The initiative to reform the Social Security Law (LSS) is being discussed. Once approved, it would equalize the employer-employee contributions with the basis for calculating the Income Tax (ISR) for workers.
On March 19, 2013, federal deputy (on leave) Sergio Torres Félix, member of the PRI Parliamentary Group, submitted for consideration by the plenary session of the Chamber of Deputies an initiative to reform article 27 (Integrated daily salary) and repeal article 32 (Room and board) of the Social Security Law (LSS).
Yesterday, Tuesday, April 16, 2013, the Finance Committee of the Chamber of Deputies approved a resolution to be taken to the plenary session on Thursday (18), and next week the bill would reach the Senate. If the reform is approved, the base salary for contributions (SBC) will be raised and therefore the employer-employee contributions and the contributions to Infonavit, increasing the cost of formal workers, so that the Mexican Social Security Institute (IMSS) has more resources. We will keep you informed in due time of what happens in the legislative process.
We need to determine the potential increase in staff costs in our company, our budgets, our cash flows and the viability of our business. Will we have to increase costs? By how much?
A few days ago we were analyzing the elimination of employer-employee contributions, with the “Universal Social Security” to compete against the Chinese, so that labor costs would be lower. We said that only the contributions for pensions would have to be paid to the Afores, and the IMSS would have great savings by not having the high (exaggerated) administration cost that if the employment subsidy could be applied to the contributions, in short, all that simplification stuff that the bureaucracy does not want. Let us hope that they tell us where we are really going.
The increase in revenue would be achieved by the IMSS by harmonizing the LSS with the Income Tax Law (LISR), in that the treatment of the concepts used to determine the SBC are the same as those considered to determine income from salaries and in general from the provision of a subordinate personal service.
The changes in Article 27, which indicate the concepts that are excluded from the SBC, are proposed:
| LSS CURRENT | LSS REFORM INITIATIVE |
| Article 27. The base salary for contributions is made up of payments made in cash for daily quota, gratuities, benefits, food, housing, bonuses, commissions, benefits in kind and any other amount or benefit given to the worker for his work. The following concepts are excluded from the base salary for contributions, given their nature: | Article 27… |
Work tools
Many of the benefits for executives are included in the work tools, and we seek to take care of this concept.
| LSS CURRENT | LSS REFORM INITIATIVE |
| I. Work instruments such as tools, clothing and the like; | I. The goods that the employer provides to the workers for the performance of their activities, provided that they are in accordance with the nature of the work performed and up to the amount in which they are exempt or are not considered taxable income for the worker in terms of the Income Tax Law. |
Contributions to workers’ savings funds
In the case of contributions to savings funds, it is proposed that the exemption be limited in the same way as in the ISR. Under the terms of the current LSS, there is no limit, as long as joint and equal contributions are made and they are not withdrawn more than twice a year.
| LSS CURRENT | LSS REFORM INITIATIVE |
| II. Savings, when they consist of a weekly, fortnightly or monthly deposit of equal amounts by the worker and the company; if they are established in a different way or the worker can withdraw them more than twice a year, will be part of salary; amounts granted by the employer for social purposes of a union nature will not be taken into account either; | II. Contributions to savings funds established for workers, provided that the income obtained from said funds is exempt or is not considered taxable income for the worker in terms of the Income Tax Law. |
Contributions to the Retirement, Severance Pay at Old Age and Old Age Insurance (RCV)
Ordinary and additional contributions made by the employer for RCV are not currently included in the SBC. With the proposal, these contributions would be exempt up to an amount equivalent to 90 general minimum wages (SMG) of the taxpayer’s geographic area, for each year of contribution.
| LSS CURRENT | LSS REFORM INITIATIVE |
| III. Additional contributions that the employer agrees to grant to its workers for retirement, retirement at advanced age and old age insurance contributions; | III. The contributions allocated to the retirement, retirement at advanced age and old age subaccount of the individual account of workers, and the other contributions that in terms of this law the employer must cover, each of them up to the amount in which they are exempt or are not considered taxable income for the worker in terms of the Income Tax Law. |
Profit sharing for workers (PTU)
Currently, the PTU does not integrate into the SBC, regardless of its amount. It is proposed that it only integrate the amount taxed in the LISR, which exceeds an amount equivalent to 15 days of SMG of the geographic area of the worker in the SBC.
| LSS CURRENT | LSS REFORM INITIATIVE |
| IV. The contributions that the employer is required to cover under this Law, the contributions to the National Workers’ Housing Fund Institute, and the shares in the company’s profits; | IV. Contributions to the housing sub-account of the individual account of workers made in accordance with the Law of the National Workers’ Housing Fund Institute, and the participation in the profits of companies, up to the amount in which each of said benefits are exempt or are not considered taxable income for the worker in terms of the Income Tax Law. |
Payments for room and board
Currently, for the SBC, both concepts are not included, as long as they are delivered in a costly manner to the worker; it is understood as costly when the worker pays for each of them, at least, 20% of the SMG that governs in the Federal District. Currently, when any of these concepts are delivered free of charge or charging an amount less than 20%, it is estimated that the worker’s salary increases by 25% for each of them.
It is proposed that food delivered in various forms of vouchers, reimbursement or cash, as well as room, will not be part of the SBC up to the amount that they are exempt from in the ISR. According to the LISR, dining and food services are not income in goods. Regarding room assistance, the LISR Regulations provide that it is an accruable income for the worker who receives it.
| LSS CURRENT | LSS REFORM INITIATIVE |
| V. Food and lodging when provided to workers for a fee; these benefits are deemed to be onerous when the worker pays for each of them at least twenty percent of the general daily minimum wage in force in the Federal District; | V. Food provided in the form of anything other than vouchers, reimbursement or cash, and lodging, up to the amount in which each of said benefits is exempt or not considered taxable income for the worker in terms of the Income Tax Law. |
In the case of food, it is currently specified that if the worker does not receive the three meals, the increase in the SBC will be made at a rate of 8.33% for each of them, which is proposed to be repealed.
| LSS CURRENT | LSS REFORM INITIATIVE |
| Article 32. If, in addition to the monetary salary, the worker receives from the employer, at no cost to the former, room or board, his salary will be estimated to have increased by twenty-five percent, and if he receives both benefits, it will be increased by fifty percent. When the food does not cover the three meals, but one or two of them, for each of them the salary will be increased by eight point thirty-three percent. | Article 32. Repealed |
In the case of food supplies, it remains almost the same, except that it is proposed that payment cannot be made in cash, as is already the case with the ISR.
| LSS CURRENT | LSS REFORM INITIATIVE |
| VI. Food supplies in kind or in cash, provided that their amount does not exceed forty percent of the general daily minimum wage in force in the Federal District; | VI. Food supplies in kind or in vouchers, up to an amount equivalent to forty percent of the daily general minimum wage of the Federal District, raised to the corresponding payment period. |
Attendance and punctuality awards are part of the SBC
Under the terms of the current LSS, these concepts are not part of the SBC, as long as the amount of each of them does not exceed 10% of said salary. The LISR taxes these payments in full and consequently they would be part of the SBC, according to the proposal.
| LSS CURRENT | LSS REFORM INITIATIVE |
| VII. Awards for attendance and punctuality, provided that the amount of each of these concepts does not exceed ten percent of the base salary for contributions; | VII. Awards for attendance and punctuality, up to the amount in which they are exempt or not considered taxable income for the worker under the terms of the Income Tax Law. |
Contributions to pension plans
Currently, contributions made by employers to fund pension plans are not included in the SBC. With the proposed reform, these contributions will be included in the SBC, insofar as they exceed 15 times the SMG of the geographic area of the contributor.
| LSS CURRENT | LSS REFORM INITIATIVE |
| VIII. Amounts contributed for social purposes, considered as such those delivered to constitute funds for a pension plan established by the employer or derived from collective bargaining. Pension plans will only be those that meet the requirements established by the National Commission of the Retirement Savings System, and | VIII. Amounts contributed by the employer to fund a pension plan established by the employer or derived from collective bargaining, up to the amount in which said amounts are exempt or are not considered taxable income for the worker for the purposes of the Income Tax Law. Pension plans will only be those that meet the requirements established by the National Commission of the Retirement Savings System, and |
Overtime
Currently, only overtime hours that exceed those indicated in the Federal Labor Law are included in the SBC. The aim of this reform is to include 50% of the SBC (also considering the maximum limit of five times the SMG of the geographic area of the worker) of the amount that workers receive for this concept, within the margins established by labor legislation; those that exceed these margins will be taxed in full.
| LSS CURRENT | LSS REFORM INITIATIVE |
| IX. Overtime within the margins indicated in the Federal Labor Law. | IX. Remuneration for overtime worked within the margins indicated in labor legislation, up to the amount in which said remuneration is exempt or not considered taxable income for the worker under the terms of the Income Tax Law. |
We will have to find out for each company what the impact would be on staff costs if this proposal is approved. Best regards.
Source: IMEFI
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