- Last November 12, the President of the Mexican Republic submitted a bill to amend the Federal Labor Law (LFT), the Social Security Law (LSS), the Law of the National Institute for the Workers Housing Fund (INFONAVIT), the Federal Tax Code, the Income Tax Law (LISR) and the Value Added Tax Law (LIVA) with the purpose of organizing subcontracting operations.
- The bill was motivated by the ideas of order, transparency in labor relations, avoidance of abusive or deceitful practices, strengthening of employment and elimination of anything that may damage workers rights and reduce, fiscally speaking, all employer obligations to recognize their entitlements.
- As well as to comply with the international recommendations and best practices issued by the International Labor Organization for the implementation of an effective policy to benefit workers.
- Said bill aims to comply with the right to work principle; to avoid improper and deceitful practices such as the indiscriminate transfer of workers; the registry of workers with a salary lower than the one they actually receive, thus affecting their rights to social security and housing.
- The heart of the bill is the prohibition to subcontract employees and the provision of specialized services or the execution of projects that are not part of the company's purpose nor of the financial activities of the beneficiary, and as long as the contractor has a special authorization by the Ministry of Labor and Social Welfare, shall be allowed.
- In connection with the Social Security Law, a reform is proposed where the provision of specialized services, in terms of work based on real activities by the contractor and beneficiary, is regulated.
Likewise, it is aimed to prevent any sub-registry of salaries in order for the payment of any employee-employer dues to be direct and aligned to the actual and real salary. Obviously, the whole special system, in terms of registries and special kinds of fees for subcontractors, would disappear.
- Concerning the Law of the National Institute for the Workers Housing Fund, the bill aims to fix the impact on the right to housing and to dictate, as mentioned above, that it be the actual salary of the worker with the same effects before the Mexican Institute of Social Security, the National Institute for the Workers Housing Fund, and the tax authorities.
- Naturally, in tax matters, the provision of services and the subcontracting schemes shall not be deductible for both the Income Tax and the Value Added Tax nor will the Tax Administration Service shall consider the Value Added Tax as paid for any effects in terms of any intercompany agreements in connection with the transfer of the subcontracting cost.
- Regarding the Federal Tax Code, by prohibiting the institution, the initiative aims to clean up and force transparency of tax resources as it has considered that, presently, there is unfortunately a distortion that generates illegal schemes that have led to a manipulation and decrease in tax payments, with the consequential monetary damage to the tax authorities.
It is proposed that the receipts issued for employee subcontracting with joint liability, fines, sanctions and a qualified tax fraud, would not have any tax effect.
- The implementation of these reforms included in the bill, in accordance with the temporary articles thereof, would begin on January 1, 2021.
- Regarding the implementation, it is expected for the new companies providing specialized services or with an amended corporate purpose to apply for authorization from the Ministry of Labor and Social Welfare during a six-month period starting on the date the Ministry publishes the general requirements or provisions said companies must comply with. The bill provides that the Ministry of Labor and Social Welfare to have a deadline, of 4 moths at first, to issue those general provisions or criteria.
- And last, but not least, in terms of said decree, the Mexican Institute of Social Security may cancel, within 120 days (6 months) starting on the effective date of the reforms, all employer registrations that are incorrect.
- Due to the dialogue between employers and the government, according to today's news, arising from the meeting held yesterday at Palacio Nacional, the fundamental items in the process are the following:
a. The reform and the bill for the discontinuation of subcontracting systems will succeed.
b. It is being requested for the effective date thereof to be other than January 1, 2021 for companies to be ready.
c. Employees Profit Sharing was discussed as an important affair that may help during the implementation process if the National Commission for Employees Profit Sharing manages to issue a recommendation allowing to limit the payment of such Employees Profit Sharing to a maximum of a three-month salary. This is not a matter being discussed in Congress and could be accepted by this National Commission for Employees Profit Sharing. It is expected to raise this matter at the Commission, where, by law, intervene the
d. main national unions and employer chambers, in order to propose the sectors or highly intensive-capital industries where such Employee Profit Sharing limits may be suggested.
The foregoing does not imply a consultation or recommendation, it is a plain and simple opinion, by this law firm, on the issue of the reform to outsourcing and Employee Profit Sharing.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.