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Outsourcing Law in Mexico: all about the reform

outsourcing law in mexico

From April 24th, 2021, the reform of the Outsourcing Law in Mexico enters into force. The main objective of the legislative reform is to eliminate all practices that threaten the labor rights of workers, as well as to prevent the evasion of business obligations and tax fraud.

What is outsourcing?

Outsourcing or subcontracting is when a company hires another that specializes in a certain area so that its staff carry out a process or activity. Since the third-party provider is an expert in the internship area, companies can:

  • Reduce costs and time in hiring staff
  • Get more like-minded profiles
  • Focus on your core business
  • Improve your productivity without investing in training

Reasons for the reform

The need to modify the Outsourcing Law comes when the Ministry of Labor and Social Welfare (STPS for its acronym in Spanish) reviews compliance with the Federal Labor Law in early 2021. During this review, the STPS finds worrying data related to evasion of obligations through subcontracting. One of the most relevant is that 83% of Mexican companies outsourced 100% of their workforce, or that 95% of companies found their workers through between 3 and 6 external suppliers (Source: Communiqué 0001/2021, Government of Mexico).

Objectives of the new Outsourcing Law

Having identified the need for change, the reform of the Outsourcing Law in Mexico aims to:

  1. Regulate outsourcing or subcontracting except for those services or works that are not part of the corporate purpose or economic activity of the contracting company.
  2. Impose the mandatory registration of subcontracting, proving compliance with labor, tax, and social security obligations.
  3. Avoid abuses and violations of worker rights.
  4. Eliminate tax evasion and profit sharing and comply with employer obligations.
  5. Strengthen sanctions in case of non-compliance: these can reach up to 4 million 481,000 pesos or 3 years in prison for tax fraud.
  6. Establish terms of the reform: Mexican companies had 3 months to regularize, and they must update their registry every 3 years.

Impacts of the reform on companies

The article in “El Economista” of the past 10/4/2021 on the outsourcing reform in Mexico points out the impacts of the legislative change. Since April, the jobs of the outsourced workforce have been formalized by 83%. The rest, unfortunately, were discharged from the IMSS (Mexican Institute of the Social Security).

Regarding the operations of the companies, not all of them have been able to retain their workforce to compete in specialized markets due to the financial impacts of the reform. In fact, during the first month of the reform, in a survey by the consulting firm Mercer called “Teleworking and Subcontracting Thermometer”, 15% of companies with outsourcing schemes stated that they would liquidate their tertiary workers. In addition, 24% of the businesses also indicated that they would reduce salary increases and ways to soften the financial impacts of the reform.

Fortunately, today SMEs are not alone, since software such as niikiis, positively impact the efficiency and satisfaction of the employee with a scorecard to monitor compliance with the law. Would you like to know more? Request a free demo and discover how our HR management solution can help you with your outsourcing reform.

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