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In brief

On 12 November 2020, the President of Mexico, Andrés Manuel Lopez Obrador, submitted a draft bill to Congress that would prohibit the subcontracting of personnel and regulate the performance of specialized services and works. The draft bill, if passed, would reform the Federal Labor Law (FLL), the Social Security Law, the Law of the Institute of the National Workers’ Housing Fund (INFONAVIT), the Federal Fiscal Code, the Income Tax Law and the Value Added Tax Law.

Key takeaways

  • Subcontracting of personnel would be prohibited.
  • The provision of specialized services and execution of works would be limited and the activities of placement agencies would also be regulated.
  • The ability to provide specialized services would require an authorization from the Ministry of Labor and Social Welfare (STPS) and will be subject to additional requirements.
  • Compliance with obligations regarding subcontracting and the provision of specialized services and works would be required to be verified by the STPS and the Mexican Social Security Institute (IMSS), which could impose higher penalties and also report to the tax authorities when companies fail to comply.
  • The beneficiary of the services provided under a specialized services and works would be jointly and severally liable for labor, social security and tax obligations.
  • If contributions are omitted, tax penalties would increase.
  • Subcontracting of personnel and simulated specialized services and works would be considered a tax felony.

In depth

If the draft bill passes, the provision of personnel services-defined as that by which an individual or legal entity provides workers or makes them available for the benefit of another party-would be prohibited.

Specialized services and the execution of works would only be allowed when they do not form part of the corporate purpose or economic activity of the beneficiary, and when they are authorized by the STPS. The parties would be required to formalize their relationship by entering into a written contract detailing the number of workers participating in the specialized services or execution of works.

The activity of the placement agencies would be regulated, permitting intervention during the hiring process, including during recruitment, selection, training and education, among others. These placement agencies would be considered intermediaries and the beneficiary would be considered the employer.

The labor authority would be able to impose penalties from USD 8,476 to USD 212,000 in subcontracting of personnel situations to whoever: (a) provides and/or benefits from personnel subcontracting services, and (b) provides or benefits from specialized services and works when they are not authorized by the STPS and do not comply with the corresponding requirements.

The beneficiary of the specialized services or works would be jointly and severally liable to the subcontracted employees for labor and social security obligations and tax obligations.

In addition, the service providers and contractors of specialized works would be required to submit reports to the IMSS and INFONAVIT information regarding contracts, clients, the workers providing the services or executing the works every three months and four months, respectively, as well as compliance with social security obligations. Failure to timely submit the reports to the IMSS would be subject to penalties from USD 2,120 to USD 8,476.

The transfer of assets from the substituted employer to the substitute employer is incorporated in the FLL as a requirement to transfer employees through an employer substitution. This criteria was taken from prior court precedents.

Companies providing personnel services that have been operating with different employer registration numbers for each class of professional risk insurance would have to terminate those registrations and, when possible secure a new registration in 120 days of the effective date of the reform.

In case of subcontracting personnel and if employees were originally employed by the contracting party or if employees provide services that cover the contracting party’s predominant activities, the deduction for income tax purposes and to credit the VAT would not be permitted, and instead would be an aggravating factor considered in the determination of penalties for the omission of tax contributions.

Subcontracting of personnel services resulting in tax fraud would be a felony, that could be prosecutable as organized crime and preventive detention would proceed in accordance with the criminal-tax reforms that came into effect on 1 January 2020.

For specialized services and execution of works, there would be an obligation for companies to provide (1) proof of authorization from the STPS to provide such services, as well as (2) evidence of compliance with tax obligations for those in charge of the employees providing the specialized services or executing the works to be able to deduct the service fee and to credit the corresponding VAT.

The draft bill would be in effect the day after its publication in the Daily Official Gazette, with the exception of the new tax provisions, which would come into effect on 1 January 2021.

Actions to take

Companies that subcontract personnel services, as well as those that provide and benefit from specialized services and works, should closely follow any developments, and should review their structures and operations in Mexico in light of the draft bill.

For more information regarding the draft bill and how it could affect your company, contact your Baker McKenzie attorney. Our Employment & Compensation and Tax Teams will keep you informed.


Maria del Rosario Lombera-González is a partner and member of Baker McKenzie's Employment Practice Group in Mexico City. She was a member of the Mexican Commission of Employers before the International Labour Organization at annual conferences in the Commissions of Social Security and Globalization and Employment, and has participated in several meetings of seasoned practitioners in the field of social security. Rosario joined Baker McKenzie Abogados in 1985 and became a partner in 2005.


Liliana Hernandez-Salgado is a partner in Baker McKenzie's Mexico City office. Named a Rising Star in The Legal 500 2019 review, she counsels clients on matters related to labor and employment law. Liliana has 12 years' experience in providing domestic and cross-border strategic consulting as well as advice on employment and compensation matters. She has vast knowledge in areas of employment law associated with corporate reorganizations and mergers and acquisitions.


Roxana Massiel Gómez Orta has been recognized as one of Mexico’s leading tax lawyers by Defensa Fiscal and International Tax Review in their Tax Controversy Leaders and Women in Tax Leaders editions. She joined the Firm in 2001, and was appointed a national partner in July 2007. Roxana has more than 20 years of professional experience, and is currently a member of the Firm’s Tax Practice Group, which has been recognized as a highly recommended global tax practice by Chambers Global. She is also a member of the Academia de Derecho Fiscal de Nuevo León, A.C and was appointed as a member of the board, acting as the treasurer during 2008-2009 and as advisor during 2015-2016. She has published articles in Defensa Fiscal, IDC Asesor Jurídico y Fiscal, Puntos Finos, Players, Práctica Fiscal, Corporate Business Taxation Monthly, Maquila Reynosa, Inter-American Trade Report and Tax Notes International, among others.