In recent years, the Government of Mexico has been introducing reforms to its Federal Labour Law. The original text dates from 1931 and is being adapted to the current needs of workers, businesses, and today’s markedly different business environment (both within Mexico and for our much more digitized business world). Prior reforms were published in 2019 and a new update has taken place in recent weeks.
The latest reforms to the Federal Labour Law were published in the Official Journal of the Federation on 23 April 2021, and cover important changes to subcontracting. These changes have a direct impact on tax, social security and labour matters. We recommend all companies operating in Mexico be aware of them.
Federal Labour Act
The main change states that subcontracting of staff is prohibited without a contract in place.
The definition of subcontracting within the Law is understood to be when one natural or moral person provides or makes available their own workers for the benefit of another.
The subcontracting or subcontracting of specialised services or the execution of specialised works that are not part of the social object (or the economic activity predominant to the beneficiary) is permitted, provided that the contractor is registered with the Secretaría del Trabajo y Previsión Social. This registration must be updated every three years, and may be cancelled by the authority if the requirements are not met.
The subcontracting of specialised services shall be formalised by written contract which clearly states the object of the services to be provided and the works to be executed, as well as the approximate number of workers to participate in the contract.
If any party undertaking a contract fails to comply with social security obligations under the Law, both parties shall be jointly liable and may suffer severe penalties.
In the event that contracts are already in place, both parties shall be jointly liable to the new regulations arising from this Law, and will have up to three months to ensure all responsibilities will be attributable to the new employer.
Participation of Profits in Companies
The share of profits in enterprises (PTU) shall have a maximum limit of three months of the worker’s salary or the average share received in the last three years – the amount most favourable to the worker shall apply.
Income Tax and Value Added Tax
Services performed by outsourced personnel for activities related to the social object or economically predominant activity of the contractor shall not have tax effects. These may not be deductible for income tax or creditable for Value Added Tax.
It is important that Mexican companies consider this change in labour and tax law to avoid possible fines or sanctions.
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