Ready for the reform on outsourcing? Extensions are over

Note published on September 1 in Expansión, Carrera [Career] Section by Nancy Malacara. Read the note in its original source
Read original source

The transitory term on subcontracting matters has expired. The reform on outsourcing enters into force as of September 1, which means that companies must have already incorporated employees that they used to subcontract into their payroll.

Additionally, companies offering specialized services should already be subscribed in the Registry of Specialized Services or Specialized Works (Repse), operated by the Department of Labor and Social Welfare.

Now, personnel subcontracting will only be possible when the requested service is not part of the corporate purpose or the main economic activity of the company benefiting from it. And companies that obtained permission from the labor authority to offer their specialized services must renew it every three years and will be registered in a public registry.

The consequences of the reform

With the entry into force of the reform on outsourcing, simulation of the provision of specialized services or the performance thereof without being registered at the Repse will cause fines ranging from 179,240 to 448,100 pesos. Additionally, being an aggravated crime, it carries sentences of 13 and a half years of jail.

Óscar de la Vega,  Labor Law lawyer  with over 30 years’ experience, explains that this reform is very extensive, as it covers labor, union, tax, benefits, housing and social security aspects.

In regard to workers, he adds, it is beneficial. For one part, it provides legal certainty to them, and it guarantees their right to social security. It also ensures profit sharing, the benefits required by law, acknowledgment of seniority on the job and, above all, the opportunity to have the payment of Social Security (IMSS) dues made with their real salary. “This helps them to have access to a housing credit and also to save more in their Afore [Retirement Funds Administrator] account by the time they retire”, he states.

The disadvantage, says Héctor Márquez Pitol, president of the Mexican Association of Human Capital Companies (AMECH), is that not all companies have the necessary resources and infrastructure to comply with the reform and hire the employees that they used to subcontract as direct employees.

At a prior date, the specialist had already warned that this new regulation would further open the door to informality. Today, he believes that the positive and negative effects of the reform will come to light over the next few months.

For his part, Francisco Martínez, CEO of the Adecco recruiting company, agreed that not all outsourcing companies will survive. He even estimated a drop of 40% in his subcontracting business for this year, taking into account that third-party hiring represented 95% of his “pie” before the reform.

In the case of the Amech, Márquez Pitol explains that associated companies with the necessary capability and experience, as in the case of Adecco, will offer subcontracting of specialized services that do not match the corporate purpose of their clients.

They will continue offering human resources services, for example, payroll processing, recruitment, selection, evaluation, personnel training and capacitation, but they will no longer be the direct employers, as established in the Federal Labor Law

“The Amech will continue to provide certification to companies that comply with the normative standards defined by the association, and a third-party auditor in regard to specialized services, with the objective of providing confidence to clients that hire the service and ratify that each one of the companies is complying with its labor, social security and tax obligations in force”, explained Márquez Pitol.

The limits of the reform

The word “outsourcing” is now dangerous in Mexico, says Pepe Villatoro, regional head of expansion at Deel, an international hiring and payment company. Nevertheless, he maintains, their scope has also been delimited.

“What the reform seeks is to prevent simulation of Mexican companies hiring Mexican employees through a third party. Nevertheless, it is allowed for a Mexican company to hire international talent through this mode. In the international model, outsourcing continues to be a very useful scheme for international hirings, and Mexican jurisdiction does not apply in this area.

In accordance with the expert, the outsourcing mode continues to function  in these case, as it is more expensive for foreigners to open a subsidiary in Mexico, build a local payroll, enter an employer registration and incorporate a corporation before a notary public.

On the contrary, the mode of labor subcontracting allows them access to foreign talent through a third party that hires them in their local payroll.

Additionally, the regulations of both countries enter into play. For example, the contract will specify who the employer is, who the beneficiary of the service is and the amount that the employee will receive in his local currency, but he receives what is offered for that position and in the foreign tabulator.

“The interesting thing is that the amount does not vary with the exchange rate. Mexican employees must be given a payroll receipt in which his contribution fees to social security, the Infonavit [National Worker’s Housing Fund Institute], Income Tax, etc. are specified. While independent contractors or service providers also receive a contract under this mode, they are responsible of their own tax return and payment, as there is no VAT between countries”, he concludes.