Now that I’ve begun the series on Mexican social security in the entry «Employer’s Social Security Contributions and Obligations in Mexico,» where I listed the amounts that must be paid in contributions in Mexico. In subsequent entries, I analyzed the consequences of noncompliance and even the possible legal remedies that can be filed. It’s now time to move on to more practical tax issues.
To this end, I will be guided by the Regulations of the Social Security Law on Enrollment, Company Classification, Collection, and Inspection. These regulations provide the most precise and practical regulations that an employer should be familiar with as a taxpayer. Thus, in this entry, I will address the aspects related to employer registration and the risk premium, which, if not followed as required by law, could lead to the determination of tax liabilities that would affect taxpayers’ assets.
Without further ado, let’s begin:
List of Contents
- Translation
- 1) Employer Registration
- A) Assignment of Employer Registration
- B) Employer Identification
- C) Mandatory Notices
- 2) Company Classification and the Workers’ Compensation Premium
- A) Classification Rules
- B) Premiums
- C) Premium in a Single Employer Registry
- D) Rectification
- E) Company’s Accident Rate
- F) Company’s Accident Rate Review
Translation
This entry is a translation of La prima de riesgo y el registro patronal en México.
1) Employer Registration
Every individual or legal entity shall be required to register as an employer or obligated subject with the Institute upon:
I.- They begin to use the services of one or more workers.
II.- They are incorporated as a cooperative organization.
III.- Their incorporation agreement with the Mexican Social Security Institute comes into effect.
A) Assignment of Employer Registration
For the purposes of employer registration, the employer or obligated subject, an individual, shall be issued a registration number in the Federal District or municipality where their workplace is located. If they subsequently request registration of another company that carries out a different activity and does not contribute to the achievement of the purposes of the first, they shall be assigned a different employer registration number, regardless of the geographical location of the establishment or workplace.
Likewise, the employer or legal entity subject to the obligation will be assigned an employer registration number for each municipality or the Federal District where it has establishments or work centers, regardless of whether it has more than one within the same municipality or the Federal District. This is important because, in this case, requirements and even tax liabilities must be notified at the address of each branch, as can be seen from the following precedent: NOTIFICATION OF TAX LIABILITIES DETERMINED BY THE MEXICAN SOCIAL SECURITY INSTITUTE OR THE NATIONAL WORKERS’ HOUSING FUND INSTITUTE MUST BE DONE AT THE ADDRESS OF THE ESTABLISHMENT OR WORK CENTER RELATED TO THE EMPLOYER REGISTRATION[1].
On the other hand, employers who occasionally carry out expansion, remodeling, or construction activities in their own facilities will be assigned an employer registration number different from that of their main activity.
B) Employer Identification
The Mexican Social Security Institute will provide each employer or obligated subject with an employer identification document for each assigned employer registration. This document must contain, at a minimum, the following information:
I.- Employer registration number assigned by the Mexican Social Security Institute.
II.- Full name, business name, or corporate name of the employer or obligated subject.
III.- Activity, type, and fraction.
IV.- Address.
V.- Signature of the employer or legal representative.
VI.- Name and signature of the persons authorized by the employer to submit affiliation notifications.
It’s important to note that the employer must show the indicated identification document when carrying out, either personally or through an authorized person, any procedure in the administrative units of the Mexican Social Security Institute, central and decentralized administrative operations, or in the locations that the Institute authorizes for procedures.
Finally, the employer must notify the Mexican Social Security Institute in writing of the theft, destruction, or loss of the identification document in order to proceed with its replacement, subject to the corresponding payment. Likewise, they must promptly notify the Institute for the purposes of invalidation and replacement, of any loss or any other situation that could involve the reproduction or misuse of their electronic employer identification number. In any case, the submission of the notice does not exempt the employer from complying with their legal obligations. All acts carried out under the protection of said document or electronic employer identification number will be valid until the date of submission of the respective notice.
C) Mandatory Notices
The employer is obligated to notify the Mexican Social Security Institute of any suspension, resumption, change, or termination of activities; closure; change of name, corporate name, address, or legal representative; employer substitution, merger, spin-off, or any other circumstance that modifies the information provided to the Institute within 5 business days from the occurrence of the respective event, attaching supporting documentation.
Employers will also be bound by the provisions of the preceding paragraph when new activities are incorporated, assets are purchased, or any act of alienation, leasing, loan, or transfer of trust is carried out, provided that this entails a change in activity.
2) Company Classification and the Workers’ Compensation Premium
When registering for the first time or changing activities, companies must self-classify themselves for the purposes of determining and paying the workers’ compensation insurance premium according to the catalog of activities established in Title Eight of the Regulations of the Social Security Law on Enrollment, Company Classification, Collection, and Inspection in the economic division, economic group, fraction, and class that corresponds to them in each case according to their activity.
A) Classification Rules
Throughout the regulations on this matter, the following rules stand out regarding classification according to the catalog of activities contained in the regulations:
I.- Individuals or legal entities that, through a service provision contract, perform work with their own equipment at another workplace will be classified according to the most hazardous activity performed by their employees.
II.- If a company’s activity is not specifically indicated in the catalog of activities, the employer or the Mexican Social Security Institute itself will determine the classification, considering the analogy or similarity in the activity, the work processes, and the risks of said activity.
III.- When an employer is registered with the Mexican Social Security Institute and classified according to its declared activity and subsequently requests another registration with a different activity that does not contribute to the achievement of the purposes of the first activity, it will be classified independently of the former, regardless of the geographic location of the workplace.
IV.- If companies do not comply with the obligation to self-classify, the Mexican Social Security Institute will automatically classify them based on the catalog of activities in the regulations and based on the information they provide or that obtained as a result of the visit it conducts to determine the activity in which they are engaged. In any case, when the institute automatically classifies or corrects the class declared by the employer, it will notify the employer.
V.- The temporary suspension, whether partial or total, of the company’s activities will not, under any circumstances, imply a change in class.
B) Premiums
The workers’ compensation insurance premiums that employers must pay upon first registering with the Mexican Social Security Institute or upon changing activities, as provided by law or by final judgment, will be those resulting from applying the average premium for the corresponding class, determined by the employer and validated by the institute, to the base salary for contributions under the terms of the Social Security Law.
C) Premium in a Single Employer Registry
When, at the employer’s request, the Mexican Social Security Institute assigns a single employer registry, replacing the employer registries with which it has been operating, the following will apply to the risk premium:
If all the replaced employer registries are located in the same fraction and class, the company will be classified in that fraction and class. The premium to be covered will be the result of applying the following procedure:
a) For each employer registration to be replaced, the assigned premium will be multiplied by the total contribution base salaries of the workers included in it.
b) The products obtained in accordance with the previous paragraph will be added together, and the result will be divided by the sum of the contribution base salaries of all the workers included in all the employer registrations to be replaced.
c) The premium thus obtained will be applied to the single employer registration and will remain in effect until the premium derived from the annual accident review comes into effect.
Finally, if the employer registrations being replaced have different fractions and classes, the company will be classified in the economic group, fraction, and class according to the activity in which it is engaged, according to the catalog of activities established in the regulations. For the purposes of determining the premium to be covered, the procedure for determining the premium to be covered will be as per the previous paragraphs.
D) Rectification
The Mexican Social Security Institute has the power to rectify an employer’s classification when:
I.- The employer’s declarations in their registration do not comply with the regulations.
II.- Due to omission or inaccuracy by the employer in their declarations.
III.- In cases of initial classification, there is a written request from the employer expressing disagreement with their classification, and such request is admissible.
IV.- It arises from a correction or an opinion issued by a certified public accountant and is admissible under the regulations.
Notification
Furthermore, the Mexican Social Security Institute may rectify or determine an employer’s premium by means of a resolution that will be notified to the employer or their legal representative when:
I.- The premium declared by the employer is not determined in accordance with the regulations.
II.- The employer does not state their premium in their declaration.
III.- The employer does not file any declaration.
IV.- The employer has issued a written statement expressing disagreement with the premium, and the claim is admissible.
E) Company’s Accident Rate
For the employer to determine the premium, they must keep a detailed record of their claims, from the beginning of each case until its completion, establishing and operating controls over the documentation and information they generate, as well as that prepared by the Mexican Social Security Institute. This latter information will be provided to the worker or their family members so they can submit it to the employer to justify their absences from work or upon their return to work. However, the employer is obligated to collect the corresponding documentation from the worker or their family members, and if they fail to provide it, the employer must obtain it from the Mexican Social Security Institute, as also stipulated by the binding precedent: OCCUPATIONAL HAZARDS. TO DETERMINE THE PREMIUM, THE EMPLOYER IS REQUIRED TO COLLECT DOCUMENTATION FROM THE WORKER OR HIS FAMILY OR OBTAIN IT FROM THE MEXICAN SOCIAL SECURITY INSTITUTE[2].
On the other hand, the company’s accident rate is obtained by multiplying the Frequency Index (If) by the Severity Index (Ig) for the period being analyzed, according to the following formula: Accident Rate = If * Ig.
Where:
Company’s accident rate = n / (N * 300) * 300 * [(S / 365) + V * (I + D)] / n and, in simplified form: company’s accident rate = [(S/365) + V * (I + D)] / N
Since the Claims Rate is determined by taking into account the frequency and severity of occupational accidents and illnesses, as well as a premium factor that guarantees the financial balance of the industry, this claims rate is expressed as:
Claims Rate = [(S/365) + V * (I + D)] * (F / N)
Where:
F = 2.3, which is the premium factor.
Finally, once the claims rate is obtained, 0.005 is added, which is the minimum risk premium (M).
Frequency Index
The frequency index is the probability of an accident occurring on a working day and is obtained by dividing the number of completed occupational hazard cases during the period being analyzed by the number of days of exposure to the risk, according to the following formula:
If = n / (N * 300)
The meaning of the variables, constants, and symbols is:
n = Number of completed occupational hazard cases.
/ = Division symbol.
N = Average number of workers exposed to the risks.
* = Multiplication symbol.
300 = Estimated number of working days per year.
Severity Index
The severity index is the average time lost due to occupational hazards that cause temporary, permanent, partial, or total disabilities, and deaths.
This index will be obtained by dividing the days lost from work due to temporary, permanent, partial, or total disabilities, and deaths, by the number of occupational hazard cases completed during the period under analysis, according to the following formula:
Ig = 300 * [(S / 365) + V * (I + D)] / n
Where the meaning of the symbols and variables are as follows:
300 = Estimated number of working days per year.
* = Multiplication symbol.
S = Total days subsidized due to temporary disability.
/ = Division symbol.
365 = Number of calendar days in the year.
V = 28 years, which is the average length of working life of an individual who has not been the victim of a fatal accident or total permanent disability.
I = Sum of the percentages of permanent, partial, and total disabilities, divided by 100.
D = Number of deaths.
n = Number of completed occupational hazard cases.
To calculate the number of days lost from work, the consequences of completed occupational hazards, relapses, and increases resulting from reviews of permanent partial disabilities recorded during the period under analysis will be taken into account, even if they arise from hazards that occurred in previous periods.
On the other hand, to measure lost time, if the occupational hazard results in temporary disability, the subsidized days will be considered. In the case of a fatal accident or permanent total disability, the average length of working life of an individual of the same age who has not been the victim of a similar accident will be taken into account. In the case of insured persons with permanent partial disability, the corresponding percentage will be considered according to the disability valuation table contained in the Federal Labor Law.
Finally, subsidized days for temporary disability due to a relapse and percentages derived from reviews of partial permanent disability must be considered for accident reporting purposes by the company where the occupational hazard arose, regardless of the location and time of the accident.
F) Company’s Accident Rate Review
Employers will annually review their company’s accident rate ratio to determine whether to maintain the same premium, or whether to decrease or increase it, according to the following rules:
I.- The company’s accident rate ratio will be obtained based on the occupational hazard cases completed during the period between January 1 and December 31 of the year in question, in accordance with the provisions of Article 72 of the Social Security Law[3].
II.- To determine the premium, the value of the company’s accident rate ratio will be considered, plus the minimum risk premium. The value obtained must be expressed as a percentage and compared with the premium with which the company covers its contributions at the time of the review. If the value is the same, the same premium will continue to apply.
On the other hand, if the amounts are different, the new premium will be applied, increasing or decreasing it by no more than one percent of the base salary, relative to the premium with which the company was covering its contributions from the immediately preceding year.
III.- The premium obtained in accordance with the previous sections will be effective from March 1 of the year following the end of the computed period until the last day of February of the subsequent year.
IV.- In the case of companies recently registered with the Mexican Social Security Institute or that have changed their activity, the reduction or increase in the premium will proceed in accordance with the provisions of sections I and II above, considering cases of completed occupational hazards, until they have completed an annual period from January 1 to December 31.
V.- Employers must submit to the Mexican Social Security Institute during the month of February the printed forms or the magnetic device generated by the computer program authorized by the institute. This form will record the occupational hazard cases resolved during the year, specifying the identification of the workers and the consequences of each hazard, as well as the average number of workers exposed to the risk due to the method used to make the premium payments. The Institute must notify the employer when it classifies an occupational accident or illness, or in the event of a relapse due to these.
VI.- The Mexican Social Security Institute will verify the information provided by companies against its records and, if it determines that the stated premium is inconsistent with that obtained by the institute itself, it will make the corresponding correction. This correction will take effect as of March 1 of the year following the year to which the calculation refers, and must be notified to the employer. Until this happens, the taxpayer may challenge it, as it does not matter whether there is data that reveals that the accident rate may vary. It is necessary for the institute to issue a ruling, in accordance with the following precedents:
PROCEDURE FOR DETERMINING THE PREMIUM IN WORKERS’ RISK INSURANCE. THE OPINIONS PREPARED BY MEDICAL PERSONNEL OF THE MEXICAN SOCIAL SECURITY INSTITUTE, IN FORMATS ST-2, ST-3, ST-7, AND ST-9, ARE INSTRUMENTAL ACTS AND, THEREFORE, DO NOT REQUIRE COMPLIANCE WITH THE REQUIREMENTS OF LEGAL FOUNDATION AND REASONING[4].
PROCEDURE FOR DETERMINING THE PREMIUM IN WORKERS’ RISK INSURANCE. THE OPINION PREPARED BY MEDICAL PERSONNEL OF THE MEXICAN SOCIAL SECURITY INSTITUTE, IN FORMS ST-2. ST-, ST-7, AND ST-9, ARE NOT DEFINITIVE ADMINISTRATIVE RESOLUTIONS AND, THEREFORE, CANNOT BE CHALLEGENDED BEFORE THE FEDERAL COURT OF ADMINISTRATIVE JUSTICE OR BEFORE THE FEDERAL BOARDS OF CONCILIATION AND ARBITRATION[5].
THE MEXICAN SOCIAL SECURITY INSTITUTE IS NOT REQUIRED TO NOTIFY THE EMPLOYER OF ANY ADJUSTMENTS TO THE WORKERS’ COMPENSATION INSURANCE PREMIUM BEFORE MARCH 1 OF THE YEAR FOLLOWING THE YEAR COMPUTED[6].
VII.- In cases where an employer has determined the premium and submitted notice of deregistration to the Mexican Social Security Institute and subsequently submitted notice of re-registration in the same activity, they will continue to cover the premiums with the class and premium assigned at the time of deregistration, provided that a period of more than 6 months has not elapsed within the period governing said determination. If the 6-month limit is exceeded, the average premium for the corresponding class will be assigned.
VIII.- When a company has been assigned multiple employer registration numbers in the same municipality or in the Federal District, the premium calculation will take into account the consequences of occupational hazard events occurring to company personnel in the same municipality or in the Federal District and completed during the calculation period.
By Omar Gómez
Mexican Tax, Administrative, and Constitutional Attorney
Partner at belegalabogados.mx
Contact me at hola@ogomezabogado.com
[1] Thesis: 2a./J. 132/2016 (10a.) Second Chamber of the Mexican Supreme Court of Justice. Tenth Judicial Epoch. Binding Precedent. Digital Registration: 2013230.
[2] Thesis: 2a./J. 159/2008. Second Chamber of the Mexican Supreme Court of Justice. Ninth Judicial Epoch. Binding Precedent. Digital Registration: 168419.
[3] Article 72.- For the purposes of setting premiums for workers’ compensation insurance, companies must calculate their premiums by multiplying the company’s accident rate by a premium factor, and adding 0.005 to the product. The result will be the premium to be applied to contribution wages, according to the following formula:
Premium = [(S/365) + V * (I + D)] * (F/N) + M
Where:
V = 28 years, which is the average working life of an individual who has not been the victim of a fatal accident or permanent total disability.
F = 2.3, which is the premium factor.
N = Average number of workers exposed to the risk.
S = Total number of 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.
[4] Thesis: 2a./J. 25/2018. Second Chamber of the Mexican Supreme Court of Justice. Tenth Judicial Epoch. Binding Precedent. Digital Registration: 2016524.
[5] Thesis: 2a./J. 26/2018 (10a.) Second Chamber of the Mexican Supreme Court of Justice. Tenth Judicial Epoch. Binding Precedent. Digital Registration: 2016523.
[6] Thesis: 2a./J. 122/2008. Second Chamber of the Mexican Supreme Court of Justice. Ninth Judicial Epoch. Binding Precedent. Digital Registration: 168897.
