Authored by Angel Ramirez
Recent changes in the Mexican Senate will have a significant impact on companies outsourcing labor in Mexico. Businesses with existing operations or those considering nearshoring operations or establishing new facilities in Mexico will need to evaluate this new law to ensure business operations are compliant.
Companies have increasingly relied on outsourced labor in Mexico. According to the Labor Bureau of Mexico, the estimated number of outsourced or subcontracted workforce in Mexico grew from about 1 million workers in 2003 to about 5.6 million in 2019. Labor outsourcing was intended to simplify initial hiring and to accurately manage all withholdings of federal, state, union, employer and other benefits for companies doing business in Mexico. However problematic business practices, such as unfairly stating salaries and using layoffs to avoid paying full benefit contributions and year-end bonuses, drove calls for the legal reform of outsourcing.
Baker Tilly’s supply chain and international specialists are following these developments and can help clients evaluate and comply with these provisions. Continue reading to learn more about the legal reform.
On April 20, 2021, the legal reform to the outsourcing regime was approved by the Mexican Senate, resulting in the following consequences:
a) As a general rule, outsourcing of labor is prohibited.
b) The outsourcing of specialized services or the execution of specialized projects will be allowed, provided that they do not form part of the corporate purpose or the principal economic activity of the beneficiary.
c) Complementary or shared services or works provided between companies of the same business group will be considered as specialized, provided that they are not part of the principal economic activity and are not part of the corporate purpose of the company that receives them.
d) Companies of the same corporate group shall be construed as the group of legal entities organized under structures of direct or indirect participation in their capital stock, in which the same company maintains control of such legal entities.
e) A maximum limit for profit sharing to employees is established to three months of the employee´s salary or the average of the Employee Profit Sharing (PTU) paid in the last three years, whichever is higher.
Therefore, to comply with these provisions, it is strongly recommended to make an exhaustive and multidisciplinary analysis of the services agreements executed with third parties, as well as between the companies of the same corporate group, as well as the corporate purpose of the entities, the personnel structure, and the corporate structure of the companies.
For this purpose, the Reform establishes three months to allow companies to make the corresponding adjustments, in the understanding that if they do not comply with the aforementioned: (i) they would lose the deduction of expenses for income tax purposes; (ii) they would lose the Value Added Tax benefit; (iii) they would be jointly and severally liable for the payment of social security contributions, and (iv) it could be considered to have committed the crime of tax fraud per current criminal legislation.
To help navigate this reform, reach out to Baker Tilly’s international supply chain team. Our specialists are experienced in supply chain optimization, nearshoring, and can help businesses determine the impact of this legal reform.