Three measures that companies should start taking before the reform to outsourcing

Note published on April 7 in Factor Capital Humano, Leyes y Gobierno [Laws and Government] section by Blanca Juárez.
Read original source

The activity of some organizations will be considered to be illegal once the reform enters into force and therefore, companies must start preparing the transition to the new mechanisms for contracting.

The House of Representatives moves the reform for the regulation of subcontracting forward, the favorable ruling is ready to be voted on. It will be better, warn specialists, for companies to prepare by means of financial, legal and operational measures.

“Labor subcontracting in Mexico became a tool that generated employment”, acknowledge the joint commissions of Labor and of Treasury in the project of ruling on the reform. A proof of this, they point out, is that in 2018 more that 3.5 million people in Mexico worked under this scheme.

However, they add, “we need to generate certainty on the labor rights of workers.” It is necessary to guarantee “compliance with tax obligations and the eradication of bad practices” in this mode of employment relationship.

Thus, both legislative bodies consider that the subcontracting of people should be prohibited and allowed only in the case of specialized services or works, as proposed by the federal government. The document includes the changes to the original proposal by President Andrés Manuel López Obrador, agreed with business and workers’ representatives.

Members of the Morena party are pushing for this reform to be ready in the House of Representatives next week. In this way, the Senate could complete the legislative process by the second half of April, before the regular period of sessions ends.

For lawyers Jorge Sales Boyoli and Oscar de la Vega, in the meantime, companies must advance in making changes to integrate into their payroll personnel they did not acknowledge as their own and that is currently working under the insourcing mode, as well as reviewing risk premiums for the payment of social security.

The financial aspect

Many companies that did not share profits with the personnel that they had subcontracted before will now have to do so, states Jorge Sales, founder and general manager of the Sales Boyoli Law Firm.

As a result of negotiations with the federal government, business organizations were able to limit the payment of profit sharing to three months of salary or to the average of the participation received in the last three years. “The amount that is most favorable to the worker will apply”, Article 127 of the Federal Labor Law (LFT) will state if the reform is approved.

This is a “positive change because, without this cap, it would cause a 10% increase in labor costs for companies. Practically an additional tax”, says lawyer Oscar de la Vega. Although he acknowledges that the federal Executive Power did listen to the private sector, he complains that with the reform “it becomes more expensive to do business in the country”.

Some companies will have to reconfigure their benefits in order to compensate for the money that they did not distribute as profits before, says Sales Boyoli. For the largest companies, it will only be one more expense, additional, but the smaller ones will have to eliminate bonuses or some extra payment, some will even have to lay off personnel.

However, “it is disproportionate to say that unemployment will increase with the reform on subcontracting matters, that is not the case. What will happen is that many employees will go from formality to informality.”

Oscar de la Vega also points out that occupational hazards will have to be analyzed. This because they will have the obligation to affiliate this new staff to the Mexican Social Security Institute (IMSS) and, the risk premium to be paid to the institute will depend on the contingencies to which it is exposed.

Legal and operational measures

Companies should seek advice to accompany their financial plans with legal strategies. This will be fundamental for the “design of the transfer of personnel from one company to the other”, says Jorge Sales.

Perhaps some companies will be able to acknowledge the seniority that they have accumulated, other will find that it is preferable to terminate those subcontracted employees, with their corresponding severance pay, and start from zero, he adds.

Finally, he says, the operational measures. “There is no single formula for this; each company, should consider them depending on its activity and size.” For example, Sales Boyoli adds, “supply chains and production chains will have to take actions to divide their production processes or modify or reduce them.”

Employment agencies are not included in the reform. Their activity, which is to supply personnel will be prohibited, both lawyers point out. “They are the ones facing the biggest challenge, they will have to reinvent themselves”, says Jorge Sales. Perhaps they could migrate and become specialized in a service or work in order to justify their existence in the coming legal framework, he further explains.

These changes that are taking place in Mexico could continue to seem radical to some people, he says. However, it is in fact a tendency in “social governments”. The discussion on subcontracting that we are solving in this country has started in Spain.

“Labor structures are becoming fractured at a global level. There is a strong tendency toward rethinking the world of work, we have teleworking, universal rent, the regulation of digital platforms, just to mention a few phenomena”, he explains.