneficiaries, as well as providers, will be jointly and severally liable for any outstanding labor, social security, and tax obligations.
To learn more about these new rules and how to ensure your company is compliant in Mexico, contact a CT Corporation specialist today.
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