Mexico’s subcontracting reform has been published

Today, it was published in the Official Federal Gazette the reform that prohibit the subcontracting of personnel and sets precise rules so that the subcontracting of services is limited to specialized works or services that are not part of the corporate purpose or the predominant economic activities of the contracting companies.

The reform amends the Federal Labor Law, the Social Security Law, the Law of the National Workers’ Housing Fund Institute, the Income Tax Law and the Value Added Tax Law, as well as the Federal Tax Code.

This reform implies the need to make various adjustments in corporate, labor, tax, social security, contractual and operational matters in all companies in Mexico.

Also, the reform limits the participation that employees may have in the profits of the company to an amount of three months or the average of the participation received in the last three years.

Therefore, we believe it is important to analyze and identify the different particular aspects of each company that will presumably have to be adapted or modified in accordance with the reform. Above all, considering that out-sourcing as we know it will be prohibited, in-sourcing (service companies within the group) has changed completely and that for the validity of certain subcontracts for the provision of services, a series of formalities and requirements different from those currently existing will have to be complied with, among which the existence of a list of specialized subcontractors stands out.

We do not omit to point out that, according to the reform, its entry into force will be the day after its publication and the times for the implementation of certain changes are short.

The proposed identification and analysis will allow us to have a clearer picture of what we must do now that the reform has been published and the time it will take to implement it, also considering that the consequences of non-compliance  involve labor, tax and social security fines and even the commission of crimes.

Should you require further information regarding this issue, please do not hesitate to contact us.

Yours sincerely,

Cannizzo, Ortiz y Asociados, S.C.