If outsourcing is limited, companies will have to conduct an employer substitution

Note published on April 7 in El Contribuyente, Noticias [News] Section, by Diego Coto.
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Companies will have to make several internal changes to the payroll to comply with the agreement to reform labor subcontracting.

On Monday, President Andrés Manuel López Obrador announced that an important agreement was reached among union leaders, business leaders and the government on subcontracting and profit-sharing matters.

The agreement establishes that only subcontracting of specialized services different from the corporate purpose and the main economic activity of the contracting company will be allowed, registration before the Department of Labor and the subscription into the public registry of subcontracting companies of specialized services and works.

Another one of the key points is that there will be a period of three months for subcontracted employees to be included in the payroll of the true employer. According to Lorenzo Roel, president of the Commission on Labor of the CCE [Business Coordinating Council], the three-month period starts when the Department of Labor publishes the guidelines for companies to register in the registry, which would be on May 1. That is, in the end, companies will only have four months to adapt to the new scheme and to change the payroll.

Employer substitution before the IMSS

What worries specialists the most are all of the bureaucratic changes that must be made in this period. The main problem is that external subcontracting is prohibited, but so is internal subcontracting. This means that companies in the same group for parallel payroll administration can no longer be created.

Faced with this scenario, companies will have to resort to employer substitution before the IMSS [Mexican Social Security Institute]. Article 290 of the Social Security Law establishes what this substitution is:

For the purpose of the payment of credits referred to in Article 287 of this Law, it is considered that there is an employer substitution when:

  • There exists between the substituted employer and the substitute employer, by any title, the transfer of the essential goods related to the exploitation, with the intention of continuing with it. The purpose of continuing with the exploitation will be presumed in all cases.
  • In cases in which the partners or shareholders of the substituted employer are, in their majority, those of the substitute employer and the same business line is maintained.

In the case of the replacement of an employer, the substituted employer will be jointly liable with the new employer for the obligations deriving from this Law, originated prior to the date in which the Institute is informed in writing of the substitution, up to a period of six months, after which all obligations will be attributable to the new employer.

The Institute shall, upon receipt of the substitution notice, notify the substitute employer of the obligations it acquires in accordance with the previous paragraph. Likewise, it must notify the new employer, within a period of six months, of the debt status of the substituted employer.

Basically, it refers to transferring the workers between employers, preserving their rights. In an interview with Reforma, Ricardo Martínez, a lawyer at the De la Vega & Martínez Law Firm, explained that for companies that used insourcing, the concept of employer substitution is the only way of complying with the change in the payroll.

Additionally, the new company must acknowledge the labor rights, seniority and occupational hazards of the workers it absorbs. This, together with the changes to profit sharing, means that companies will have to balance more payroll expenses. Therefore, specialists have said that four months are not enough to make all of the necessary changes.

With information from Reforma.