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Outsourcing in Mexico: the 2021 ban on personnel subcontracting, specialized services and REPSE registration, joint liability and tax consequences

Last verified: 2026-10-26 · Status: Stable

Since April 2021 Mexico bans subcontracting of personnel, meaning one company providing its own workers for the benefit of another; recruitment agencies may still recruit and train, but the employer is whoever benefits from the work. Only specialized services or works that are outside the client's corporate purpose and main economic activity may be subcontracted, under a written contract and only with a contractor registered in the STPS public registry (REPSE), renewed every three years; group shared services follow the same test. Breaches carry fines of 2,000 to 50,000 UMA (MXN 234,620 to MXN 5,865,500) for both contractor and client, joint liability for the contractor's workers, and loss of the income tax deduction and VAT credit for the payments.

USD conversions use MXN 18.5026 per US dollar, the US Federal Reserve H.10 noon buying rate in New York for 16 October 2026 (FRED series DEXMXUS), the latest observation available when this page was verified. Conversions are for orientation only.

Key facts

Subcontracting of personnel	Prohibited LFT art. 12, as of 2026-10-26 · in force
REPSE registration renewal	3 yearsLFT art. 15, as of 2026-10-26 · in force
STPS deadline to rule on a REPSE application	20 daysLFT art. 15, as of 2026-10-26 · in force
Minimum fine for unlawful subcontracting	2000 UMALFT art. 1004-C, as of 2026-10-26 · in force
Maximum fine for unlawful subcontracting	50000 UMALFT art. 1004-C, as of 2026-10-26 · in force
Maximum fine for unlawful subcontracting, 2026	5,865,500.00 MXNLFT art. 1004-C; UMA 2026, as of 2026-10-26 · in force

The rule

1. Ban on personnel subcontracting. Subcontracting of personnel is prohibited, meaning a person or company providing or making available its own workers for the benefit of another. Employment agencies and intermediaries may take part in recruitment, selection, onboarding and training, but are not the employer; the employer is whoever benefits from the services.Decree on subcontracting reforming the LFT and tax and social security laws, DOF 23 April 2021; Ley Federal del Trabajo (LFT), DOF 1 April 1970 (Chamber of Deputies consolidated text, last reform DOF 14 May 2026), LFT art. 12, 2021-04-23 official text · verified 2026-10-26 · changed: Decree of DOF 23 April 2021 rewrote LFT arts. 12 to 15 to ban personnel subcontracting and allow only registered specialized services; existing contractors had to register by 1 September 2021 (transitional art. Tercero).

2. Permitted specialized services. Subcontracting of specialized services or the execution of specialized works is allowed if they are not part of the corporate purpose or the predominant economic activity of the client, and the contractor is registered in the public registry of LFT art. 15. Complementary or shared services between companies of the same business group are treated as specialized only on the same condition, using the business group definition of the Securities Market Law. The contract must be in writing, describe the services or works and state the approximate number of workers involved.Ley Federal del Trabajo (LFT), DOF 1 April 1970 (Chamber of Deputies consolidated text, last reform DOF 14 May 2026), Arts. 13 and 14, 2021-04-23 official text · verified 2026-10-26

3. REPSE registration. Contractors of specialized services must register with the Ministry of Labor and Social Welfare (STPS), showing they are up to date with tax and social security obligations, and renew the registration every three years. The STPS must rule within 20 days; if it does not, the applicant may require a decision, and if none is notified within three more days the registration is deemed granted. The STPS refuses or cancels the registration of those who do not meet the requirements, and registered contractors appear in a public online registry (REPSE).
Cost to do it: The law sets no registration fee; the cost is the compliance work to show tax and social security good standing every three years.Ley Federal del Trabajo (LFT), DOF 1 April 1970 (Chamber of Deputies consolidated text, last reform DOF 14 May 2026), Art. 15, 2021-04-23 official text · verified 2026-10-26

4. Joint liability. A client that subcontracts specialized services or works with a contractor that fails its labor obligations is jointly liable for the workers used in that contract; the same applies for social security and housing fund obligations.Ley Federal del Trabajo (LFT), DOF 1 April 1970 (Chamber of Deputies consolidated text, last reform DOF 14 May 2026); Ley del Seguro Social (LSS), DOF 21 December 1995 (Chamber of Deputies consolidated text, last reform DOF 15 January 2026); Ley del INFONAVIT, DOF 24 April 1972 (Chamber of Deputies consolidated text, last reform DOF 21 February 2025), LFT art. 14; LSS art. 15 A; Ley del INFONAVIT art. 29 Bis, 2021-04-23 official text · verified 2026-10-26

5. Reporting to IMSS and INFONAVIT. Registered contractors must report to IMSS and INFONAVIT every four months, by the 17th of January, May and September, the contracts signed in the period: parties, purpose, term, and the workers assigned with their CURP, social security number and contribution salary, plus a copy of the STPS registration. Failing to file, or filing late, with IMSS is fined 500 to 2,000 UMA.
Cost to do it: Fine of MXN 58,655.00 to MXN 234,620.00 for missing IMSS reports at the 2026 UMA.
Example: MXN 58,655.00 to MXN 234,620.00. / About USD 3,170 to USD 12,680.Ley del Seguro Social (LSS), DOF 21 December 1995 (Chamber of Deputies consolidated text, last reform DOF 15 January 2026); Ley del INFONAVIT, DOF 24 April 1972 (Chamber of Deputies consolidated text, last reform DOF 21 February 2025), LSS arts. 15 A, 304 A, section XXII, and 304 B, section V; Ley del INFONAVIT art. 29 Bis, 2021-04-23 official text · verified 2026-10-26

6. Tax consequences. Payments for subcontracting of personnel to carry out activities related to the client's corporate purpose and predominant economic activity have no tax effect for deduction or credit, nor do services in which personnel are made available where the workers were originally the client's and were transferred to the contractor, or where they cover the client's predominant activities. Payments for specialized services may be deducted and credited if the contractor holds the REPSE registration and the other income tax and VAT requirements are met: at each payment the client must check the registration and obtain from the contractor copies of the payroll invoices, the payment of withheld taxes, IMSS contributions and INFONAVIT contributions for the workers involved.
Cost to do it: Loss of the income tax deduction and VAT credit on the whole fee if the arrangement is personnel subcontracting or the contractor lacks REPSE.
Example: A client pays MXN 1,000,000 plus 16 percent VAT (MXN 160,000) for services that turn out to be personnel subcontracting: it loses the MXN 1,000,000 deduction (MXN 300,000 of corporate income tax at the 30 percent rate of LISR art. 9) and the MXN 160,000 VAT credit at the 16 percent rate of LIVA art. 1. / About USD 24,861 of extra tax cost, before surcharges and fines, at 18.5026.Código Fiscal de la Federación (CFF), DOF 31 December 1981 (Chamber of Deputies consolidated text, last reform DOF 9 April 2026); Ley del Impuesto sobre la Renta (LISR), DOF 11 December 2013 (Chamber of Deputies consolidated text, last reform DOF 1 April 2024), CFF art. 15-D; LISR art. 27, section V, third paragraph, 2021-04-23 official text · verified 2026-10-26

7. Fines. Whoever subcontracts personnel in breach of LFT art. 12, or provides subcontracting services without registration, is fined 2,000 to 50,000 UMA, and the same fine applies to the person or company that benefits from subcontracting in breach of LFT arts. 12 to 15; the STPS informs the other competent authorities.
Cost to do it: MXN 234,620.00 to MXN 5,865,500.00 at the 2026 UMA of MXN 117.31, for each of contractor and client.
Example: MXN 234,620.00 to MXN 5,865,500.00. / About USD 12,680 to USD 317,010.Ley Federal del Trabajo (LFT), DOF 1 April 1970 (Chamber of Deputies consolidated text, last reform DOF 14 May 2026), Art. 1004-C, 2021-04-23 official text · verified 2026-10-26

Arrangement	Allowed	Conditions	Tax effect if conditions are missed
Agency recruits and trains; client hires the workers directly	Yes	Client is the employer	None
Contractor provides its workers to do the client's core activity	No		No deduction or VAT credit; fines for both
Specialized service outside the client's corporate purpose and main activity (for example, security or IT maintenance for a manufacturer)	Yes	Written contract, REPSE registered contractor, evidence of payroll and contributions at each payment	No deduction or VAT credit if REPSE or evidence is missing
Group service company providing shared services to affiliates	Only if specialized	Outside the receiving company's corporate purpose and main activity, and REPSE registration	No deduction or VAT credit
Workers transferred from client to contractor and supplied back	No		No deduction or VAT credit (CFF art. 15-D, section I)

Is it allowed? Quick test under LFT arts. 12 to 15 and CFF art. 15-D.

Worked example

A US manufacturer's Mexican subsidiary had its plant workers employed by a related service company. Since 2021 those workers must be employed by the operating company itself, because the work is its main activity (LFT art. 12).
It hires a security firm for the plant, a specialized service outside its corporate purpose, at MXN 1,000,000 a year plus VAT. Before each payment it checks the firm's REPSE registration and collects the payroll invoices and IMSS and INFONAVIT payment proofs for the guards (LISR art. 27, section V).
If it skipped those checks it would lose the deduction and the VAT credit, about MXN 460,000 (USD 24,861), and both companies would face fines of up to MXN 5,865,500.00 (USD 317,010) if the service were found to be personnel subcontracting.

Step by step

1. List every third party that supplies people working on your premises or for your business, and compare each service with your corporate purpose and main economic activity.
2. Bring in house any staff who perform core activities, recognizing their seniority.
3. For specialized services, sign written contracts stating the service and the approximate number of workers, and verify the contractor's REPSE entry before signing and before each payment.
4. Collect the contractor's payroll invoices, tax withholding payment, IMSS and INFONAVIT proofs for each payment and keep them with the invoice.
5. If you are the contractor, obtain REPSE registration, renew it every three years and file the four monthly reports to IMSS and INFONAVIT by the 17th of January, May and September.

Common traps

Group service companies. Shared service entities are allowed only for genuinely specialized services outside the recipient's corporate purpose and main activity (LFT art. 13).
Broad corporate purpose clauses. A very broad corporate purpose can make an otherwise specialized service part of the client's activity.
Expired REPSE registrations. Registration must be renewed every three years; payments to a contractor without current registration lose their tax effects (CFF art. 15-D).
Joint liability. The client answers for the contractor's unpaid wages, social security and housing contributions for the workers assigned to it (LFT art. 14; LSS art. 15 A; Ley del INFONAVIT art. 29 Bis).

Sources

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