Outsourcing is Here Not to Stay
We can only hope
Photo by Timon Studler on Unsplash
My time in Mexico has been filled with great memories. I honestly cannot complain. But there is one area where I have always said that Mexico can use improvement. It won’t affect you much if you are a retiree or an expat moving to Mexico. But rest assured that you will be affected by other circumstances caused by life in Mexico.
This post has more to do with anyone that is planning to work while living in Mexico and the sure bet that you will encounter this widely accepted practice. Not only is it to the benefit of a few, it is also a major obstacle to building a "middle-class" in Mexico.
What is outsourcing
Unfortunately, it is one of the main reasons people here use to lay blame on multi-national companies for Mexico’s social-economic problems. I have to disagree. Mexico's problems are of it's own making.
Nevertheless, others have had a helping hand in it as well. Changes have been in the works ever since President Andres Manuel Lopez Obrador took power. Most of the changes have been to combat foreign influence in Mexico's affairs, such as energy reform. But you can see from recent news the interest of a few will not let Mexico function as a sovereign nation.
Here in Mexico, a priority of the current administration is to help the average citizen. You know, the one that gets up everyday and goes to work. One of the best ways to help is by increasing disposable income for individual workers, which is why the laws regulating outsourcing are being changed.
I ask, how many of us have been laid off because our job was shipped overseas? Too many in my mind. You can see from the above article that a lot of us have fallen victim to outsourcing.
What is outsourcing? Outsourcing is the subcontract of work or personnel to a third-party (company). It is supposed to lower costs but we know that it only benefits the company doing the outsourcing.
We never see lower prices. Instead, prices stay high and it leads to a substantial increase in profits for companies participating in outsourcing. One might come to the conclusion that a corporation's profit margin is more important than an individual's productivity.
Why outsourcing is used in Mexico
Mexico has a tendency to take things to the “next level”, to the extreme. It is noticeable in everything that you will encounter while living in Mexico, from customer service to government services. My posts will help, but apart from them, your connection to living comfortably in Mexico is just a click away. Let's continue.
A known fact is that Mexico has one of the best constitutions in the world and it states that certain government mandated “benefits” have to be paid by employers. They are referred to as prestaciones in the Ley Federal del Trabajo. You can consult them here along with terms and conditions for working in Mexico.
Here in Mexico, outsourcing is not only used for tax evasion, it is also used as a tool to avoid having to pay any benefits to workers. How is this possible? Well, outsourcing allows for companies to not integrate workers into their payroll.
Thus, not making them a direct employee of the company they work for and in turn making them ineligible to receive any benefits. You want to avoid falling into this scheme because it hinders your ability to grow socially and economically.
The outsourcing scam in Mexico
Outsourcing keeps wages low and in turn affects the consumer purchasing power in Mexico. A low purchasing power has a trickling impact that is not good for buyers. Everything will seem expensive to you and your choices will be limited.
Let me give you an example of how outsourcing is applied in Mexico by analyzing a worker earning the minimum wage here. At the present moment, working in Mexico will earn you a whopping $123 pesos per day. The equivalent to about $6 US Dollars.
Using this figure, a college graduate will earn about $4,000 pesos a month, roughly $200 dollars. You will struggle. I can see why individuals live with their parents as adults, especially if they have a family to support. They cannot afford to move out. In Mexico City, rents vary but can run you in the upper thousands of pesos.
Now enter outsourcing. They sell you the idea that you will be making more because the $4,000 pesos a month is net earnings, meaning you do not get any taxes deducted. What they fail to tell you is that you are not eligible for state mandated benefits because neither you nor they are paying into your future.
You still have access to healthcare because of government funded hospitals known as IMSS. However, you won’t have access to better healthcare provided by private hospitals, Social Security benefits or the ability to get government funded loans to buy a home.
More hardship for workers in Mexico
Another way that salaries are kept low is through the use of vales. All vales do is sell you the idea that you are getting paid more. Vales are basically vouchers that work like money. Some will get them in addition to their salary and others will have them integrated as part of their salary.
Regardless, the worker loses. Not all establishments accept vales and most have restrictions on which items can be purchased. Some are even taken at 50% value. You will find individuals at stores trying to get cash from customers by offering vales at the check-out. Beware of this and check out my post about getting caught off-guard by Mexico.
Vales are corporate welfare at its best. Besides keeping salaries low, vales help corporations lower their tax burden because they are deductible. For the worker not so much.
They will be taken as part of your salary and may be subject to taxes. Thus, lowering your acquisition power and in the long run your savings.
Outsourcing is bad
Don’t fall into these schemes that are allowed by Mexican Law. Recently, President Andres Manuel Lopez Obrador announced that he is looking into eliminating these third-party companies because of the harm they cause.
Not only do they negatively impact workers, they also hurt Mexico’s ability to collect taxes. On top of that, someone has to be willing to be the legal representative of the outsourcing company.
This individual is legally responsible for everything going on in the company. They are the ones at risk of going to prison for any anomalies and usually don’t receive monetary compensation for the risk they take.
Update on outsourcing in Mexico
President Andres Manuel Lopez Obrador announced on April 6 that an agreement has been reached with labor and business groups to strictly limit outsourcing of jobs.
Non-core activities, like cleaning and maintenance, will be allowed to be outsourced; while employees in essential positions will have to be put on a company's payroll within 3 months.
All benefits will have to be paid and better accounting of profit-sharing could increase employee payments by 156%. This will help people who need it the most.
Good news, don't you think? Wage growth will help reinforce Mexico's recovery at the same time that it will give individuals more opportunities.
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