Businesses engaging staffing companies in Mexico should be careful to avoid being deemed to be the employee of the staffing company’s employees. Recent changes to the Mexico Federal Labour Law (FLL), and in particular to Article 15-A of the FLL, regarding the practice of outsourcing, boost this risk. This article outlines several but not all of the issues that multinational employers should carefully consider when outsourcing in Mexico.
1. Make sure to be able to demonstrate the outsourcing to Mexico contractor’s reputation.
Companies engaging a contractor in protecting outsourced functions should verify that the contractor will be the actual employer of the outsourced personnel (i.e., the personnel that will give the services). Moreover, the contractor should meet the definition of “employer” under Article 10 of the FLL. Companies should also require the contractor to offer proof that it has complied with all of it is employment-related obligations with respect to the outsourced personnel, in accordance with Article 13 of the FLL.
2. Identify the particular “best practices” to supervise the contractor’s employees, to avoid being perceived as their employer.
Under the FLL, employees are entitled to a share of the company’s profits (at 10 percent of pre-tax earnings). This is called “profit sharing”. One of the main risks of an outsourcing arrangement is that if the company that hired the contractor (i.e., the beneficiary of the services) is found to be the outsourced personnel’s employer, such company may be subject to the liability of being required to pay for the outsourced personnel’s profit discussing benefits.
3. Confirm whether or not the work is legally considered outsourced work.
To be considered outsourced work according to Article 15-A, the task must meet the following conditions:
The task cannot cover the totality of the activities, regardless of whether equal or similar in totality, that is completed in the workplace;
The work must be justified due to its specialized character; and also The work cannot include tasks equal or similar to the ones carried out by the rest of the employees of the contracting party.
4. Be aware that the law is unclear.
Article 15-A is confusing because it is ambiguous, and the meaning of the legislation may, on its face, seem to be open to debate. It is unclear from your language whether Article 15-A intends to state that even if any of the above-identified requirements is met, the contracting party will not be considered an employer for purposes of the FLL. To the contrary, the plain meaning of the Article also suggests that if these requirements are not completely achieved, the contracting party will be considered an employer of the contractor’s employees.
5. Be careful when drafting or reviewing service negotiating.
Taking into consideration the relevant aspects of the related SSL reforms, the following should be considered when drafting a service agreement between the Business and Contractor:
Include the outsourcing in Mexico contractor’s social safety employee ID number in the services agreement.
Stay away from claims that the contractor is just a vehicle to pay compensation and benefits to employees, and those employees are under the company’s control.
Rather than a “personal services agreement, ” the document must be described as a services agreement (for advice and management, among others).
Consider including a clause the contractor will solely and autonomously determine the way such services are to be performed; supervise the activities of the employees; discipline employees; and determine benefits and also salaries, etc.
If possible, execute the particular agreement in Spanish and have both parties execute the Arrangement in Mexico.
6. Register every single contractor’s employee with the Social Security Initiate.
In each service agreement, address the obligation of the contractor to respond to any request of the SSI, to avoid any liability to the business that contracted for the services. Register every contractor’s employee with the SSI, evidencing that the execution of any service agreement does not aim to avoid the payment regarding social security fees or to diminish the labor rights of the contractor’s employees.
7. Documentation is key
In each service agreement, the business contracting for the services should require the contractor to present all documentation, upon request or periodically, to be able to verify that the contractor is meeting all of its labor and employment-related obligations, as per the duty imposed on the company under Article 15-C of the FLL. The particular specialized nature of the work to be performed by the contractor should also be carefully noted.
8. Consider relevant aspects of business branding for labor outsourcing.
The outsourced employees should not use the company’s badges or business cards or perhaps another insignia with the company’s name or logo. Instead, the contractor’s name or logo should be included around the uniforms for outsourced personnel rendering services in the company’s facilities.
9. Be mindful of any digital tools that outsourced workers access or use or to execute the services contracted.
If you think outsourced employees need to use the company’s email accounts, companies should make a distinction involving the accounts of its own personnel and the outsourced employees. Companies should also avoid including outsourced employees in emails, newsletters, internal communications or written orders, from which it could be assumed the existence of control, direction or subordination.
10. Follow the above principles throughout all aspects of the contractual partnership.
Once the appropriate service agreements and very clear definitions of the status and relationship of each party involved have been established, it is important to note that these do not cover every potential risk related to outsourcing in Mexico. Throughout the course of the business relationship, the same principles should be adopted. For example, invoices delivered by the contractor should never describe the services as “providing personnel services”. Organizations should also avoid any direct payments or expense reimbursement to be able to outsourced personnel, or grant those awards or training course diplomas.
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