On November 12, President López Obrador signed a bill to regulate labor subcontracting. According to the president himself, the proposal aims to end tax fraud and the violation of workers’ rights.

The original proposal consists of regulating 3 figures:

  • SUBCONTRACTING OF PERSONNEL:Outsourcing of personnel is prohibited. There cannot be companies that simulate their labor relations and that have workers hired by others.
  • REGULATE SPECIALIZED SERVICES THAT ARE NOT PART OF THE COMPANY OBJECT: The provision of specialized services or the execution of specialized works will be allowed, but an authorization from the Ministry of Labor will be required and they will be part of a public registry.
  • PLACEMENT AGENCIES: They may intervene in the hiring, recruitment, selection, training process, among others, but in no case will the intermediary be considered a patron or they may hire as a substitute.

Likewise, more severe penalties are foreseen for companies that fail to comply, which may be prosecuted for the crime of tax fraud.

The initiative includes modifications to the Federal Labor Law, Social Security Law, INFONAVIT Law, as well as the Income Tax Law, the Value Added Tax Law, and the Federal Tax Code. These changes include repealing the 6% VAT withholding, when personnel are made available to the contractor, provided for in section IV of Article 1-A of the VAT Law.

Since November 23, the discussion of the initiative began in the Open Parliament, where the legislators listened to the sectors involved from both the private initiative and the federal government, however, it was not possible to reach a consensus, given the importance of the consequences that this reform would have for the productivity and competitiveness of companies, as well as for the conservation and generation of employment.

Finally, last Wednesday, December 9, a tripartite agreement was signed between the business sector, the labor sector and the federal government, in which it was agreed to discuss the federal government’s proposal so that next February 2021, it can be present a new joint initiative to the Legislative Branch.

The Agreement establishes the following:

1.The parties agree and undertake to solve the problem of abuse of outsourcing. The country’s companies will immediately begin the process to regularize their workforce within the framework of the bill presented by the Federal Executive.    

2. The profit sharing scheme within the framework of what was proposed by the Executive’s initiative in which personnel may not be subcontracted, has not been sufficiently defined or socially debated. Consequently, enough time is needed for an open discussion between the sectors to define a fair and equitable profit sharing system that avoids discretion in its payment. Said consultation process will begin to be resolved prior to the discussion of the initiative.

3. Given the scope of the reform and its operational impacts, the companies requested a period of time to carry out this process. For this reason, the Legislative Power is respectfully requested to postpone the parliamentary discussion of the initiative to February 2021, which will be designated as preferential so that it can be discussed and approved within a period of no more than 30 days.

4. A call is made to the companies that handle payroll to immediately stop developing irregular practices that are harmful to workers, such as mass dismissal in December. The IMSS, the INFONAVIT and the SAT will make a formal appeal to these companies and if irregularities or possible commission of crimes are found, they will proceed immediately administratively or criminally ”. The scope and terms in which the warrants from the tax authorities referred to in this last point are still unknown, so it is recommended to be aware of the next news in this regard.