By Marcela Calderon: Partner in charge of Employment, Social Security and Payroll Taxes Services. KPMG in México
To make economic development compatible with labor in supply chains, it is necessary to strengthen compliance with labor standards. In this regard, the Mexican government has taken various actions, among which is the new regulation on labor subcontracting.
On April 24, 2021, new labor, social security, and tax provisions came into force that regulate labor subcontracting in the following terms.
A. The subcontracting of personnel, i.e. the assignment of personnel to provide services under the direction, supervision and training of the beneficiary of the services, is prohibited1.
B. The subcontracting of specialized services is permitted, provided that they are not part of the corporate mission or the main economic activity of the beneficiary, and that they are registered with the Ministry of Labor2.
C. Specialized services are defined by the regulation as gathering elements or distinctive factors of the activity performed by the contractor, which are based, among others, on training, certifications, permits or licenses that regulate the activity, equipment, technology, assets, machinery, level of risk, average salary range and experience, which provide added value to the beneficiary, provided that own workers are made available to the beneficiary3.
D. The labor authorities have issued a criterion on the concept of “providing employees“ whereby one or more employees carry out the specialized services in an establishment owned or under the management or responsibility of the contractor.
In the case of tax matters, the Taxpayer Attorney Agency has included as another requirement the temporary nature of the service, i.e. it cannot be permanent.
E. The tax consequences of contracting prohibited personnel services are the non-deductibility of the expense for income tax and value added tax crediting purposes, and in some scenarios even being considered tax fraud with criminal consequences.
In addition, companies are obliged to request various labor, tax and social security information.
F. Various reporting obligations are established before the social security authorities to identify the specialized services that are regulated by the labor provisions, as well as the employees involved, since, in case of any non-compliance in the payment of social security contributions, the contractor is jointly and severally liable.
The integration of labor and tax matters to classify services and to grant immediate tax consequences to ensure compliance, as well as inspection and control acts by labor and tax authorities, imply a strict control over the compliance of service providers’ obligations in the supply chain.
In this context, the transfer of control over compliance with labor and tax obligations of service providers implies assessing the following measures:
1. Internal control processes that allow for the permanent verification of compliance with labor, social security, and tax obligations of specialized services providers.
2. Investment in specialized technology that facilitates compliance verification activities.
3. Assign specialized personnel to verify compliance with commercial, labor, tax and social security obligations, among others.
4. Enhance personal data protection policies with respect to the information of specialized services employees.
The continuity of the operation is definitely closely linked to the due compliance with labor, tax, data protection, social security, and other obligations of the specialized service providers, thus minimizing any operational, legal or commercial risk.
Consequently, immediate actions should focus on assessing the labor risks of service providers in order to determine their permanence, as well as on implementing procedures for service providers to submit information demonstrating compliance with labor, tax and social security obligations.
1Article 12 Federal Labor Law
2 Article 13 Federal Labor Law
3Article Second Rules to register specialized services providers.
