What these changes to employment laws mean for multinational companies.
This spring, an amendment to the Federal Labor Law, Social Security Law, National Workers’ Housing Fund Institute Law, Federal Tax Code, Income Tax Law and Value Added Tax Law closed a loophole some multinational companies have used to avoid their financial liabilities and obligations under Mexican employment law. The result is that a number of companies may now be out of compliance with the local law because of new restrictions on employment outsourcing.
In Mexico, the use of third parties as the legal employer of record for multinational organizations has increased by 360% between 2003 to 2018. This new law forbids companies from using an employer of record outsourcing service to hire employees who perform “core business” functions in an effort to force more companies into compliance. Organizations will still be able to use in-country employer of record partners to employ workers performing specialized work under the amended law.
And while there is still plenty of speculation about how this law will be enforced and its effect on foreign companies doing business in Mexico, the government hopes to ensure that all multinationals employers are adhering to in-country employment laws including benefits, fair wages and profit-sharing requirements.
Failure to comply with these laws is not only unfair to Mexican workers who are eligible for benefits but is detrimental to public finances in Mexico. There is also risk for companies using non-compliant employment outsourcing services in Mexico, including additional fines, an inability to deduct expenses for tax purposes, and potentially a criminal charge of tax evasion.
This new law, signed in April, provided employers three months to prove their outsourced employees were not involved in “core business” functions or to put those employees on their own payroll. This will force some companies to set up in-country entities or take their operations out of the country.
Our take on Mexico's new labor laws
We were asked to be a part of the discussions that resulted in the final version of the amendment. And from our perspective, it’s a law that seeks to keep employers in compliance with the existing laws and to ensure fair and just treatment of employees in Mexico—no matter for whom they work.
Our GEO (Global Employment Outsourcing) service keeps our clients in compliance with existing laws in every country we employ workers on their behalf. Compliance is the foundation of our service and the basis for the trust our clients have in us. For companies that sought to hire in Mexico and may not have been aware of statutory employment laws, like profit sharing, or what fair wages were in the local market, we have been here to help them. We’re happy to talk about how we can help you ensure compliance with employment laws in Mexico too.