The Importance of Seeking Legal Advice Before a Social Security Inspection

Karla Gómez and Juan Alberto Ayerdi, attorneys in ARIAS Guatemala and experts in Labor Law, share the following article:

The Guatemalan Social Security Institute (-IGSS- by its acronym in Spanish) is the institution responsible for guaranteeing access to social security for all inhabitants of Guatemala, in accordance with Article 100 of the Political Constitution of the Republic.

The social security system is primarily financed by monetary contributions that employers and workers are obligated to pay, according to the proportional quotas established for each1. Consequently, the social security is authorized by law and the regulations issued by its own Board of Directors to determine, audit, and demand payment of quotas that have been unpaid, partially paid, or, in its opinion, incorrectly paid, by each of the obligated parties.

Employers, based on Article 61 subsection (f) of the Labor Code, are obligated to allow and cooperate with inspections carried out by labor authorities, including social security. It is important to note that while both workers and employers are obligated parties, the latter have the duty to withhold the percentage of their workers' salaries and deliver it to the IGSS along with the employer's quota. This is because, even though contributions to the social security system consist of two different components (the worker's quota and the employer's quota), it is the employer's responsibility to remit these together.

It is common for social security to monitor that employers and affiliates comply with the payment of contributions to the social security system through visits to workplaces, regardless of their nature, and by reviewing accounting books, salaries, payrolls, payment receipts, and any other labor-related documents. This can be done either through an inspection initiated by the social security or based on a complaint filed by a worker, which, incidentally, can be anonymous.2

Social security may require employers to present labor and accounting documentation such as internal monthly payrolls, IGSS payment payrolls, salary books, accounting books, and payment receipts, among others. If the employer fails to present this documentation, it will not be able to demonstrate that the employee and employer made contributions correctly. Consequently, this puts the employer at risk of the social security performing an incorrect assessment and issuing one or more charge notes for unpaid contributions to the IGSS.

From the moment the social security inspector arrives, the employer must cooperate by providing all the requested documentation, considering the recommendations mentioned later. Additionally, the employer must carefully verify that the report or record drafted at the end of the inspection clearly and precisely reflects the findings obtained during the inspection, avoiding any inaccuracies, falsehoods, or biases. This is crucial because the reports and records are considered fully valid unless proven otherwise.3 

Employers need to consider the following recommendations from the start of an inspection, along with other circumstances specific to each case:

1. Employers should have proper legal counsel from the moment the inspector arrives. This is crucial for preparing a defense and providing appropriate evidence both during the inspection and when challenging any charge notes issued.
2. Employers must understand that the labor contributions deducted from employees’ salaries but not paid to the social security are not subject to a statute of limitations.4 Furthermore, failing to remit these deducted contributions to the IGSS can result in criminal liability for the employer.5
3. When reviewing accounting books and labor documents, employers must ensure they have the necessary physical and digital support, as well as the corresponding accreditations and authorizations from government authorities.

Moreover, it is important to note that the social security typically relies not only on accounting books and labor documents to audit the compliance of contributions. Since the IGSS joined the Inter-Institutional Framework Agreement for Cooperation and Information Exchange among the Ministry of Labor, the Ministry of Economy, and the Superintendence of Tax Administration, it also cross-references information between the Annual Income Tax Return and the contributions made to the social security by the employer. This comparison helps determine if the contributions were made correctly using the actual salaries earned by the employees.6

The initial inspection is the best opportunity for the employer to present and explain to the inspector the documents being reviewed and the reasons behind the way social security contributions were made. It is crucial at this moment not to withhold any explanations or comments that might help the inspector understand the documentation being examined. Therefore, when the inspector arrives, the best strategy is to ensure that knowledgeable personnel regarding the requested accounting documentation and the appropriate advisors are present.

If, upon completing the inspection, the social security deems it has sufficient evidence, it may issue a Charge Note to the employer. This note may specify one of the following circumstances:

1. The employer did not fulfill the total payment of the labor and/or employer quota for a specific period.
2. Declaration of non-affiliation.
3. The employer did not consider the actual salary of its employees when making the contribution.
   

The latter becomes particularly relevant when the payment scheme to employees includes a Productivity Incentive Bonus component according to Decree 78-89 and its amendments, provided that such payment exceeds the legal minimum of Q250.00 per month. In such cases, it is essential for the employer to have appropriate supporting documentation to substantiate the nature of these payments, which are not subject to social security contributions.

Once the employer is notified of the Charge Note and payment demand, the procedure for collection of contributions begins. It's essential to challenge this demand within the corresponding timeframe with the appropriate arguments relevant to the specific case. Otherwise, the collection becomes final, empowering the social security to initiate administrative and/or legal actions to enforce the payment of the determined amount.

Finally, although it is true that after exhausting administrative remedies, there is the possibility to submit the final resolution of the social security collection to judicial review to determine the legality of acts and resolutions of the public administration, the arguments presented by the employer during the administrative phase can either decrease or increase the likelihood of success in the judicial process. Additionally, certain defenses, if not raised during the administrative stage, may not be usable later.7

The ARIAS team consists of professionals with extensive experience in providing labor and social security advice to large, small, and medium-sized enterprises. They will gladly assist you with proper planning and legal analysis to determine the corresponding obligations under the social security system and define an appropriate defense strategy if necessary.

Bibliography:

1. The employer is obligated to pay the 10.67% calculated on the monthly amount of the ordinary and extraordinary salary of their workers. Additionally, the employer must deduct 4.83% from the ordinary and extraordinary monthly salary of their workers to remit to Social Security.

2. Refer to Article 18 of Agreement Number 1421 of the Board of Directors of the Guatemalan Social Security Institute.

3. Refer to Article 50, subsection (f) of the Organic Law of the Guatemalan Social Security Institute.

4. In accordance with Article 1 of Decree Law 48-83, the obligations of employers regarding the payment of employer contributions, surcharges, and adjustments become statute-barred after a period of 6 years.

5. Refer to Article 272 of the Penal Code (Decree No. 17-73 and its amendments).

6. Refer to: https://www.igssgt.org/wpcontent/uploads/ley_acceso_info/pdf/pdf2013/inciso6/convenio_intercambio_info_interinstituc2013.pdf

7. Refer to Article 118 of the Law of Amparo, Habeas Corpus, and Constitutionality (Decree 1-86 and its amendments by the National Constituent Assembly).