The End of Outsourcing (Part 3)

As discussed in prior Alerts, on November 12, 2020, President Andrés Manuel López Obrador introduced a bill in Congress to substantially alter and further regulate outsourcing and insourcing services in Mexico by amending several provisions of the Federal Labor Law and other-related laws including the Social Security Law, Institute of the National Housing Fund for Workers Law, Tax Code, Income Tax Law and VAT Law.

After much discussion and negotiation among the Mexican Government, the workers’ sector and the employers’ sector, the bill was passed into laws and published in the Federal Official Gazette on April 23, 2021.

Below are the key points of the amendments to the Labor Law (Ley Federal del Trabajo )¹:

1. The outsourcing of personnel as we know it is now prohibited (both outsourcing and insourcing). Any violations will face hefty fines;
2. However, the outsourcing of personnel will be permitted under two scenarios as long as certain requirements are met and such services are not part of the corporate purpose or core economic activities of the person contracting the services or benefiting from them (the “Permitted Services”):
   • The contracting of “specialized services” and “specialized work”; and
   • The contracting of “supplementary or shared services” among companies that belong to the same corporate group.
   • Among other requirements, vendors who wish to provide Permitted Services will have to register in a public registry that will be created by the Ministry of Labor and Social Welfare within 30 days of the publication of the amendments to the law. Once the registry and guidelines are issued,vendors will have up to 90 days to register.
3. Companies contracting Permitted Services will continue to be jointly liable with their vendors if the latter fail to comply with their labor and social security obligations towards their employees;
4. The Law provides for a 3-month transitional period starting on the publication date during which all employers must adopt all changes necessary to become compliant to the new Law; including transferring the employees from the outsourcing/insourcing company to the actual employer; and
5. Profit sharing will now be limited to the greater of: (a) three months of salary; or (b) an average of the profit sharing received by the employee in the last three years.

Juan Tejedo, juan.tejedo@gmt.mx
Alfonso García-Mingo, a.garciamingo@gmt.mx
Carlos Acle, carlos.acle@gmt.mx

¹ This Client Alert does not discuss amendments to other laws including the Social Security Law, Institute of the National Housing Fund for Workers Law, Tax Code, Income Tax Law and VAT Law.