The elimination of outsourcing will raise companies’ costs: expert

Note published on April 9 in El Universal, Cartera [Portfolio] Section by Rubén Migueles.
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Note published on April 9 in El Pulso de San Luis, Valores [Securities] Section by El Universal.
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The presidential bill that prohibits personnel subcontracting (outsourcing) is a very strong collection measure that threatens to elevate the cost of labor, particularly in small and medium-sized enterprises that make use of this service, warned Ricardo Martínez, a lawyer specializing in labor matters.

“It is a transcendental reform that, on the one hand, will benefit workers, allowing them to receive PTU (employee participation in company profits) but, on the other hand, it increases costs in companies”, he said in an interview with EL UNIVERSAL.

The founding partner of the De la Vega y Martínez Rojas Firm said that the reform has a high fiscal content, because when companies stop using outsourcing, they will also cease to have the right to deduct the VAT that they paid the supplier of this service and, therefore, the government will increase its collection.

“We will see that, in the case of many companies that will now have to include the workers they had subcontracted in their payroll, this will be more onerous, because it will cost them VAT, PTU and there will also be an increase in the cost of social security”, he explained.

Additionally, he considered that the bill does not take into account that Mexico depends on small and medium-sized businesses, which represent 80% of the companies attached to the IMSS.

“Subcontracting was very helpful to small and medium-sized businessmen, because they cannot have their own accountants or lawyers. Subcontracting is widely used and banning it sounds very serious”, he pointed out.

“With the large unemployment left by Covid-19, with over 700 thousand jobs lost, I believe that it is an extremely strong measure that may generate more unemployment and cause many who work in formality to switch to informality, which is what we want to avoid”, the specialist added.

This reform leaves an option to companies, he said, and it is contracting specialized services or works that do not fall within the main purpose of the contracting party nor within its predominant activity.

Martínez recommended that the first thing that any company must do is to analyze its corporate purpose and the objects of its contracts and, from there, evaluate what it can still contract through specialized services.

This is very delicate work, he added, and it must be conducted very carefully, because if the tax authorities consider it to be a simulation, they will take the possibility of deducting income tax and accrediting VAT away from the company.

“There is not much time left. This reform, as it has been clearly announced, will enter into force on May 1, when the three-month term begins”, he said.

For the specialist, the bill is in violation of Constitutional Article Five, which allows the governed to engage in the work, industry or commerce that best suits their needs and is lawful, such as the possibility of subcontracting.

Additionally, he also considers that it is in violation of Article 25, because it evidently goes against the private sector and freedom of hiring.

“Here, they are prohibiting an activity that is lawful in the rest of the world, and that the International Labour Organization itself has declared to be legal. Thus, approving the reform saying that it prohibits subcontracting opens a great avenue for amparo suits”, emphasized Ricardo Martínez.

There will be companies that will be seriously affected, he pointed out, as, for example, those that are dedicated to outsourcing as such, because the bill is a very strong blow to a very important industry that is legal.

“The problem is that the reform does not attack the underlying problem, which is that of fraudsters, simulators all of those that use strange modes to place workers in associations, that place them under professional fees, that place them outside the law and do not pay. That is not being addressed”, he lamented.