Public and private companies are facing a new labor situation after the entry into force of the reform on subcontracting, which regulates the outsourcing and insourcing modes with the objective of preventing tax evasion, giving workers more benefits and encouraging formal employment.
However, the changes that this implies, and the time provided make these changes place companies in an impossible situation, particularly in the case of private companies which, after the promulgation of this reform on April 23, only had a little over three months to comply with the requirements prior to its implementation. Meanwhile, the public sector was given a deadline of January, 2022.
Faced with this very short period of time, senator Ricardo Monreal, leader of the Morena legislators, proposed a bill to postpone the entry into force of this reform from August 1 to September 1. This proposal had the backing of President Andrés Manuel López Obrador. But this has not been the only proposal, senator Kenia Rabadán, of the PAN party, has requested that this deadline be extended by five months, to January, 2022 also, to be equal to that of the government.
For its part, the Mexican Social Security Institute (IMSS) approved the extension of the new provisions of the reform until Congress or the Executive Power define the new deadline. For entrepreneurs, however, the alternative of extending the allotted time by only 30 days is insufficient, as timings to make the necessary changes and the confusion in regard to labor and tax topics have created a great amount of uncertainty within the private sector.
In the opinion of Armando Leñero, president of the Center of Studies on Formal Employment (CEEF), in an interview with La-Lista, this was a foreseeable problem. “Three months was an insufficient period of time to carry out this highly impactful change. This is lack of foresight and proof that the legislators did not conduct an analysis of the timings.”
Both he and Héctor Márquez, director of Institutional Relationships at Manpowergroup, as well as Óscar de la Vega, directing partner at the De La Vega & Martínez Rojas Firm, who were consulted by these means, agree that while 30 additional days are not enough, they do represent a palliative. Although the ideal scenario would be to have the same period of time as the government and postponing everything until next year.
Márquez explains that it is not only the timings, but also the budgets to carry out all of the necessary changes, since many companies make annual budgets, and these changes can represent an additional expense not included in these budgets.
Leñero explains that the process that companies are submitting to because of the reform is not a quick process, since different modalities are involved in the conversion:
- Insourcing: those who were subcontracted will be included in the company’s payroll.
- Companies that will continue with simulations or turn toward informality.
- And, in the case of workers that provide specialized services, they will be included in either established or new companies, which requires a series of processes such as the memorandum of association, obtaining the RFC [Federal Taxpayer’s Registry Number], opening bank accounts, registering in the Registry of Specialized Services or Specialized Works (REPSE), among others.
In the case of the REPSE, according to figures provided by the Department of Labor and Social Welfare (STPS), since May 24, when subscriptions started, 9 thousand companies have registered, of which 3 thousand did not complete their registration, but only 600 have obtained the permit, that is, close to 7% of the total that subscribed.
Ricardo Martínez, founding partner of De la Vega y Martínez, explains that this low percentage in the REPSE could be the result of three factors: it is mandatory to be up-to-date in the payment of social security, SAT [Tax Administration Service] and Infonavit [National Worker’s Housing Fund Institute] obligations, which was an obstacle for many, given the lack of coordination between these institutions and the update of their information in government pages, because some cases show that there are pending obligations even though this is not the case.
“The design of the platform is not good, as many were stopped because of alleged lacks of compliance, when there was no lack of compliance or even in the presence of a favorable opinion of being debt-free or because of historical errors. The ideal scenario would be that companies were allowed to register, and any pending payment could be clarified later; either the page or the criterion must be corrected”, says Martínez.
Another obstacle is that registration can be made for one activity only. “This is wrong, because there are companies that provide specialized services in various activities”, he explains. There are also business groups that provide shared services to their own companies (financial, legal, human resources and accounting); information is not clear and, therefore, they will have to make a different registration for each activity.
Confusion in the area of labor
The reform on outsourcing prohibits personnel subcontracting, to give way to subcontracting of specialized services or works. That is, companies will be able to subcontract additional services, but only those that are not part of the company’s corporate purpose or its main activity, because these services must be conducted by personnel belonging to the company.
For example, Germán de la Garza, leader of labor Services at the Deloitte consulting Firm, explains in an announcement: “If I have a bakery, I cannot ask an outsourcing company to send us bakers to bake and sell the bread. However, subcontracting of other specialized services that are not central to the business is allowed: an architect to make modifications to the bakery’s kitchen.”
Nonetheless, the definitions of specialized services are still not clear in regard to what they include and what they do not include, because this reaches economic activities that go beyond labor matters, such as the provision of materials in a production chain.
Leñero gives another example: If a welding company requires a blacksmith’s service, then it is part of its corporate purpose, “this is where confusion and different interpretation criteria may arise”, he explains.
Questions relating to taxes
In the tax area, the amendments to the Labor Law state that the payment that companies make when subcontracting personnel will not be deductible and the VAT will not be accreditable as of the moment in which the reform enters into force; in this case the specified date is August 1.
Therefore, companies that require subcontracting specialized services must ensure that they are properly registered, otherwise these expenses will not be deductible either.
Joint liability is established in the amendments; therefore, both companies, the contracting company and the service provider will be jointly responsible for compliance with the requirements established by law because, otherwise, they will be penalized equally.
Up Sí Vale explains that providing or hiring non-authorized subcontracting services may lead to fines ranging from 2,000 to 50,000 times the Unit of Measure and Update (UMA); that is, fines can range from 179 thousand to 4.4 million pesos; this is just for not complying with the labor law; other fines and aggravating circumstances would be added for lack of compliance with the Social Security and Infonavit Law; additionally, unauthorized subcontracting is considered to be tax fraud by the Federal Tax Code.
“Models that do not adjust themselves to this are illegal and those who participate in these practices will be liable. If the objective of the labor reform is not adjusted, it will trigger a series of amparo suits for violation of the right to freedom of work,” says De La Vega.