On November 12, 2020, the President of Mexico, in exercise of his powers, announced the presentation of a bill of a Draft Decree to amend, add or repeal, with respect to labor subcontracting, several provisions and ordinances such as the following;

• Federal Labor Law
• Law of the National Workers’ Housing Fund Institute (Instituto del Fondo   Nacional de la Vivienda para los Trabajadores).
• Social Security Law
• Federal Fiscal Code
• Income Tax Law
• Value Added Tax Law
• Federal Law of Workers in the Service of the State.

The Chamber of Representatives and the Chamber of Senators discussed and approved the amendment last Tuesday, April 20, and it was published last Friday, April 23, in the Federal Official Gazette (Diario Oficial de la Federación).

The congressional declaration of purpose was based on protecting employees’ rights, eliminating simulated subcontracting practices. The simulation of the transfer of employees from one company to another may give rise to several situations to the detriment of the employees, such as the registration before the IMSS of a lower salary than the one actually earned.

In the past, this special labor regime was fraudulently used to reduce employees’ labor benefits to a minimum, even reducing their salaries and depriving them of profit sharing.

Labor subcontracting

The most important aspect regulated by this reform is the prohibition of labor subcontracting when it does not involve specialized services.

Prohibited labor subcontracting	Permitted labor subcontracting
Labor subcontracting of personnel is prohibited, being understood as when an individual or legal entity provides or makes available its own workers for the benefit of another.	The provision of services and/or execution of specialized works will not be considered as labor subcontracting if such services and/or works are not part of the corporate purpose or economic activity of the beneficiary of the contracted services or works

Joint and Several Liability

Article 14 of the Federal Labor Law was amended to establish that the individual or legal entity that subcontracts specialized services or the execution of specialized works with a contractor that fails to comply with the obligations derived from the relationship with its workers, will be jointly and severally liable in relation to the employees used for such contracting.

Therefore, the employers contracting such services will be jointly and severally liable if the contractor fails to comply with its labor obligations.

Registration with the Secretary of Labor and Social Security.

LFT Article 15 (amended). – Individuals or legal entities that provide subcontracting services must be registered with the Secretary of Labor and Social Security (STPS by its Spanish acronym). In order to obtain the registration they must prove that they are up to date with their tax and social security obligations and it must be renewed every three years.

The STPS must rule on the application for registration within 20 days after receipt thereof, otherwise the applicants may request it to issue the corresponding resolution within 3 days after the filing of the request. Once said term has elapsed without the notification of the resolution, the registration will be considered to have been effected for the legal effects to which it gives rise.

The STPS will deny or cancel at any time the registration of those individuals or legal entities that do not comply with the requirements set forth in this Law.

The STPS will have 30 days from the entry into force of said amendment to issue the general provisions that determine the procedures related to the registration referred to in this article.

The individual or legal entity that provides specialized services or executes specialized works must provide quarterly, no later than the 17th day of the months of January, May and September, the information of the contracts entered into in the four-month period in question.

Requirements to hire and deduct specialized services.

• For VAT crediting.

1. Copy of the current authorization issued by the Secretary of Labor and Social Security.
2. Copy of the VAT return and the acknowledgement of receipt of the payment corresponding to the period in which the contracting party made the payment of the consideration and the VAT that was transferred to it.
3. The contractor shall, as part of its obligations, provide to the contracting party, during the month following the month in which the contractor has made the payment of the compensation for the service received and the VAT that has been transferred, all the documentation mentioned above.

• For purposes of deductibility in accordance with the Income Tax Law

1. Copy of the current authorization issued by the Secretary of Labor and Social Security.
2. The tax receipts for the payment of employees’ salaries, with which they have provided the service or executed the corresponding work.
3. Proof of payment to the IMSS of the workers’ and employers’ contributions, as well as the corresponding contributions to the INFONAVIT.

Deadlines for the amendment.

1. There will be 1 month from the publication of the reform for the STPS to issue the guidelines for the registration of specialized subcontracting companies. (May 24).
2. INFONAVIT, issuance of rules to provide quarterly information on specialized services (June 23).
3. Employer Substitution (July 22).
4. Registration of companies that provide specialized services (Aug 23)
5. Amendments to the Federal Fiscal Code, Income Tax Law and Value Added Tax Law (1 Aug.)
6. Law of Workers in the Service of the State (Jan. 2022)
7. Once the guidelines are published, the companies have 3 months to regularize and transfer the employees, acknowledging their seniority.
8.  Every 3 years companies will have to update their registration with the STPS.

Fines or infringements.

LFT Article 1004-A.- Any employer who does not allow in his establishment the inspection and surveillance ordered by the labor authorities, it shall be required to appear to submit all the required information, being warned that if he fails to do so, it will be presumed that he has no information.

Regardless of the foregoing, the fact of not allowing the inspection to be carried out shall make him subject to a fine of 250 to 5,000 times the Unidad de Medida y Actualizacion (Unit of Measurement and Updating).

LFT Article 1004-C.- Whoever subcontracts personnel referred to in Article 12 of this Law, as well as those who provide subcontracting services without having the corresponding registration, shall be fined from 2,000 to 50,000 times the UMA, without prejudice to any other liabilities that may arise in accordance with the applicable legislation.

The same penalty as that set forth in the preceding paragraph shall be applicable to those individuals or legal entities that benefit from subcontracting in violation of the provisions of Articles 12, 13, 14 and 15 of this Law.

Employee profit sharing (PTU by its Spanish acronym)

Article 127.- The right of the workers to participate in the distribution of profits, recognized in the Political Constitution of the United Mexican States, shall be in accordance with the following rules:

I. to VII. …

VIII.    The amount of profit sharing will have a maximum limit of three months of the employee’s salary or the average of the profit sharing received in the last three years; the applicable amount will be the one that is more favorable to the employee.

The previous PTU cost for companies was 56,120.62 million pesos, which represented 2.8% of their profits. With the 90-day cap of the reform, it will result in a cost of 157,050.08 million pesos, representing 7.7% of profits, increasing profit sharing by more than 100,000 million pesos.

We suggest you consult in detail the information of the subcontracting amendment with a labor lawyer.

We remain at your service for any questions or clarification in this regard.