The STPS calls upon the Private Sector to prepare itself: The prohibition of labor subcontracting will be approved

Note published in Capital Factor Humano, Leyes y Gobierno [Laws and Government] Section by Gerardo Hernández.
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The Secretary of Labor, Luisa María Alcalde, underlined that the reform for regulating outsourcing will be designated as a priority and, therefore, the changes will be approved by Congress in March, at the latest.

Luisa María Alcalde Luján, head of the Department of Labor and Social Welfare (STPS), asked companies to prepare themselves for “the future prohibition of personnel subcontracting, both in the outsourcing and in the insourcing modalities”, a reform bill that will be designated by the Executive Power as a priority will be discussed in Congress on the first days of the ordinary period of sessions that starts on February 1.

“We are on the threshold of very important changes, not only to the Federal Labor Law, but also to the Social Security Law, the Infonavit [National Workers’ Housing Fund Institute] Law, the Federal Tax Code and the VAT and ISR [Income Tax] laws. We must start preparing ourselves right away because this, of course, entails important changes to the way in which we have been operating for several years”, said the federal official during the second roundtable for analyzing the challenges posed by profit sharing.

Alcalde Luján recalled that, within the framework of the implications of the reform on subcontracting on the current terms, a dialogue is being conducted between the authorities and representatives of businessmen and workers to analyze whether Employee Participation in Company Profits (PTU) could cause a distortion at the moment in which third-party hiring of personnel (in outsourcing and insourcing) is eliminated and is only permitted in the case of specialized services.

“I want to clarify and establish in these forums that this is not a place in which we are discussing the right of workers to profit sharing. That right is a constitutional right, and it was a tripartite commission, a few months ago, that determined that the profit-sharing percentage should be set at 10 percent. This right is not being a subject of debate, of discussion, this is not a place for that purpose. The objective, I insist, is finding whether within the framework of the subcontracting bill it could have effects that are precisely linked to profit sharing”, she emphasized.

At the second roundtable, the authorities heard the position of business representatives and of workers within the financial and insurance sectors, industries that currently resort to the insourcing mode, a labor modality created by the companies themselves to manage their human capital.

During the dialogue, the representatives of the sector acknowledged that labor subcontracting, both internal and external, are present in the industry with the objective of maintaining the companies’ competitiveness in face of the current percentage of the PTU and corporate taxes, which leads employers to lose almost half of their earnings.

Allowing internal and external subcontracting, in compliance with the current legal framework is a way of promoting companies’ competitiveness, stated Luis Niño de Rivera, president of the Mexican Banking Association (ABM). “Subcontracting is a very efficient way of giving companies productivity and increasing their competitiveness.”

In spite of the position in face of the possible prohibition of labor subcontracting, business representatives endorsed the proposal made by the Business Coordinating Council of capping profit sharing at 30 days of salary. Currently, the Financial and Insurance sector distributes between 6 and 26 days of salary as PTU.

The reality of industry

The discussion tables convened by the STPS are the result of the agreement signed between the government, businessmen and unions to analyze, in greater depth, the impact of the reform on subcontracting sent by President Andrés Manuel López Obrador to the House of Representatives last November. Businessmen argued that the approval of the bill on the terms in which it was presented would generate a distortion for companies in profit sharing.

The distortion in profit sharing in the financial and insurance sector lies in the fact that earnings of the companies in these industries not only derive from the work of the labor force, but from other factors, their representatives pointed out.

Álvaro García Pimentel, president of the Mexican Association of Stock Market Intermediaries (AMIB) explained that earnings within the sector are also the product of profits from the sales of assets, exchange rate fluctuation, interests on granted loans, income from the sale of fixed assets, royalties, tax incentives, among others. “Which clearly do not correspond to workers’ performance, but to corporate decisions that have surely been planned and invested in through the course of many fiscal years by the owners of the companies.”

With the disappearance of labor subcontracting, as the federal government intends, workers will be hired directly by companies and earnings that would be distributed among the workforce would not be entirely the product of employee performance, he argued.

Sofía Belmar, president of the Mexican Association of Insurance Institutions (AMIS), agreed to the above line of thinking and reiterated that the disappearance of labor contracting without capping profit sharing could cause a significant distortion in companies.

“In the terms in which profits are generated in the insurance sector, they often are related to operations that are not directly associated to the collaborators’ productivity factors and that, in the event that a proposal is passed without any type of analysis in regard to the cap on PTU, could cause an important distortion.”

What is the opinion of workers within the sector?

Fernando Salgado Delgado, deputy secretary general of the CTM [Confederation of Mexican Workers], believes that it is necessary to review the current corporate tax and, instead of setting a cap on PTU, establishing a minimum floor.

“We see no other way for us to have a better job, neither by renouncing to our benefits or to our rights and, even less, postponing the right of workers to a better, dignified life with an adequate income”, said the union representative.

For his part, José Carlos Torres, secretary general of the National Federation of Banking Unions (Fenasib), pointed out that the PTU is a constitutional right and, in spite of this, there is a good number of companies that do not comply with this obligation.

Nevertheless, the representative also acknowledged that the current system for calculating profit sharing is not aligned with the new reality of industries. In this sense, he proposed that employers and workers agree on a floor for earnings to be distributed and an amount for a scheme that encourages competitiveness among workers. “Not continue taking in to account only the parameters of days worked and salaries.”

Where are productivity, efficiency, performance, commitment, training? Questioned José Carlos Torres. “The world is strongly shifting toward the whole variable income trend. These variables can also be properly used for the ranking processes that we have in our companies and unions. As trade unionists, we must be very objective and honest in accepting that 100% of the people that we represent do not perform or are ranked equally”, he stated.

How to prepare for the new regulations?

While the dialogue to analyze the PTU cap continues, labor authorities clarify that the purpose of the meetings is not the discussion of labor subcontracting. On the contrary, Luisa María Alcalde Luján has reiterated that the reform will be marked as a priority by the head of the executive Power and, therefore, the Legislative Power must discuss it within the first 30 days of the ordinary period of sessions.

Ricardo Martínez, partner of the De la Vega & Martínez Rojas Firm, believes that, within this context, the reform on subcontracting would be approved before the end of February and, even though it is possible that there will be a transition period, it is necessary for companies to prepare for the new regulations.

“This highly serious reform only leaves in place and only permits contracts for specialized works, specialized services that do not fall within the corporate purpose or in the preponderant area of commerce of the hiring company”, said the labor lawyer during an analysis table called by the Mexican Association for Human Resources Management (Amedirh).

Faced with this context, he advised companies to review their corporate purpose to ensure that specialized services contracts they enter into are not for the performance of activities that they should be conducting themselves.

“We must start conducting an analysis, companies have to review their corporate purposes in insourcing. In my personal opinion, we can still save some of the corporate internal structures if we conduct a proper review of our corporate purposes, ensuring that the purpose of the hiring party and that of the party that is being hired do not overlap”, he explained.

Additionally, he suggested the analysis of service and work agreements to ensure that they are specialized. “We also have to review how the company is registered with Social Security and with the Treasury; this work should be starting already.”

According to Sodexo, the private sector must take into account three important aspects if the reform is approved:

  • Acknowledge and pay employees’ benefits. Employers must grant the workers’ corresponding benefits provided by law; additionally, it is necessary to be aware of the obligations that an organization has when hiring personnel.
  • Only the contracting of specialized services is allowed. If an organization wants to hire its personnel through a third party, it is necessary to corroborate that the activity that the employee will be performing is not part of the company’s corporate purpose or economic activity.
  • Guaranteeing 100% of all labor rights. Among the rights of employees, we find having a signed employment contract, a salary that corresponds to the work that he performs, working hours agreed by both parties, social security, Infonavit and retirement fund services. Companies must comply with and abide by all of the above, in addition to their fiscal obligations and the payment of taxes.

From the perspective of Ricardo Martínez, it is possible that once the reform is approved, companies may resort to amparo proceedings in face of the new legal framework for its violations to the constitutional right to engage in any activity, as long as it is lawful.