The proposal to reform the regulations on outsourcing firstly presented in our November 2020 issue, was fully approved by the Congress on 20 April 2021.

This reform was ultimately discussed with the business sector and it is the result of an agreement between the government and the employers’ representatives. The core of the reform, limits the use of outsourcing to "the provision of specialized services or the execution of specialized works that are not part of the beneficiary's scope or economic activity”. This means that any other type of outsourcing recognized by international labour standards, such as ILO Conventions, is prohibited.

The Federal Labour Law defines outsourcing as “the provision of services from an individual or legal entity through making available its workers for the benefit of another person or entity (article 12)”. Outsourcing is prohibited unless it is used for:

1. Staffing, recruiting, training, and headhunting agencies (article 12).
2. Specialized services provided by entities that do not share the same corporate purpose and the main economic activity of the beneficiary (article 13).
3. Services shared between companies of the same business group are considered specialized if they are not part of the corporate purpose and the main activity of the beneficiary (Article 13).

With this new law, outsourcing must be formalized through a written contract containing detailed information on the work and the number of workers to be employed.

It is required that individuals or legal entities providing outsourcing register with the Secretary of Labor in the National Outsourcing Registry every three years.

This new regime will be also applied to workers of public sector institutions (e.g. federal government, public financial institutions, the central bank) as of 2022.

Lack of compliance with the obligations foreseen in this new law entails fines up to the equivalent of aprox. USD 220.000 and the joint liability of the user of outsourcing and the non-registered contractor. In addition, lack of compliance implies the elimination of individuals or legal entities from the National Outsourcing Registry.

Further charges are applied for tax fraud when ilegal outsourcing services are provided, and invoices are used for VAT deduction purposes.

Francisco Cervantes Díaz, President of the Confederation of Industrial Chambers of Mexico (Concamin, an IOE Member) commented the reform as follows: “We participated in more than 80 meetings with the governments to try to achieve the best outcome. We maintained that the specialised services could be outsourced, however, a company can no longer outsource all of its services. We are glad we could meet with the (Mexican) President and share our viewpoint; perhaps we would have aimed at something more”.

Fernando Yllanes Martinez, President of the Social Security and Human Resources Commission of Concamin, explained that “there are still aspects that have to be reviewed, such as temporary work that is frequently used for production peaks, or due to a greater demand in year-end sales”.

Concamin also underlines the complexity of the changes introduced, including from a fiscal and social security perspective.

The Mexican Association of human capital companies (Asociacion Mexicana de empresas de capital humano – AMECH) expressed its discontent with the legislative changes, as “they represent a regression to the past and imply diminished competitiveness for the Mexican economy vis-à-vis other economies where outsourcing is more widely allowed. The higher costs on wages do not necessarily mean better working conditions”.

Diego Naveda, Director General of AMECH, said: “when this reform was discussed we provided extensive advice on its possible negative consequences. First of all, the higher risk of informalization of the economy”. He continues: “according to INEGI, the official institution in charge of the national census and providing population data, in Mexico there were around 5 million of individuals working under an outsourcing scheme. A recent survey conducted among AMECH members shows how companies (the majority of which are small and medium size enterprises) were in reality able to hire directly only half of those workers. Hence, we estimate that 2 million workers will become informal workers in less than one year time”.