Mexico: Legislative initiative to ban labor outsourcing is postponed

Mexico - 12 / 10 / 2020

Mexico Tax-Labor Alert

Given the relevance of the amendment and the great impact it may have from a fiscal, labor and social security point of view, the Mexican President has requested to the Congress that the analysis and discussion of the law initiative be postponed until the next ordinary session, that is, until February 2021.

As we pointed out in prior alerts, on November 12, 2020, the Mexican President filed a legislative initiative to ban the current regime of existing labor subcontracting (outsourcing and insourcing) and limiting the provision of specialized services or execution of specialized works. This proposal, if its original wording is confirmed, would have important effects on tax, labor and social security matters, among others.

Given the relevance of the initiative, the President has held various meetings in recent weeks with different business groups and unions. Likewise, the Congress convened a so called “open parliament”. In both cases, the objective was precisely to analyze all the implications that could arise from the aforementioned law proposal. After this analysis, one of the main conclusions reached is that there are still some issues that have not been sufficiently defined so far (such as the effects in connection with employees’ profit sharing).

In this context, and with the purpose of providing more time for the sectors involved to discuss the matter, on December 7, 2020, the Mexican President issued a statement in which he requested the Congress to postpone the analysis and discussion of the aforementioned proposal until the next ordinary session period, scheduled for February 2021, and that, at that time, a preferential period of up to 30 days is granted for discussion and, where appropriate, approval.

Likewise, the statement mentions that companies must start a process to regularize their workforce within the framework of the proposal and are urged to avoid irregular practices that are harmful to workers (such as proceeding to massive dismissals during the month of December).

Finally, it is specified in the statement that the Mexican Institute of Social Security (IMSS) and the Tax Revenue Service (SAT) will make formal warnings to companies to avoid the practices mentioned in the previous paragraph.

Based on the above, we will continue following closely the legislative process of the aforementioned initiative, as well as the agreements reached between the Federal Government and the private sector to determine the amendments that are finally approved and their possible final effects.