On 14 February 2020, the Mexican Social Security Institute ("IMSS"), established a hotline for the general public to report unlawful subcontracting schemes that result in avoidance or reduction of employees' social security entitlements. The webpage for the hotline references the definition of a subcontracting regime, describes succinctly the rights of employees rendering services under this regime and explains the main obligations for companies that hire or provide this type of service.
The hotline is available for employees who wish to anonymously report any violation to their social security rights, and also for companies that want to remediate any non-compliance before the IMSS.
What it means for you
This new reporting mechanism is expected to trigger a greater e number of audits by the IMSS. It is now more important than ever for companies that outsource services to verify their compliance with the conditions and obligations set forth for subcontracting regimes. Companies should also verify that the service provider is in full compliance with social security obligations, including registration of employees with the IMSS, as well as the correct calculation and timely payment of social security contributions.
Under the Mexican Social Security Law, companies that engage services from third parties and operate under a subcontracting scheme are jointly liable with the service provider for compliance with social security obligations, if the service provider fails to comply with these obligations. Likewise, failure to comply with social security obligations may result in administrative fines, payment of omitted contributions, plus charges, updates and fines over the omitted contributions, and even criminal liability.
Companies doing business in Mexico should implement the following steps:
- Review their services agreements to determine whether or not they fall under the subcontracting regime.
- Verify their compliance with the conditions established for subcontracting regimes in accordance with the Federal Labor Law and the Social Security Law.
- Confirm that the service provider is duly registered with the IMSS and that employees are registered with IMSS as of the date that they started rendering services under this scheme.
- On an ongoing basis, monitor that the service provider calculates and timely pays the corresponding social security contributions according to the real and integrated salary established by the Social Security Law.
- Verify that the service provider complies with labor and tax obligations.
- In coordination with the service provider, submit PS-1 forms to the IMSS, as applicable.
- Provide training to employees to ensure due attention to any audits undertaken by the IMSS.