Real Property Owner Required to Comply with Social Security Contributions for Employees of their Construction Contractor

Real property owners must constantly enter into agreements for the construction of improvements, includingbuildings, warehouses, offices, etc., in which case the work is carried out by contractors, through their employeesor sub-contractors. By law, such contractors are responsible for compliance with the employee-employerobligations related to their contracted personnel and employees arising from the corresponding project. Inaddition to the real property owner’s risk of being considered a substitute employer of the employees of itscontractor, given that the source of employment and beneficiary of the services is precisely the real property ofthe owner, there is also a risk related to non-compliance with the employee-employer fees that must be paid to theMexican Social Security Institute (IMSS, for its acronym in Spanish). In relation to such, the Social SecurityLaw and the Mandatory Social Security Regulation for Construction Employees for Specific Work and Timeestablish that the owners of the work and improvements are considered employers for purposes of compliancewith such employer-employee fees due to the IMSS. This signifies a direct risk for the real property owner in theevent that the contractors do not comply with their social security obligations. Therefore, it is very important todraft and execute legally binding agreements with respect to the services that will be provided by the contractorsthat include clauses aimed at protecting the real property owner and removing such owner from the employmentrelationship with the contractors’ employees. Furthermore, it is also very important to verify the contractors’compliance with employee-employer obligations, including IMSS obligations, by obtaining a release documentissued by the IMSS certifying compliance, or, if applicable, the report on fulfillment of obligations presented tothe IMSS. Moreover, it is also important to protect the real property owner until the previously indicated releaseis obtained, by means of holding on to retainage or requiring a bond that covers liabilities. In both cases, theamount should be adequate for the project, and such should only be released once compliance is demonstrated bythe contractor and/or subcontractor.