The Executive Order by the President of the Republic amending and derogating various provisions of the Federal Labor Law, the Social Security Law, the National Workers’ Housing Fund Institute Law, the Federal Tax Code, the Income Tax Law and the Value Added Tax Law, all of them in regard to the labor subcontracting regime, was published in the evening edition of the Official Gazette of April 23 of this year.
Additionally, amendments are made to the Federal Law of Workers at the Service of the State, Regulatory Law on Section XIII Bis of Part B) of Article 123 of the Political Constitution of the United Mexican States.
This Executive Order by the President of the Republic publishes, in all of its terms, the Reform Decree approved both by the House of Representatives and by the Senate. It is very important to note that it was originally expected to be published in the Official Gazette of May 1 and that it would come into effect on May 2; by its publication on April 23, the entry into force of all of these reforms will start on the day following its publication, as established in Transitory Article One, transcribed below:
“One. This Executive Order shall enter into force on the day following its publication in the Official Gazette of the Federation, with the exception of the provisions of Articles Four, Five and Six which will enter into force on August 1, 2021, and the provisions of Articles Seven and Eight of this Executive Order will come into effect in Fiscal Year 2022.”
The above means that:
- The amendments to the Federal Labor Law, the Social Security Law, the National Workers’ Housing Fund Institute Law will enter into force on April 24, 2021.
- The amendments to the Federal Tax Code, the Income Tax Law and the Value Added Tax Law will enter into force on August 1, 2021; and
- The amendments to the Federal Law of Workers at the Service of the State, prohibiting personnel subcontracting for the benefit of the agencies referred to in this Law, will enter into force in Fiscal year 2022.
Among the amendments to the laws that have been reformed, the following are the most significant:
I. In regard to the Federal Labor Law.
- The amendments to the Federal Labor Law consist of the derogation of Articles 15-A, 15-B, 15-C, and 15-D, to eliminate personnel subcontracting.
- On the other hand, Article 12a is amended to the effect that personnel subcontracting is prohibited, understanding this as when a natural person or an entity provides or makes their own workers available for the benefit of another natural person or entity.
Additionally, it is established that employment agencies or intermediaries may participate in recruitment, selection and training among other activities. They will not be considered as employers, this capacity belongs to the beneficiaries of their services.
- Article 13 is amended to allow subcontracting of specialized services or of services for the execution of works that are not a part of the corporate purpose or of the main economic activity of the beneficiary, as long as the contractor is registered in the public registry provided for in Article 15 of this Law.
An important change in relation to the previous bill of November 12, 2020 is that a second paragraph is added, in which complementary or shared services or works within a single business group are allowed (“shared services” or “back office”), also considered as specialized, as long as they are not part of the corporate purpose or of the main activity of the company receiving them.
In the session of April 13, the House of Representatives made an addition to the Draft Decree to define that, the definition of Business Group will be understood in accordance with provisions of Article 2, Section X of the Securities Market Law.
- Article 14 is amended to the effect that subcontracting must be formalized by means of a written contract in which the objective of the services to be provided or the works to be executed is specified, as well as the approximate number of workers that will participate in the fulfillment of said contract.
It is also established in this Article that the person subcontracting with a contractor that does not comply with the obligations arising from its employment relationship with its workers will be jointly liable in relation to the workers used in said hirings.
- Article 15 is amended to the effect that natural persons or entities that provide subcontracting services must be registered with the Department of Labor and Social Welfare.
Registration must be renewed every three years.
The Department of Labor and Social Welfare must process the registration within 20 days after its receipt, if it does not do so within this term, said registration will be considered as having been approved.
The registry of natural persons and entities will be public and will be available in the internet portal.
The Department of Labor and Social Welfare will issue the general provisions that determine the procedures relating to the registration referred to in this article.
Note. – In accordance with Transitory Article Two, the Department of Labor must issue the provisions referred to in this article within 30 calendar days after the entry in force of the Executive Order.
Note. – In accordance with Transitory Article Three, from the date of entry into force of the Executive Order, natural persons or entities providing subcontracting services must obtain the registration provided for in Article 15 within a term of 3 months.
- Article 41 of the Law, relating to employer substitution, is amended, adding an additional paragraph that specifies that, in order for employer substitution to come into effect, the property of the company or the establishment must be transferred to the substitute employer.
Note. – For the purposes of the application of this last paragraph of Article 41, Transitory Article Four of the Reform establishes that in the case of companies operating under a subcontracting regime, the transfer of the property of the company or the establishment will not be required during the term of 90 calendar days from the date of entry into force of the Executive Order, provided that the contractor transfers the workers involved to the beneficiary within said term. Labor rights must be acknowledged in all cases, including their seniority.
- In regard to the payment of profit sharing (PTU), Article 127 is amended, adding Section VIII, which establishes that the amount of participation in profit sharing will have, as an upper limit, 3 months of the worker’s salary or the average of the participation received in the last 3 years, the amount that is most favorable to the worker will apply.
Note. – It is important to take into account that when the Federal Labor Law refers to salary in relation to the provisions of profit sharing, Article 124 of the Law establishes that, for the purposes of that chapter, salary is understood as the amount that each worker receives in cash as a daily wage, that is, it does not consider the consolidated salary provided for in Article 84 of that same Law.
- Article 1004-A is amended to impose penalizations on employers that do not allow the inspection and surveillance ordered by the labor authorities or refuse to provide the required information, through fines ranging from 250 to 5000 times the UMA [Unit of Measure and Update].
- Article 1004-C is amended, to penalize those who provide subcontracting services referred to in Article 12, as well as natural persons or entities that provide subcontracting services without having the corresponding registration, with fines ranging from 2000 to 50,000 times the UMA.
II. Amendments to the Social Security Law.
- Articles 15 A, 304 A, Section XXII, and 304 B, Section V are amended, and the second paragraph of Article 75 of the Social Security Law is derogated.
Note. – The amendment to Article 15 A entails highly onerous and bureaucratic obligations in requiring companies that have already obtained their registration with the Department of Labor and Social Welfare to provide the Institute, on a quadrimestral basis, the information on the agreements that it has entered into, their objective and term, a list of the workers including their CURP [Personal Population Registry Code], social security number and base salary used for the payment of social security dues as well as the name and federal taxpayer’s registration number of the beneficiary of the services. In addition to a series of rules for its compliance.
- All of these amendments have the objective of harmonizing their content with the amendments the Federal Labor Law on subcontracting matters.
- The elimination of the second paragraph of Article 75, regarding the classification of companies in terms of risk is relevant and, therefore, it will be necessary to comply with the provisions of Transitory Article Five of the Executive Order, to the effect that employers who, in terms of the derogated second paragraph of this article had, prior to the entry into force of the Executive Order, requested from the Mexican Social Security Institute the assignment of one or more employer registrations by class, of those provided for in Article 73 of the Social Security Law, to register their workers at the national level, will have a period of 90 calendar days from the date of entry into force of the Executive Order to cancel said employer registrations and, if applicable, request from the abovementioned institute that an employment registration be granted in terms of the provisions of the Regulations of the Social Security Law in matters of Affiliation, Classification of Companies, Collection and Supervision. Once that term has ended, those employer registrations that have been canceled, will be canceled by the Social Security Institute.
- The review of Transitory Article Five, which establishes the rules for the classification of companies in regard to employer substitution is also very important.
III. Amendments to the National Workers’ Housing Fund Institute Law
- Articles 29, in its third paragraph and 20 Bis are amended, with the objective of harmonizing their provisions with the reform to the Federal Labor Law in employer substitution matters.
Note. – The amendment that adds Article 29 Bis, in a similar way to the Social Security Law, imposes highly onerous and bureaucratic obligations in requiring companies that have already obtained their registration with the Department of Labor and Social Welfare to provide the INFONAVIT [National Workers’ Housing Fund Institute], on a quadrimestral basis, the information on the agreements that it has entered into, their objective and term, a list of the workers including their CURP, social security number and base salary used for the payment of social security dues as well as the name and federal taxpayer’s registration number of the beneficiary of the services.
IV. Amendments to Tax Laws
- Amendments are made to the Federal Tax Code, the Income Tax Law and the Value Added Tax Law, conditioning the deductibility of expenses, conditioning them to compliance with the obligations established in the Federal Labor Law, including the registration of subcontracting companies, penalizations are imposed and the commission of tax crimes for non-compliance is even provided for.
NOTE. – As stated at the beginning of this newsletter, the Executive Order comes into effect on April 24 in regard to the Labor, Social Security and INFONAVIT [National Workers’ Housing Fund Institute] laws. In regard to the tax laws, it enters into force on August 1 of this year and in regard to the labor Law of Workers at the Service of the State, it will come into effect in fiscal year 2022.
We remain truly yours for any clarification or additional information in regard to this document.