THE LOWER HOUSE OF CONGRESS APPROVES THE BILL TO REFORM THE SUBCONTRACTING REGIME IN MEXICO.

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Mexico City, April 14th, 2021.

 

In the early morning of April 14th, 2021, the plenary session of the Lower House of Congress (the Chamber of Deputies) approved the project presented by the Joint Commission of Labor, Social Walfare, Public Finance and Public Credit, to amend, add and repeal several provisions in terms of subcontracting of the following statutes: The Federal Labor Law, Social Security Law, National Worker’s Housing Fund Law, Federal Tax Law, Income Tax Law and Value Added Tax Law.

The intention of the approved bill is to prevent improper practices that have affected the rights of workers and employees in their seniority, job stability, profit share rights, among others.

The most relevant aspects of the bill are as follows:

  • Prohibition to subcontract personnel. This implies that an individual or entity will not be allowed to supply its own personnel to benefit another individual or entity. This prohibition also applies to government agencies and institutions.
  • The use of employment agencies or intermediaries that intervene in recruitment, selection and training activities is now regulated. These agencies may continue to perform these services but will not be considered employers.
  • The subcontracting of specialized services and tasks that are not part of the corporate purpose or of the core business activity of the person requesting them is allowed. Specialized services and tasks may be performed by companies of the same corporate group or by third parties.
  • The obligation for specialized services providers to register in a specific public registry that will be created for this purpose is now included. The Ministry of Labor and Social Welfare must issue regulations and guidelines in relation to the above-mentioned public registry within 30 calendar days following the enactment of the reform once published in the Federation’s Official Gazette.
  • Shared services or activities provided between companies of the same group will be considered specialized if they are not part of the corporate purpose or of the core business activity of the company that benefits from them.
  • Formalities and requirements must be observed for individual or legal entities to subcontract the provision of specialized services or the execution of specialized tasks. These includes to execute a written contract that describes the services / tasks to be provided and the approximate number of employees that will be involved.
  • Cap per employee of 3 months of their salary for concept of profit share or to the average of the profits received in the last three years, whatever benefits the employees the most.
  • Joint liability in the event of non-compliance.
  • No transmission of assets will be required to transfer personnel via a substitution of employer if they are moved within the first 90 days following the enactment date of the reform, once published. In any case, the transfer of personnel must fully honor terms and conditions of employment, including acknowledgement of seniority. This is interpreted as a three-month grace / transition period to transfer personnel to operating entities and to make any necessary adjustments to subcontracting structures from the date in which the bill becomes enacted.
  • Specialized services providers will have to deliver every four months a report to the National Housing Fund Institute and to the Mexican Institute of Social Security that contains the data of the contracts executed with other companies and information of employees assigned to provide the services and the determination of their base salary.
  • Criteria is set to adjust the risk classification for purposes of the risk premium insurance for occupational hazards in the case of transfers of personnel to companies with a different classification of risk.
  • Payments related to specialized services or tasks will be deductible and creditable for purposes of Income and Value Added Tax, respectively, but not for payments that derive from schemes that imply a subcontracting or supply of personnel.

The bill will be sent for approval of the Upper House of Congress (the Senate).

Discussions and approval by the Senate is expected to happen without any observations within the next few days to allow the corresponding reform decree to be published in the Federation’s Official Gazette on May 1st, 2021.

 

The partners and associates of our labor and employment practice group will be glad and ready to follow up as needed.

 

S I N C E R E L Y,

 

Jorge De Presno

jorgedepresno@basham.com.mx

 

Álvaro González

agonzalez@basham.com.mx