Special Guest Blog: Mexico’s Federal Labor Law

Here is an article on recent changes to the Mexican Federal Labor Law written by Francisco J. Bates, a partner at the certified public accounting firm, Soluciones, in Monterrey, Nuevo Leon. Francisco assists various TransLegal clients in Mexico. The information included in this post does not constitute legal advice or analysis. TransLegal assists companies in Mexico comply with their regulatory requirements. Contact us to discuss how this decree could impact your current Mexican entity structure and operations.

Recent Changes to Mexico’s Federal Labor Law

Francisco J. Bates, CPA

On November 30, 2012, the Mexican Congress passed a decree amending, adding and repealing several provisions of the Federal Labor Law.

The decree incorporates concepts of “worker dignity” (no discrimination; fair wage; training; safe workplace), types of employer / employee relationships, union rights and other practical provisions that may affect operations in Mexico. The various dependencies of the Ministry of Labor impacted by the law have yet to issue regulations, policies or clarifications.

Below are some provisions of particular interest.

Outsourcing Rules

With regard to outsourcing, the law provides the following definitions. The employer is a “contractor” who performs works or renders services through its employees to a third party, the “beneficiary of the services”. The beneficiary specifies the contractor’s tasks and oversees the performance thereof. In this instance, the employer / contractor is responsible for paying the social security benefits of the employees.

The decree restricts a beneficiary’s right to outsource by imposing a three-prong test that the beneficiary must meet. If the beneficiary fails to satisfy the requirements, it – and not the employer / contractor – will be considered as the employer for purposes of the Labor Law, which includes being responsible for the employee’s social security benefits. Beneficiaries:

  1. Cannot outsource 100% of the same or similar tasks or services as the beneficiary offers;
  2. Must justify the need to outsource, including the fact that the outsourced activity is specialized in nature; and
  3. Cannot outsource the same or similar tasks or services performed by the beneficiary’s employees.

Beneficiaries are also required to assure that their contractors has all the proper documentation evidencing an employer / employee relationship as well as the financial resources to make applicable employer social benefit payments. Finally, beneficiaries are responsible for verifying that their contractors satisfy federal workplace requirements.

Electronic Payroll

The law now recognizes the e-payment of wages, including electronic deposit in bank accounts, debit cards, wire transfers or any other electronic means. Prior employee permission is required; and the employer is responsible for paying any expenses to implement set-up the e- payment.

Persons entitled to Alimony

Employers are required to provide notice to persons entitled to receive alimony from any of their employees within 5 business days of the termination of such employee’s employment. A similar notice should be provided to the competent government authority.

Profit Sharing

The law provides that company employees are entitled to share company profits in accordance with the concept of “business establishment / business unit”. This concept would combine a group of affiliated / related entities into a single establishment / unit for profit sharing purposes.

Also, subject to some administrative limitations, the tax authorities are now required to respond to inquiries made by the applicable employee-representative about an employer’s tax returns.

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