By: Manuel Arango Professor of Finance and Strategic Planning ITAM
We have heard a great deal about “outsourcing.” It is such a sui generis topic in the business world that a word has not even been invented to define it in Spanish. In spite of the author’s research and experience on the subject, this is not an academic and informative paper. It is an essay on the true utility, scope and myths in relation to this talked-about topic, which was the pillar of the last reform proposed by the administration of former president Felipe Calderón Hinojosa.
What is the relevance of knowing about this topic?
In any planning or strategic planning project, it is necessary to consider the possibility of introducing in the processes of personnel management the contracting of an external company to provide these services. And it is important to fully analyze the benefits and obstacles that this formula offers.
Structure
This personnel recruitment program is really a scheme of subcontracting employees who generally work for a customer or third party. The model is mainly developed in three broad areas of action. One is when a business or company solicits an outsourcing company. From now on, we will refer to the personnel management of the “Customer” as the “Third Party.” Another is when the “Third Party” – in addition to being the personnel manager – is the employer and therefore the signatory of individual or collective labor contracts. And the last one to fall into this concept is the company that performs independent external activities, which are usually not strategic or specialized, for the customer.
The first scenario involves the processes required for personnel management. That is, the calculation of the payroll: payment or retribution for salaries and wages that an employee receives for services rendered in the scheme of subordinated work, the compulsory retention of Income Tax (ISR), which is the tax on the Products of the Work and the Social Security Law, SUA for the retention of the worker-employer quota, as well as income and deductions of the company: bonuses, overtime, salary increases, union dues, INFONAVIT, FONACOT credits, life insurance, savings fund. This activity also involves the follow up and monitoring of the admissions, cancelations and salary modifications before the Mexican Social Security Institute, as well as the calculation and payment of the benefits required by law – always taking into account that the employees belong to the Customer, and the Third Party only handles the administration, charging a percentage or amount negotiated.
The second scenario involves all of the first formula with the difference that the employees work for the Third Party, which means it acquires the rights and obligations of an employer. In the daily operation, the following scheme may be present: this company contracts, supervises, trains, promotes and fires, under the instruction of the Customer, and in other cases the Customer itself conducts these activities.
The third scenario is when a company contracts the services of a third party. Generally those services or activities – due to questions of development, specialization or because they do not constitute a strategic nucleus – are transferred outside the company. The personnel that work for the outsourcing company can work physically in the Customer’s installations or in a faraway place.
Relevant things
One item to consider is the savings in the hiring of specialists to calculate the payroll and the training in tax and labor matters that these activities require.
Taking advantage of what other companies have invested in infrastructure, allowing the application of those resources that are not used in productive activities.
The ability to maintain a variable work force and in this way cut costs in times or moments of low production, as well as the inclusion of support staff in cycles of high volume applicable to production, operation, logistics, systems and personnel.
The existence of many activities and administrative/operational requirements, such as technological and logistical demands, that allows you to focus on true development topics. Other support activities or staff can be channeled to another group administered by the Third Party, but audited by the Customer.
The possibility of changing personnel through outsourcing, according to needs -specialization, a change in the geographic situation, cutting costs, finding another third party in the market that provides better service, better quality, lower price and better help in their specialization.
Legal Framework
As in any lawful activity, we must consider the legal and fiscal rules; for this reason the changes set forth in the articles of the Federal Labor Law in matters of hiring and/or subcontracting staff apply.
Adhering to this regulation, we found that in Section a) of Article 15-A wording that cannot include the totality of the same or similar activities, a lack of clarity in the wording, non-specification of the maximum percentage of the workforce that can be contracted with this modality, giving rise to a legal interpretation for each contractor. The private -sector has promulgated the issuing of a regulation in this matter to define and avoid arbitrary interpretations that in the end trigger bad legal practices. At this date of publication, it is not known if a rule or distinctive articles in this area have been developed.
Another area of competence concerns matters of the Mexican Social Security Institute, where there are changes in the articles of the law of the institute itself. Cited in this essay are those involved in the recruitment of staff and management relations. The final ruling was decided in the first quarter of 2013.
Approved Dictamen
Repeal Article 32 of the Social Security Law.
In the first paragraph of Article 27 change “work” to “work relationship” of the employee.
In the second part, union dues are included so that they are treated as payment by the employer for income tax purposes.
In the fifth part, it is stated that food and housing that is provided in kind will be subject to income tax (ISR), the concept of vouchers, reimbursement or in cash was deleted.
In the sixth part, the concept of vouchers for restaurants and transportation is added, in order that they are treated under ISR.
The transitory First Article is modified, in which it is established that the reform will go into effect the third calendar month following its publication in the Official Journal of the Federation, and not the following month, as the PRI initiative proposes.
Conclusions
This comprehensive analysis is focused not only on the reduction in costs, but also the search for the best service, greater efficiency and higher quality that allow us not to invest or become distracted from the objectives presented by the organization, as in the consideration of transferring measured risks outside the company.
Generally, the smaller the business unit, the greater the tendency to lack resources for the adoption of these rules, for instance, the requirement to have auditors to monitor compliance with this law.
Taking into account that outsourcing does not adhere to a one special type of industry, it may be applicable to small, medium or large enterprises. What is important is that operational, labor, fiscal and, above all, financial aspects must be considered. There is no tried-and-true administrative formula.?
Outsourcing. A Model to Consider
Professor of Finance and Strategic Planning
ITAM
We have heard a great deal about “outsourcing.” It is such a sui generis topic in the business world that a word has not even been invented to define it in Spanish. In spite of the author’s research and experience on the subject, this is not an academic and informative paper. It is an essay on the true utility, scope and myths in relation to this talked-about topic, which was the pillar of the last reform proposed by the administration of former president Felipe Calderón Hinojosa.
What is the relevance of knowing about this topic?
In any planning or strategic planning project, it is necessary to consider the possibility of introducing in the processes of personnel management the contracting of an external company to provide these services. And it is important to fully analyze the benefits and obstacles that this formula offers.
Structure
This personnel recruitment program is really a scheme of subcontracting employees who generally work for a customer or third party. The model is mainly developed in three broad areas of action. One is when a business or company solicits an outsourcing company. From now on, we will refer to the personnel management of the “Customer” as the “Third Party.” Another is when the “Third Party” – in addition to being the personnel manager – is the employer and therefore the signatory of individual or collective labor contracts. And the last one to fall into this concept is the company that performs independent external activities, which are usually not strategic or specialized, for the customer.
The first scenario involves the processes required for personnel management. That is, the calculation of the payroll: payment or retribution for salaries and wages that an employee receives for services rendered in the scheme of subordinated work, the compulsory retention of Income Tax (ISR), which is the tax on the Products of the Work and the Social Security Law, SUA for the retention of the worker-employer quota, as well as income and deductions of the company: bonuses, overtime, salary increases, union dues, INFONAVIT, FONACOT credits, life insurance, savings fund. This activity also involves the follow up and monitoring of the admissions, cancelations and salary modifications before the Mexican Social Security Institute, as well as the calculation and payment of the benefits required by law – always taking into account that the employees belong to the Customer, and the Third Party only handles the administration, charging a percentage or amount negotiated.
The second scenario involves all of the first formula with the difference that the employees work for the Third Party, which means it acquires the rights and obligations of an employer. In the daily operation, the following scheme may be present: this company contracts, supervises, trains, promotes and fires, under the instruction of the Customer, and in other cases the Customer itself conducts these activities.
The third scenario is when a company contracts the services of a third party. Generally those services or activities – due to questions of development, specialization or because they do not constitute a strategic nucleus – are transferred outside the company. The personnel that work for the outsourcing company can work physically in the Customer’s installations or in a faraway place.
Relevant things
Legal Framework
As in any lawful activity, we must consider the legal and fiscal rules; for this reason the changes set forth in the articles of the Federal Labor Law in matters of hiring and/or subcontracting staff apply.
Adhering to this regulation, we found that in Section a) of Article 15-A wording that cannot include the totality of the same or similar activities, a lack of clarity in the wording, non-specification of the maximum percentage of the workforce that can be contracted with this modality, giving rise to a legal interpretation for each contractor. The private -sector has promulgated the issuing of a regulation in this matter to define and avoid arbitrary interpretations that in the end trigger bad legal practices. At this date of publication, it is not known if a rule or distinctive articles in this area have been developed.
Another area of competence concerns matters of the Mexican Social Security Institute, where there are changes in the articles of the law of the institute itself. Cited in this essay are those involved in the recruitment of staff and management relations. The final ruling was decided in the first quarter of 2013.
Approved Dictamen
Conclusions
This comprehensive analysis is focused not only on the reduction in costs, but also the search for the best service, greater efficiency and higher quality that allow us not to invest or become distracted from the objectives presented by the organization, as in the consideration of transferring measured risks outside the company.
Generally, the smaller the business unit, the greater the tendency to lack resources for the adoption of these rules, for instance, the requirement to have auditors to monitor compliance with this law.
Taking into account that outsourcing does not adhere to a one special type of industry, it may be applicable to small, medium or large enterprises. What is important is that operational, labor, fiscal and, above all, financial aspects must be considered. There is no tried-and-true administrative formula.?