The decrease home of Congress approves the invoice to reform the subcontracting regime in Mexico.

Early in the morning of April 14, 2021, the plenary session of the Lower House of Congress (the Chamber of Deputies) approved the project put forward by the Joint Commission on Labor, Social Affairs, Public Finance and Public Lending to amend, add and repeal several provisions relating to the award of Subcontracts to the following laws: Federal Labor Law, Social Insurance Law, Law on National Housing Associations, Federal Tax Law, Income Tax Law and Value Added Tax Law.

The approved bill aims to prevent inappropriate practices that have adversely affected workers ‘and workers’ rights with respect to seniority, job stability and profit-sharing rights, among other things.

The most important aspects of the invoice are:

• Prohibition of subcontracting to personnel. This means that a person or organization may not provide their own staff to help another person or organization. This prohibition also applies to government agencies and institutions.

• The use of employment agencies or intermediaries to intervene in recruiting, selection and training activities is now regulated. These agencies can continue to provide these services but are not considered employers.
• The subcontracting of specialized services and tasks that are not part of the business purpose or the core business of the requesting person is permitted. Specialized services and tasks can be carried out by companies in the same group of companies or by third parties.
• The obligation for specialized service providers to register in a specific public register created for this purpose is now included. The Ministry of Labor and Social Affairs must issue regulations and guidelines relating to the above public register within 30 calendar days of the entry into force of the reform published in the Federation Gazette.
• Common services or activities performed between companies of the same group are considered specialized if they are not part of the corporate purpose or the core business activity of the company that benefits from them.
• Formalities and requirements must be observed so that individual or legal persons can subcontract the provision of specialized services or the execution of specialized tasks. This includes the execution of a written contract describing the services / tasks to be performed and the approximate number of employees involved.
• Upper limit per employee of 3 months of their salary for the concept of profit-sharing or for the average of profits made over the past three years, regardless of what benefits the employees most.
• Joint liability for non-compliance.
• No asset transfer is required to transfer staff through an employer substitute if they are moved within the first 90 days of the reform effective date once published. In any case, the transfer of personnel must fully comply with the terms of employment including the recognition of seniority. This is interpreted as a three-month grace period to transfer staff to the operating units and make the necessary adjustments to the subcontracting structures from the date the bill comes into force.
• Specialized service providers are required to submit a report to the National Housing Fund Institute and the Mexican Social Security Institute every four months, which includes the dates of the contracts concluded with other companies, as well as information of the employees in charge of the provision of the services and the identification of the their base salary.
• Criteria are set in order to adapt the risk classification for the purposes of risk premium insurance for occupational hazards in the case of personnel transfers to companies with a different risk classification.
• Payments related to specialized services or tasks are deductible and deductible for income tax or VAT purposes, but not for payments resulting from systems that imply subcontracting or the provision of staff.

The bill will be submitted to the House of Lords of Congress (the Senate) for approval.

The discussions and approval by the Senate are expected to take place in the next few days without any comments, so that the corresponding reform decree can be published in the Federation’s Official Gazette on May 1, 2021.