Mexico Has Reformed Its Outsourcing And Subcontracting Guidelines: What Will Change For Employers? – Employment and HR

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Mexico has introduced new rules to prevent employers avoiding

their profit share and other obligations by using outsourcing and

subcontracting arrangements.


Reformed rules on subcontracting and outsourcing in Mexico were

published on 23 April, 2021 (the ‘Reform’). The Reform

amends several Mexican laws, including the Federal Labour Law,

Social Security Law, National Workers’ Housing Fund Law, Tax

Code, Income Tax Law and Value Added Tax Law.

One of the key drivers of the Reform relates to the obligation

on employer to share 10% of the company’s taxable profits

amongst its employees. For years, it has been common practice for

employers to minimise the financial impact of this legal obligation

by using services entities. In the most common structure, there is

an operating company, which generates the business profit, and a

separate service entity that employs the workers who perform

services for the benefit of the operating company. The operating

company, which commonly has only one employee or no employees at

all, outsources workers from the services company and in some cases

from other third-party contractor entities to perform the work of

its core business. As these workers are not employed by the

operating entity, there is no legal requirement to give them a

profit share from that entity. Instead, their profit share is

generated from the services entity or third party, which typically

has far less profit than the operating company to distribute.

What will change under the Reform?

The intention of the Reform is to prevent improper practices

that have affected the rights of workers and employees in relation

to their seniority, job stability and profit share rights, among

others. Below we set out the most important aspects of the Reform

that corporate groups working under subcontracted based structures

in Mexico should consider.

  • Prohibition on subcontracting 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 specialised services and tasks that are

    not part of the corporate purpose or of the core business activity

    of the entity requesting them is allowed. Specialised services and

    tasks may be performed by companies of the same corporate group or

    by third parties.
  • Specialised services providers will now be required to register

    in a specific public registry that will be created for this

    purpose. The Ministry of Labour and Social Welfare must issue

    regulations and guidelines in relation to this registry within 30

    calendar days following the enactment of the reform once it is

    published in the Federation’s Official Gazette.
  • Shared services or activities provided between companies of the

    same group will be considered specialised 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 specialised services

    or the execution of specialised tasks. These include executing a

    written contract that describes the services or tasks to be

    provided and the approximate number of employees that will be

  • There is a cap per employee of three months’ salary or

    the average of profits received in the last three years for the

    profit share, whichever benefits the employee the most.
  • No transmission of assets will be required to transfer

    personnel via a substitution of employer if they are moved within

    90 days following the enactment of the reform, once published. In

    any event, the transfer of personnel must fully honour terms and

    conditions of employment, including acknowledgement of

  • Specialised service providers will have to deliver a report

    every four months to the National Housing Fund Institute and to the

    Mexican Institute of Social Security containing data relating to

    contracts executed with other companies, information on employees

    assigned to provide the services and the determination of their

    base salary.
  • The Reform introduces criteria to adjust the risk

    classification for purposes of risk premium insurance for

    occupational hazards in the event of transfers of personnel to

    companies with a different risk classification.
  • Payments related to specialised services or tasks will be

    deductible and creditable for the purposes of Income and Value

    Added Tax. This does not apply to payments that derive from schemes

    that imply subcontracting or supply of personnel.
  • There is joint liability in the event of non-compliance.

Next steps

The Reform entered into force the day after its publication in

the Official Gazette. However, as stated above, transitory articles

establish that the transfer of assets will not be a requirement to

carry out a transfer of personnel through employer substitution

during the first 90 calendar days following publication, on the

understanding that the terms and conditions of employment must be

honoured, including full acknowledgement of seniority.

This is interpreted as a three-month grace or transitional

period to transfer personnel to operating entities and to make any

necessary adjustments to subcontracting structures. It starts on 24

April 2021.

Transitional articles also provide that tax and social security

related provisions will enter into force from 1 August 2021. That

means companies have approximately three months to fulfil

their obligations in these matters.

Final considerations

Although the 2012 labour reform regulated the subcontracting

regime in Mexico, its application was very lax except in some

tax-related matters. The 2021 Reform has much more severe

consequences for those who fail to comply with the new

subcontracting rules.

Our recommendation is that you should assess and consider what

measures are necessary to adapt and comply with the Reform are as

soon as possible, given the entry into force of the Reform. For

this, the business and financial impact of implementing changes

that may depending on the subcontracting structure, involve

transfers of personnel to the operating entity, changes to

corporate purposes of both companies and revisions to service

contracts with third parties, must be evaluated.

In general terms, corporate groups in Mexico should therefore

examine their Mexican workforce to develop strategies to adjust to

the new legal obligations. In particular, employers should review

their current workforce structure to understand whether they are

using outsourced labor (and not specialised services) from either a

related services entity or a third-party entity. Employer

organisations should also assess the type of outsourced labour

compared to their corporate purpose and main economic activity to

determine strategies for compliance with the Reform.

It is key for employers in Mexico to prepare for this new legal

scenario from an employment, corporate, and tax perspective as it

is expected that the current administration will enforce the new

rules vigorously.

The content of this article is intended to provide a general

guide to the subject matter. Specialist advice should be sought

about your specific circumstances.

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