Nearshoring in Mexico provides opportunities for companies to grow their teams. In April 2021, Mexico implemented various changes regarding its outsourcing laws, which impacts businesses with contractors in the country. According to Mónica Vera, managing director of global professional services firm TMF Group in Mexico City, these updates aim to bring more workers into Mexico’s economy and help workers who haven’t received appropriate protection as subcontractors.
Those subcontracting in Mexico are now required to document their responsibilities with Mexico’s Ministry of Labor, allowing the country to address any abusive outsourcing practices. Many companies in Mexico have come under fire for not adequately paying their subcontractors, something its government is finally seeking to address.
If you are thinking about outsourcing in Mexico, here’s what you need to know:
General Updates
Specialized Services
- The updated laws permit the subcontracting of specialized services not part of a company’s core business. This means the subcontractor must be performing work that isn’t part of the organization’s corporate purpose.
- Vera notes that companies with specialized service providers – such as administrative support, catering staff, cleaning crews, maintenance, security services, and specialized engineering workers – are not subject to these restrictions for now.
Companies in the Same Corporate Group
- Companies in the same corporate group are allowed to render services or activities.
Employment Agencies
- Employment agencies or outsourcing companies that are based in Mexico can only assist in the recruitment, selection, and training of subcontractors. They may not be the one who actually hires these subcontractors – that is the responsibility of the company receiving the services.
- Note: Companies that recruit and hire contractors for specialized services, i.e. CodersLink software engineers are not currently subject to these restrictions.
Profit-Sharing Cap
- There is now a cap per employee of three months’ salary or the average of profits received in the last three years for the profit share, whichever is better for the employee.
Businesses Providing Subcontracting Services
Companies that help organizations find and hire subcontractors must follow these requirements:
- Obtain a registration certificate before the Ministry of Labor and Social Welfare or Secretaría del Trabajo y Previsión Social (STPS).
- Ensure all tax and social security obligations are up to date.
- Renew their certificate of registration every three years.
- Create a contract for all specialized services.
- Submit a quarterly report to Mexico’s Social Security Agency (Instituto Mexicano del Seguro Social or IMSS) and Mexico’s Housing Agency (Instituto del Fondo Nacional de la Vivienda para los Trabajadores or INFONAVIT) regarding the service contracts created.
- Provide each contractor with a copy of their registration certificate before the STPS, along with tax receipts for payments of salaries, payment of withholding taxes and employer’s contributions and the value-added tax return, and a copy of the corresponding payment voucher.
Businesses Contracting Services
Companies that hire and work with subcontractors must follow these requirements:
- Confirm that the services they’re outsourcing in Mexico are not a part of their company’s core business.
- Confirm that the company providing the subcontracting services is registered before the STPS.
- Collect copies of:
- Registration certificates before STPS.
- Tax receipts for payments of salaries.
- Receipts of payments of withholding taxes and payments of employer contributions.
- Value-added tax returns and their corresponding payments.
Consequences
- Those who fail to comply will be subject to fines of up to $222,000, as well as possible jail time.
- To deduct taxes for their subcontracting services, all companies must fulfill the reform requirements.
- Those who fail to comply with the new reform or attempt to deduct taxes for their subcontractors will be subject to criminal liability for fraud.
- Subcontracting companies and those that employ subcontractors are liable for all labor, social security, and tax obligations.
Moving Forward
Both employers and employees have been impacted by these reforms, with employers having to directly employ their own workforce and employees being transferred or losing their jobs entirely. In addition, companies that provide outsourcing or nearshoring in Mexico have also shifted to limit their scope to employee recruitment, selection, and training.
With severe consequences now in play, if your business currently relies on nearshoring in Mexico, it’s essential to consult an expert to ensure your organization is adequately restructured. You’ll need to take a look at:
The current ways in which you hire subcontractors.
- Your operating entities.
- The overall purpose of your company and what you hire subcontractors for.
- Your current contracts with any subcontractors and third parties.
However, if you have an outsourcing partner, it’s important to note that companies that recruit and hire contractors for specialized services, i.e. software engineers, are not currently subject to these restrictions. What does this mean? It means that organizations such as CodersLink are able to hire elite engineering talent throughout Latin America – Mexico included.
“Labor laws in Latina America can be complicated to understand and hard to comply with, so partnering with talent platforms such as CodersLink is a must,” notes Jesus Salus, CodersLink CEO. “CodersLink has worked with the best legal firms to develop the strategies that empower foreign companies to build their teams in Mexico and Latin America compliantly and without any hassles.”
Though these requirements are subject to change, for now, CodersLink will continue to grow, build, and manage remote teams in Mexico. Because we believe that skill, merit, and global teams should lead the way in scaling the next generation of technologies.
Nearshoring in Mexico Opens Up the Gateway to Diverse and Quality Tech Talent
At CodersLink, it’s our mission to ensure you’re connected with well-vetted software developers in countries such as Mexico – while still following all legal requirements. We pride ourselves on staying up to date with the fast-paced tech landscape and are here to help you build a team full of world-class talent.
Our experts will be there to provide innovative solutions for your business, organization, or project. From recruiting to training, we’ll make sure your team works like a well-oiled machine, so you can focus on building your company.
Get started today and trust us to fulfill your IT outsourcing needs.
Disclaimer:
The above information is for awareness purposes. You should seek legal advice in regards to your specific circumstances.
