Mexico’s planned changes to the regulations governing employee profit sharing could hamper investment in the local mining sector, according to an analyst.
However, the proposal – which would boost bonus payments for millions of workers – could lead to an acceptable consensus that would allow the so-called reforms on subcontracting to go forward, which would put an end to months of uncertainty, stated a source within the industry.
President Andrés Manuel López Obrador has applied pressure for a long time for the prohibition of subcontracting, a technique used by companies to outsource work to third parties, partly to avoid the payment of the 10% employee participation in company profits (PTU).
The practice is common in many sectors, including mining, particularly among Mexican-owned Firms.
But a bill that prohibits subcontracting – except in cases in which workers are required for specialized services that go beyond the scope of the main company – has been delayed for months in the midst of strong opposition by the private sector, particularly among the segments with high profits, including financial services.
The legislation, presented to the Lower House in November, is now expected to advance quickly, after an agreement was reached by the government, the private sector and union leaders.
According to the agreement, PTU bonuses will be capped at three months of salary or at the average of profit sharing received in the last three years.
Private sector representatives intended the limit to be set at one month of salary.
This agreement will cause millions of workers to receive much higher bonuses, particularly in industries in which PTU payments have historically been small, such as construction and waste management, Alan Zamayoa, an analyst at Control Risks told BNamericas.
“However, it is probable that companies in sectors that pay a higher PTU, such as mining, will also be affected. This will have a negative impact on possible reinvestments in new assets, employee training or infrastructure”, he warned.
While it is not yet known whether leaders within the mining industry and other industries will desist from their opposition to the bill on subcontracting, it is probable that mining companies will apply pressure to achieve two points, according to Zamayoa.
First, that the PTU could be linked to productivity instead of to the prices of metal, as Mexico’s main mining products – gold, copper and silver – have reached multi-year highs in the last 12 months and, second, the time that it will take for the implementation of the regulations once a new law enters into force.
“This because the legislative period ends on April 30 and PTU payment is due before the end of May”, the analyst added .
A FAIR COMPROMISE?
Despite concerns, the agreement on PTU could put an end to months of uncertainty and friction between the government and the mining sector.
“I am cautiously optimistic that this is an acceptable solution to a problem that is more pronounced than in other businesses that are less labor-intensive, such as financial services”, Brad Cooke, executive president of the Mexican mining company Endeavour Silver told BNamericas.
The agreement “will help dispel the uncertainty” generated by the bill on subcontracting, said Germán de la Garza de Vecchi, head partner of labor services at Deloitte México, quoted by the local financial newspaper, El Economista.
But the De la Vega & Martínez Rojas Law Firm warned that small and medium-sized enterprises will not be able to pay the bonus, while the excessive PTU rate of 10% will erode the competitiveness of large companies, which could cause the loss of jobs at a time of economic crisis related to the pandemic.
The change will cause average payments to increase to around 18.560 pesos (US$900) for each one of the 6 million workers receiving the PTU, in comparison to the current 7.301 pesos, informed the Bermúdez Abogados Law Firm.