The End of Traditional Outsourcing in Mexico
On April 23, 2021, Mexico's Congress approved sweeping amendments to the Ley Federal del Trabajo (LFT), the Social Security Law (LSS), the INFONAVIT Law, the Income Tax Law (LISR), and the Value Added Tax Law (LIVA). These changes fundamentally restructured how companies can engage external labor services — ending nearly three decades of outsourcing practices that had become widespread across Mexican industry.
Understanding the reform requires understanding both what was prohibited and what was permitted in its place.
What Was the Old Model?
Prior to 2021, it was common for large corporations to operate through a structure where a separate legal entity — often called a "payroll company" (empresa de nómina) — formally employed all workers and then "lent" them to the operating company. The operating company directed the work and generated the profits, while the payroll company held the employment liabilities.
This arrangement was widely used to:
- Minimize profit-sharing (PTU) obligations by keeping operational profits separate from the employer entity.
- Reduce IMSS contributions through understated salary bases.
- Create favorable tax structures by routing payments between related entities.
Regulators and unions argued that this model deprived workers of benefits they were legally entitled to and eroded the government's tax and social security revenue base.
What the 2021 Reform Prohibited
The reform explicitly prohibited personnel subcontracting (subcontratación de personal) in all forms — meaning a company can no longer supply its workers to a third party that directs and controls their labor on an ongoing basis.
Intragroup outsourcing — where related companies provided administrative or operational staff to each other — was also effectively prohibited unless structured properly under the new specialized services framework.
What the Reform Permitted: Specialized Services
The reform did not eliminate all forms of external service provision. Companies may still legally engage third parties under the specialized services model, provided:
- The services or work provided are genuinely specialized in nature.
- The specialized services fall outside the beneficiary company's core corporate purpose.
- The service provider is registered in REPSE.
- The provider retains employer status and direction over its own workers.
The Creation of REPSE
To regulate the new specialized services model, the reform created REPSE — administered by the STPS. REPSE functions as a public registry that:
- Identifies all legitimate specialized service providers operating in Mexico.
- Requires proof of tax and social security compliance as a condition of registration.
- Creates transparency for client companies and regulators alike.
- Enables STPS, SAT, and IMSS to cross-reference compliance data.
Profit Sharing (PTU) Changes
The reform also changed how profit sharing (PTU) is calculated for specialized service providers. Previously, workers at payroll companies received PTU based on the payroll company's minimal profits. Under the new rules, PTU for workers of specialized service providers is capped at three months' salary or the average PTU received over the prior three years, whichever is more favorable to the worker. This prevents the elimination of PTU while adapting its calculation to the new structure.
Transition Period and Initial Deadlines
The reform included a transition period that required companies to:
- Regularize existing outsourcing arrangements within 90 days of the reform's publication.
- Transfer workers formerly employed by payroll companies to the actual operating entity or to a legitimate specialized services provider.
- Register in REPSE if continuing to provide specialized services.
Many large corporations used the transition period to restructure their workforce, directly employing thousands of workers who had previously been employed by separate payroll entities.
Impact on Mexican Business
The reform had significant practical effects across multiple sectors:
- Manufacturing and maquiladoras: Required direct employment of production workers or engagement of REPSE-registered providers for auxiliary services.
- Financial services: Banks and insurance companies restructured shared services arrangements.
- Technology companies: IT staffing firms became some of the most active REPSE registrants.
- Professional services: Law firms, accounting firms, and consulting companies registered to continue serving clients.
Why It Matters Today
The 2021 reform continues to shape labor and tax strategy in Mexico. Companies that ignore its requirements face not just regulatory penalties but real operational risks — including loss of tax deductions, joint liability for worker benefits, and reputational damage. Staying informed about how the reform's provisions are interpreted and enforced remains essential for any business operating in Mexico.