Introduction
One of the most complex and often misunderstood areas for employers in Mexico is their social security obligations. The intricacies of the contributions that employers must pay to their employees and how they affect employee salaries can be challenging to grasp. This is why I have prepared this article to help you navigate these complexities.
Likewise, to continue promoting a good business culture and make all interested parties, primarily employers, aware of how labor standards work. We began by exploring the forms of termination of labor relations, their compensation, and budgets that the law and the judicial criteria contemplate for our country in the entry ‘Types of Employment Termination in Mexico’ (that I also recommend reading)
It’s important to note that although there is voluntary and mandatory social security in the legislation, in this entry, I will focus on the latter. This is because it’s compulsory for all those who are considered employers and, in turn because it is the most used in Mexico. This information is directly relevant to your situation as an employer, fostering a sense of engagement and understanding.
Finally, all that remains is to comment that social security contributions are contributions, according to the Federal Tax Code. Therefore, the principles stipulated in article 31, section IV of the Political Constitution of the United Mexican States are also applicable. For this reason, if you want to know more about the subject, I invite you to read the entries ‘Contributions Contemplated in Mexico‘ and ‘Constitutional Principles of Taxes in Mexico‘.
Translation
This entry is a translation of the article that I wrote in Cuotas y obligaciones patronales de la seguridad social en México.
Table of Contents
- Introduction
- 1) Social Security Concept
- 2) Compulsory Regime Insurance
- 3) Persons Subject to the Mandatory Regime
- 4) General Employer Social Security Obligations
- 5) Base Contribution Salary
- A) Integration
- B) Limits
- C) Determination of the Contribution Base Salary
- D) Presumption of Increase to the Base Contribution Salary
- E) Exceptions
- F) Payment of Worker Tolls at the Exclusive Expense of the Employer
- 6) Exemptions From Payment of Fees Due to Worker Absenteeism
- A) Excused Absences
- 7) The employer as the Withholder of the Social Security Contributions
- A) Self-Determination of Social Security’s Quotas
- 8) Presumptive Determination of Employer-Worker Quotas
- 9) Quota For Work-Related Risk Insurance
- 10) Quotas For Illnesses and Maternity Insurance
- 11) Quotas For Invadility and Life Insurance
- 12) Quotas For Retirement, Advanced Age, and Old-Age Insurance
- 13) Quotas For ChildCare and Social Benefits Insurance
- 14) Quotas For Mandatory Housing
Content Related
- Non-Compliance With Social Security Obligations and Its Consequences in Mexico
- Unconformity Relief As a Legal Remedy in the Mexican Social Security
1) Social Security Concept
As you will see throughout this entry, social security covers a range of benefits and services that seek to protect the development and life of the worker—mainly—and their family members or beneficiaries. These include the right to health, medical assistance, protection of their subsistence, housing, and the granting of a pension. Social security exists thanks to contributions from the state, social assistance, and the private sector.
This protection is provided in our country mainly through the Social Security of the Mexican Social Security Institute, regulated by the Social Security Law. However, as the law indicates, various systems are instituted in other laws that also provide social security to the Mexican population. Above all, to those who have a particular employment relationship. Think, for example, of the civil pensions of the State of Chihuahua at the state level, which covers the social security of state workers, etc.
2) Compulsory Regime Insurance
As I already expressed in the introduction to this entry, social security—at least at the federal level for general workers—has two regimes: mandatory and voluntary. However, I will only focus on the first due to its importance. Well, within the compulsory regime, workers have the right to the following insurance:
I.- Work-related risks.
II.- Diseases and motherhood.
III.- Disability and life.
IV.- Retirement, unemployment in advanced age and old age.
V.- Daycare and social benefits.
All these insurances beget a multiplicity of rights for workers. However, for the employer, beyond the tolls he has to pay, which I will now discuss here, they have no significant relevance. This is why the development of each insurance that details the rights and scope of workers will be addressed independently in subsequent blog posts. For now, only its financing will be addressed here.
3) Persons Subject to the Mandatory Regime
According to the law, the following people are subject to the mandatory social security regime:
I.- Workers who have an employment relationship and, therefore, subordinate to an employer in terms of articles 20 and 21 of the Federal Labor Law1.
II.- The members of cooperative societies.
III.- The people determined by the Mexican president through the respective decree under the same conditions and terms of the Social Security Law.
IV.- Domestic workers.
4) General Employer Social Security Obligations
Among the countless obligations that employers have in Mexico, those of social security stand out. Although each social insurance described in section 2) of this entry generates special obligations, it’s also true that the lawmakers also established general ones, which are the following:
I.- Register as an employer with the Mexican Social Security Institute and register all your workers, where you must communicate the registrations, cancellations, salary modifications, and other workers’ data to the institute. All this must be done within no more than 5 business days of the employment relationship’s inception.
II.- Keep records, such as payrolls and payroll lists, of the number of days worked and the salaries received by your workers invariably recorded. Records must be kept for at least 5 years from their issuance.
III. Determine the employer’s employee contributions and pay the amount from such determination to the Mexican Social Security Institute.
IV.- Provide the institute with all the necessary elements to specify the existence, nature, and amount of the obligations under its responsibility.
V.- Allow inspections and home visits carried out by the institute.
VI.- In the case of employers who are sporadically or permanently dedicated to construction, they must issue and deliver to each worker written proof of the number of working days and salaries received by the established payment periods.
VII.- Issue and deliver, in the case of temporary workers from the city or the countryside, proof of the days worked.
VIII.- In general, comply with the provisions of the Social Security Law and its regulations.
5) Base Contribution Salary
Employers are obliged to calculate the expenses necessary to cover the different types of insurance detailed in section 2 according to the base contribution salary. However, the question arises about what that base contribution salary consists of and what it covers. Take note.
A) Integration
The base contribution salary is integrated with cash payments for daily quota, gratuities, perceptions, food, room, bonuses, commissions, benefits in kind, and any other amount or benefit given to the worker for his work.
B) Limits
It should be noted that the law itself establishes limits on the base contribution salary that can be registered, both as a maximum and minimum amount. As for the maximum, this must not exceed the amount 25 times the general minimum wage that governs Mexico City, and, as for the lower limit, it must not be less than the general minimum wage of the geographical area where the worker’s services are provided.
C) Determination of the Contribution Base Salary
To determine the form of contribution, the following rules shall be applied:
I.- The calendar month shall be the payment period for the tolls.
II.- To set the daily salary if it’s paid per week, fortnight, or month, the corresponding remuneration shall be divided by 7, 15, or 30, respectively. A similar procedure will be carried out when the salary is set for periods other than those indicated (such as ten-yearly, etc.)
III.- If, due to the nature or peculiarities of the work, the salary is not stipulated per week or month but per day worked and includes fewer days than a week or the insured works reduced hours and his salary is determined per unit of time, In no case will quotas be received based on a salary less than the minimum.
IV.- When, in addition to the fixed elements of the salary, the worker regularly receives other periodic remuneration of a previously known amount, these shall be added to said fixed elements.
V.- If, due to the nature of the work, the salary is integrated with variable elements that cannot be previously known, the total income received during the two immediately preceding months shall be added and divided by the number of days of salary earned in that period.
VI.- In cases where a worker’s salary is made up of fixed and variable elements, it shall be considered mixed, so, for contribution purposes, the average obtained from the variables shall be added to the fixed elements.
D) Presumption of Increase to the Base Contribution Salary
A special provision in the law must be considered regarding the granting of food and housing. The law stipulates that if the worker receives shelter or food at the employer’s expense in addition to the salary, the base salary shall be considered increased by 25% for each item. Therefore, if your worker receives both for free, his base contribution salary shall increase by 50%.
E) Exceptions
As an express exception to the benefits granted to the worker that does not make up the base contribution salary, we have various legal hypotheses. However, by mandate of the law itself, these shall constitute exceptions only if they are registered in your accounting as an employer. Exceptions that, in essence, are the following:
I.- Work instruments such as tools, clothing, and items alike.
II.- Savings provided that they are made up of a deposit of an equal weekly, biweekly, or monthly amount from the worker and the company. In any case, if it is constituted differently or the worker can withdraw it more than twice a year, the savings shall be integrated into the base contribution salary.
III.- The additional contributions you, as an employer, agree to with your employees, such as retirement insurance contributions and unemployment benefits at advanced age and old age.
IV.- The employer contributions that correspond to the employer pursuant to the Social Security Law, contributions to the Institute of the National Housing Fund for Workers, and participation in the company’s profits.
V.- Food and housing when provided to workers on an expensive basis. It’s understood that this is the case when the worker has to pay at least 20% of the general daily minimum wage in force in Mexico City for each of them.
VI.- Groceries in kind or money, as long as their amount does not exceed 40 of the general daily minimum wage in force in Mexico City.
VII.- Awards for attendance and punctuality, provided that the amount of each of these concepts does not exceed 10 of the base contribution salary.
VIII.- The amounts contributed for social purposes, considered as those delivered to constitute funds for a pension plan established by the employer or derived from collective contracting.
IX.- Overtime that occurs within the margins indicated in the Federal Labor Law.
F) Payment of Worker Tolls at the Exclusive Expense of the Employer
As we will see below, although the financial regime of each insurance requires a contribution from the State, employers and workers to maintain social security, there is also an exception regarding the contributions of workers.
In that sense, the law stipulates that if your worker is registered with the minimum wage of the geographical area where he provides his services, the worker shall be exempt from covering his worker’s fees, and you, as the employer, must pay them together with employer contributions. That is, the amounts that we shall see below cannot be discounted or withheld.
6) Exemptions From Payment of Fees Due to Worker Absenteeism
One of the legal hypotheses that frequently occurs for employers is to decide when they must pay the employer’s worker contributions in the event of an absence or abandonment of work. This doubt is vital if we consider that until the employment relationship between employer and employee exists and, therefore, is not terminated before the Mexican Social Security Institute, the employer shall continue to pay social security contributions.
Well, in this case, the law stipulates the following rules:
I.- If the worker’s absences are for periods of less than 8 consecutive or interrupted days, contributions and payments shall be made only in the sickness and maternity insurance.
In this case, as an employer, you must provide the corresponding clarification, indicating that these are tolls omitted due to absenteeism. You must also verify the lack of payment of the respective salaries—because they are products of days not worked—by displaying the stripe lists or the corresponding payrolls.
II.- If the worker’s absences are for periods of 8 consecutive days or longer, you as an employer shall be released from the payment of employee-employer contributions as long as you proceed in terms of article 37 of the Social Security Law2.
A) Excused Absences
In the case of absences covered by medical disabilities issued by the Mexican Social Security Institute, it will not be mandatory for you, as an employer, to cover all employee-employer contributions except those related to the retirement branch.
7) The employer as the Withholder of the Social Security Contributions
Like other tax legislation, the Social Security Law stipulates very clearly that the employer is obliged to withhold and report to the institute the worker’s contributions—except when the worker earns the minimum wage when the employer must cover them at his own expense, as I stated before.
However, due to poor administration or carelessness, the employer may not make this withholding promptly, so you may wonder if you can withhold the missing amounts from the worker in subsequent payroll payments. The answer is yes but in a limited way.
This is so because the law stipulates that when the previous case occurs, you can only deduct 4 accumulated weekly contributions from the worker, leaving the rest at your expense as the employer.
A) Self-Determination of Social Security’s Quotas
Notwithstanding the above, the employer’s worker contributions are caused by monthly payments due, and you, as an employer, are obliged to determine their amounts in printed formats or by using the computer program authorized by the Mexican Social Security Institute. In addition, as an employer, you must present to the institute the certificates for determining employer-employee quotas for the month in question and make the respective payment no later than the 17th day of the month immediately following the accrual of quotas.
The obligation to determine the quotas must be fulfilled even in the event that the corresponding payment is not made within the period indicated in the previous paragraph.
8) Presumptive Determination of Employer-Worker Quotas
If you, as an employer, do not timely cover the amount of your employee contributions or do so incorrectly, the institute may presumptively determine them and set them in liquid amounts based on the data it has or supported by the facts that it has known due to the exercise of the verification powers that it enjoys as a tax authority or through the files or documents provided by other tax authorities.
The Institute shall proceed in the same way in cases in which, when reviewing the determination certificates paid by employers, it detects errors or omissions that result in partial non-compliance in the payment of fees.
Once the determination is made through settlement certificates, employers must pay them within 15 business days following the date on which the respective notification takes effect.
As an employer, once you are notified of the settlement certificates, you will have 5 business days from the date the notification takes effect to formulate clarifications. These must be duly supported and may only deal with arithmetic or typing errors, affiliation notices, certificates of incapacity, or factual situations without legal controversy. It should be noted that the previous clarification does not interrupt the period you have as an employer to make the payment. Once the clarification is made, the institute has 20 days to resolve it.
9) Quota For Work-Related Risk Insurance
The tolls that you must pay for work-related risk insurance as an employer shall be determined in relation to the amount of the worker’s base contribution salary and the risks inherent to the activity or negotiation that you carry out, in terms of the REGULATIONS OF THE INSURANCE LAW SOCIAL IN MATTERS OF AFFILIATION, CLASSIFICATION OF COMPANIES, COLLECTION, AND SUPERVISION.
In any case, to set the premiums to be covered by the work-related risk insurance, companies must calculate their premiums, multiplying the company’s accident rate by a premium factor, and 0.005 shall be added to the product. The result shall be the premium to be applied to contribution salaries according to the following formula:
Premium: [(S/365)+V * (I + D)] * (F/N) + M
Where
V = 28 years, which is the average length of active life of an individual who has not been the victim of a fatal accident or total permanent disability.
F = 2.3, which is the premium factor.
N = Number of average workers exposed to risk.
S = Total days subsidized due to temporary disability.
I = Sum of the percentages of permanent, partial, and total disabilities divided by 100.
D = Number of deaths.
M = 0.005, which is the minimum risk premium.
Note: Accidents that occur to workers while traveling from their home to the workplace or vice versa are not considered for the companies’ accident rate.
Finally, I would like to note that matters related to the calculation of the risk premium, accident rates, frequency index, and severity of work risks are such broad concepts that they require a separate blog entry. I will carry out this later due to its eminent fiscal nature since the risk premium must be self-determined by the employer, and if done incorrectly, it can lead to the establishment of a tax liability at his expense.
10) Quotas For Illnesses and Maternity Insurance
The resources necessary to cover benefits in cash or kind, as well as their administration expenses, shall be obtained from the quotas that employers, workers, and the State are obliged to cover in accordance with the following:
Regarding the cash benefits of illnesses and maternity insurance, this shall be financed with a quota of 1% of the workers’ base contribution salary, which will be paid as follows:
I.- Employers shall be responsible for paying 70% of said fee.
II.- The workers shall pay 25% of the fee.
III.- The Federal Government shall pay the remaining 5%.
On the other hand, illnesses and maternity insurance benefits in kind shall be financed as follows:
I.- For each insured, a daily employer fee equivalent to 13.9% of a general daily minimum wage for Mexico City shall be paid monthly.
II.- For workers whose base contribution salary is greater than three times the general daily minimum wage for Mexico City, an additional employer contribution equivalent to 6% and another additional contribution by the worker of 2% shall be covered from the previous quota.
III.- The Federal Government shall cover a monthly daily fee for each insured, equivalent to 13.9% of Mexico City’s general minimum wage.
11) Quotas For Invadility and Life Insurance
This insurance is financed in the following way:
I.- The employer covers 1.75% of the base contribution salary for invalidity and life insurance.
II.- The worker covers 0.625% of the base contribution salary.
III.- While the Federal Government must contribute 7.143% calculated on the total employer contributions.
12) Quotas For Retirement, Advanced Age, and Old-Age Insurance
The fees and contributions referred to in this insurance shall be covered as follows:
I.- For the retirement branch, the employer is responsible for covering an amount equivalent to 2% of the worker’s base contribution salary.
II.- For advanced age and old-age, the employer shall be responsible for covering the corresponding quota based on the contribution base salary, calculated according to the following table:
| Base Contribution Salary | Quota |
| 1.00 MW (Minimum wage) | 3.150% |
| 1.01 MW to 1.50 UMA (Measurement and Updating Unit) | 4.202% |
| 1.51 to 2.0 UMA | 6.552% |
| 2.01 to 2.50 UMA | 7.962% |
| 2.51 to 3.00 UMA | 8.902% |
| 3.01 to 3.50 UMA | 9.573% |
| 3.51 to 4.00 UMA | 10.077% |
| 4.01 UMA – onwards | 11.875% |
III.- Workers shall cover a fee of 1.25% of their base contribution salary.
IV.- The Federal Government, for each day of salary contributed, shall contribute monthly an amount for the social contribution for workers who earn up to four times the Measurement Updating Unit—103.74 pesos for each UMA—according to the following table:
| Base Contribution Salary | Quota (In Mexico’s currency) |
| 1.00 MW | 10.75 |
| 1.01 MW to 1.50 UMA | 10.00 |
| 1.51 to 2.00 UMA | 9.25 |
| 2.01 to 2.50 UMA | 8.50 |
| 2.51 to 3.00 UMA | 7.75 |
| 3.01 to 3.50 UMA | 7.00 |
| 3.51 to 4.00 UMA | 6.25 |
13) Quotas For ChildCare and Social Benefits Insurance
The financing of this insurance is the sole responsibility of the employer, and it shall be financed based on a 1% premium calculated on the base contribution salary of each worker, with only 20% of the premium amount going to be allocated to the social benefits, while 80% for the childcare service.
As a special note, the lawmakers are clear that every employer is obliged to pay this insurance, even if among his employees he does not have workers who require, for example, childcare services.
14) Quotas For Mandatory Housing
Within the social security obligations enunciated by the doctrine, it could not be missing to provide the worker with a decent home. Obligation that even has constitutional support in article 123, paragraph subsection A, section XII of the Political Constitution of the United Mexican States that creates the Institute of the National Housing Fund for Workers and that, in turn, includes the Federal Law of Labor in its article 1363.
Now, as a fee to finance this benefit, the employer must cover 5% calculated based on the worker’s salary in each payroll payment, taking into account the limits of the base contribution salary to which I referred in section 5) of this entry.
This amount shall be administered by the Institute of the National Housing Fund for Workers, which is managed in a tripartite manner by the Federal Government, representatives of workers and employers and whose funds can be increased by the investment strategies they undertake, as well as money transfers made by the government itself from time to time. Institute that soon, I will talk about it in a new blog entry.
By Omar Gómez
Mexican Tax, Constitutional and Administrative Attorney
Partner at beLegal abogados S.C
Visit my website at ogomezabogado.com
Contact the firm at (656) 271-41-43 (Spanish) or 656-774-75-73 (English) Or send us a message at [email protected].
- Article 20.- An employment relationship, whatever the act that gives rise to it, is understood to be the provision of personal work subordinated to a person, through the payment of a salary.
An individual employment contract, whatever its form or name, is one by virtue of which one person undertakes to provide subordinate personal work to another, through the payment of a salary.
The provision of work referred to in the first paragraph and the concluded contract produce the same effects
Article 21.- The existence of the contract and the employment relationship between the person providing personal work and the person receiving it are presumed. ↩︎ - Article 37.- As long as the employer does not present the worker’s notice of discharge to the Institute, his obligation to cover the respective employer’s worker quotas shall subsist. However, if it’s proven that said worker was registered by another employer, the Institute shall return to the defaulting employer, at his request, the amount of the employer’s worker contributions paid in excess, from the date of the new registration. ↩︎
- Article 136.- Every agricultural, industrial, mining or any other type of work company is
obliged to provide workers with comfortable and hygienic rooms. To comply with
this obligation, companies must contribute to the National Housing Fund five percent of
the salaries of the workers at their service. ↩︎