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Differences between legal and illegal outsourcing in Mexico: What you need to know

Outsourcing has been a widely used practice in Mexico for cost optimization and efficient talent management. However, the 2021 labor reform established stricter rules to prevent abuses and guarantee workers’ rights. In this article, we explain the key differences between legal and illegal outsourcing in Mexico.

What is outsourcing?

Outsourcing, also known as subcontracting, is the practice of delegating certain functions or processes of a company to third parties specialized in those areas. Before the reform, many companies used this model to reduce labor costs, which in some cases resulted in practices that were detrimental to workers.

If you’d like to learn more about outsourcing, you can visit our article, where we explain this topic in more detail:
What is outsourcing and how can it benefit your company?

Legal outsourcing in Mexico

Legal outsourcing is regulated by the Federal Labor Law (LFT) and refers to the subcontracting of specialized services that are not part of the corporate purpose or the main economic activity of the contracting company. For outsourcing to be legal, it must meet the following requirements:

  • Registration with the STPS: Subcontracting companies must be registered in the Registry of Providers of Specialized Services or Specialized Works (REPSE).
  • Specialized services: Only subcontracting of services that are not part of the contracting company’s core business is permitted.
  • Guaranteed labor rights: The company providing the outsourcing service must guarantee the labor rights of its employees, including social security, benefits, and seniority.
  • Joint liability: The contracting company must ensure that the subcontractor complies with all its labor and tax obligations.

If you have any questions, you can review the following articles where we go into more detail on topics that might help you. 

Illegal outsourcing in Mexico

Illegal outsourcing is that which violates established regulations and, in many cases, seeks to evade tax or labor obligations. Some of its characteristics include:

  1. Subcontracting of core activities: When a company hires another to perform activities that are part of its corporate purpose or main economic activity.
  2. Lack of registration with the STPS: Companies that offer subcontracting services without being registered with the REPSE.
  3. Job simulation: Companies that hire workers through third parties to avoid employment responsibilities, such as paying social security or seniority.
  4. Precarious working conditions: Lack of legal benefits, unjustified dismissals, and tax evasion.

Penalties for illegal outsourcing

Companies that engage in illegal outsourcing practices may face severe penalties, including:

  • Fines of up to $4,481,000 MXN for non-compliance with the law.
  • Joint liability of the contracting company for the labor and tax obligations of subcontracted workers.
  • Disqualification from obtaining government contracts.
  • Criminal consequences in cases of tax fraud or job simulation.

Conclusión

Outsourcing remains a useful tool for business management in Mexico, as long as it is carried out legally and transparently. Companies must ensure they work with registered and specialized suppliers to avoid legal risks and ensure compliance with labor rights.

If your company needs support with personnel management and regulatory compliance, consider consulting with experts in human resources and legal outsourcing. Complying with the law not only avoids penalties but also improves your business’s reputation and sustainability!