How does outsourcing work in Mexico?

Labor #outsourcing, also known as outsourcing or subcontracting, is a practice where a company hires the services of another company to carry out certain activities or processes that are not part of its core business. In Mexico, this practice was included in the Federal Labor Law in 2012, which allowed companies to start outsourcing services to other companies.

However, labor outsourcing has generated controversy in #mexico due to the potential negative consequences for workers, such as labor precariousness, lack of rights, and violation of working conditions. In response to these concerns, stricter regulations have been implemented to control this practice.

Here are some important points established by the Federal Labor Law regarding labor outsourcing in Mexico:

1. Limitations on outsourcing: The law states that outsourcing cannot encompass all activities of a company. This means that a company cannot outsource all its functions and must maintain some control and responsibility over its internal processes.
2. Justification of specialized services: Outsourcing of services must be justified by their specialized nature. This means that companies can outsource activities that require specific technical knowledge that is not part of their core business.
3. Prohibition of equal or similar tasks: Outsourcing cannot include tasks that are equal or similar to those performed by the other employees of the contracting company. This prevents situations where subcontracted workers perform the same functions as direct employees but under different labor conditions.
4. Written contracts: Contracts between the contracting company and the contractor must be established in writing. This ensures that both parties agree on the terms and conditions of the outsourcing and establishes a legal basis for resolving any disputes or contractual breaches.
5. Compliance with safety and health regulations: The company that hires the services must ensure that the contracting company complies with safety, health, and environmental provisions regarding workers. This ensures that subcontracted employees are protected and work in safe conditions.

These regulations aim to provide greater protection to workers and prevent the abuse of labor outsourcing. It is important to note that significant changes have recently been made in Mexican legislation regarding labor outsourcing, with the goal of eliminating abusive practices and strengthening workers' rights. Therefore, it is advisable to stay updated on the current legislation and regulations on this topic.

Why modify the outsourcing law in Mexico?

The outsourcing practice in Mexico is regulated by the Federal Labor Law. However, it has also given rise to irregular subcontracting practices in many companies, which has been the subject of significant criticism.

According to labor law experts, there are companies in the country that do not register their workers with the Mexican Social Security Institute (IMSS). Consequently, they do not report their actual earnings, deny workers seniority rights, and fail to distribute profits.

In recent years, a phenomenon known as outsourcing service companies or contractors has emerged. These are small firms used by larger companies, known as parent companies, to avoid directly hiring workers.

These outsourcing companies begin subcontracting employees through other small firms. By doing so, they technically do not have any workers who are entitled to profit sharing. However, it is precisely these large companies that generate significant profits, resulting in a substantial loss for the government in terms of tax revenue.

Tax evasion and non-compliance with worker obligations are the main issues associated with outsourcing in Mexico. In order to address these concerns, the Mexican government reformed the Federal Labor Law in 2020.

Here are some of the key changes introduced through this reform:

1. Establishment of a registry with the Ministry of Labor and Social Welfare (STPS): Contracting companies must obtain authorization from this registry, which is valid for at least three years.
2. Justification of specialized services: Both the company and the workers assigned to it must demonstrate the specialized nature of the services being provided. Otherwise, outsourcing will be prohibited.
3. Compliance verification: The company must demonstrate that it is up to date with its obligations to the STPS, the National Workers' Housing Fund Institute (INFONAVIT), and the IMSS.

The modification of outsourcing laws in Mexico aims to address irregular and abusive practices associated with this activity. It seeks to prevent tax evasion, protect workers' rights, regulate irregular subcontracting, and strengthen supervision and sanctions. By implementing these changes, the government aims to promote transparency, legality, and fairness in outsourcing practices.

Conclusion

To regulate subcontracting in Mexico, reforms were made to seven laws: the Federal Labor Law, the Social Security Law, the National Workers' Housing Fund Institute Law, the Federal Fiscal Code, the Income Tax Law, the Value Added Tax Law, and the Federal Law for State Workers.

The new labor reform allows for the outsourcing of specialized services or the execution of specialized works that are not part of the company's corporate purpose or predominant economic activity. Companies providing such services are now required to register in the Registry of Specialized Service Providers or Specialized Works (REPSE), which is managed by the Ministry of Labor and Social Welfare (STPS). To register, these companies must demonstrate compliance with their tax and social security obligations. The registry is public, and companies must renew their registration every three years.

Outsourcing in Mexico is becoming increasingly significant. The number of workers and companies using this system is growing year by year. However, it is important to understand and comply with the law to carry out proper outsourcing processes.

By respecting the law, you can benefit from all the elements that outsourcing offers. Subcontracting personnel or services allows you to access a market where you can find specialists at a lower cost than hiring them directly in your company. Additionally, outsourcing enables you to focus all efforts on activities that have a strong impact on the core areas of your business.

Failure to follow the procedures established by the law exposes you to fines ranging from 250 to 5,000 times the general minimum wage, which can have a negative impact on your finances.

#BeSa Consulting is well-equipped to assist companies in ensuring compliance with labor reforms in Mexico. With our registration with the Secretary of Labor and Social Welfare, we have the necessary credentials to provide specialized services in the country. Our team of experts is knowledgeable about the updated regulations and can guide companies in navigating the complexities of subcontracting and outsourcing. Whether it's ensuring proper documentation, demonstrating specialized services, or meeting fiscal and social security obligations, we offer comprehensive support to ensure compliance and mitigate any potential risks. Trust BeSa Consulting to help your company navigate the labor reforms and optimize your outsourcing practices in Mexico.