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Article | Global News Briefs

Peru: A new and controversial prohibition on outsourcing

Total Rewards|Future of Work|Health and Benefits
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By Kiara Arrunategui | April 8, 2022

Peruvian decree restricts labor outsourcing, a measure sure to impact employee compensation and benefit programs and costs significantly.

Employer Action Code: Act

Under Supreme Decree No. 001-2022-TR, the Ministry of Labor and Employment Promotion has greatly limited the ability of companies to outsource certain types of work. Previously, there were no restrictions on outsourcing, which in the view of the government harmed workers by allowing some contracting companies to use outsourced staff to perform the same work as their permanent employees but at lower rates of pay and benefits and with lesser employment protections.

Key details

The decree, effective February 23, 2022 (the date of its publication in the Official Gazette, El Peruano), establishes the following restrictions:

  • Outsourcing companies may not provide outsourced employees to perform work related to a contracting company’s “core business” activities. Core business is defined as comprising the main activities of a company, considering, for example, those activities that differentiate and identify it within the market, generate the most income for the company or add the most value for the company’s customers.
  • Contracting companies may only use outsourced workers for “specialized activities” that require a specified level of technical, scientific or qualified knowledge and that are unrelated to the contracting company’s core business.

Employers have until August 22, 2022 (180 calendar days after the effective date) to adapt any existing outsourcing contracts to the new regime. Where such outsourcing involves a contracting company’s core business, the contracting company is expected to transfer the outsourced workers to its own payroll during the transition period and employ them on the same basis as ordinary employees engaged in the same activities. During the transition period, outsourcing companies are prohibited from terminating the employment of affected workers. At the end of the 180-day period, any outsourced staff involved in the contracting employer’s core business whose contracts have not been amended will automatically be considered permanent employees of the contracting company.

Employer implications

Employers using outsourcing arrangements for core business activities will need to prepare for the termination of those agreements and the transfer of the affected employees to their own payroll. Transferred employees must be provided with the same pay and benefits as would be awarded to all other permanent employees. Affected companies should start to consider the actions they will need to take to comply, as well as the related implications for their employee compensation and benefit programs and costs — which may be substantial, to say the least.

That said, unlike a similar measure enacted in Mexico in 2021 (see the Global News Brief article: Mexico: Draft legislation to ban subcontracting of employees), this decree was promulgated with little consultation or advance warning to businesses and unions. Legal challenges to the constitutionality of the decree are expected. The government of President Pedro Castillo, who took office in July 2021, has been marked so far by considerable levels of instability, exemplified by having had four different prime ministers, three different foreign ministers and two finance ministers since assuming office. In March, congress approved the start of impeachment proceedings over allegations of corruption. The previous administration of President Martín Vizcarra was ousted over similar charges in November 2020, leading to the election of Castillo, a political novice with no prior experience in government.

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Kiara Arrunategui

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