Promotion and Protection of Registered Employment

1.    Employment regularization upon the provisions of Law No 26,476. General aspects

On December 24, 2008 Law No 26,476 was published in the Official Bulletin. It is known as the Tax Regularization Law (“Ley de Regularización Impositiva” - hereinafter “LRI”) which establishes – among other topics –[1] a regime aimed to regularize unregistered labor relations, by applying exemptions and debt releases for amounts calculated according to the number of regularized employees.

In general terms, the LRI establishes that – disregarding the number of regularized employees – the regularization of the labor relationships releases the employees from paying the penalties and fines, of any nature whatsoever, as established by Laws Nos 11,683; 17,250; 22,161; 24,769; 25,212; 25,191 and 22,250.

It also states that the regularization of labor relationships might create an additional benefit by reducing the employers’ contributions to the social security system.

Additionally, the LRI makes a differentiation of benefits based on the amount of regularized employees.

a)    Employment regularization of up to ten employees

For the first ten employees included in the regularization system, the employer will be released from paying the debt, including principal and interests, originated by the non payment of contributions to the social security system up to November 2008. It is worth mentioning that the subsystems contained in the Uniform Social Security System are included in the mentioned debt release.

The rule also establishes that the regularization implies the release of principal and interests debt for any payments due to the Union on account of ordinary and extraordinary quotes of employees members of the Union and also the charity contributions agreed in the Collective Labor Contracts.

Besides, the law establishes that payments received by the regularized worker, as per the employment contract, shall not be considered either as net profits or sales for the determination of the employers’ income tax and VAT. Therefore, the compensation received by the workers up to the regularization date, shall be considered as not imposed by the Income Tax and VAT.

b)    Employment regularization as from employee number eleven

As from employee number eleven the regularization of the contributions mentioned above should be made for these employees only, for the periods accrued up to November 2008, that month included. This regularization of contributions includes principal and interests to the Uniform Social Security System, with the exception of the contributions made to the Workers’ Compensation Law No 24,557. These obligations may be financed and paid in installments.

It is important to mention that in order to implement the employment regularization established in points a) and b) above, the employee shall first register the employees who has worked for longest, where they have worked for equally long periods, the company should register the employees with lower wages first.

2.    Regularization method

Until the Tax Authority adjusts “Su Declaración” [On Line Declaration] and modifies the “Tabla Códigos de Modalidad de Contratación” [Code Table for Employment Contract Method], the method shall be the following:

(i)           Register the employees in “Mi simplicación” [My simplication] pursuant to the codes listed in the Annex to the General Resolution No 2536.

(ii)          Submit the original - and rectified, if any - declarations for the fiscal periods to be regularized to determine and nominate the fiscal obligations due to the Social Security System.

(iii)          Include the regularized employees in the declarations corresponding to the period accrued in December 2008 and following months.

(iv)         Register the employees in the book pursuant to Section 52 of Law No 20,744.

It is worth mentioning that employees can be regularized under this regime up to one hundred and eighty days after the LRI regulation has been published in the Official Bulletin (02.02.09).

3.    Conditions to continue to be entitled to the benefits granted by the LRI

As far as the number of registered employees during two years after the completion of the benefit regime established by the LRI does not decrease, employers will continue to be entitled to the benefits granted by the LRI.

In the case of the benefits granted for the regularization of employment contracts, the two year term obligation should be counted as from August 31, 2009.

For the benefit of contribution reductions, the two year term obligation should be counted as from February 2, 2010.

It should be noted that in order to verify that the registered employees continue in the payroll during the established period, each monthly declaration shall be compared with the November 2008 payroll, including those employees working in that period and who were registered afterwards, pursuant to the regularization process.

Additionally, the LRI regulation establishes that in case that the employer reduces the number of employees registered in its payroll, it shall have ninety days to hire new employees. In case the employer does not comply with this provision within the mentioned term, the company shall cease to enjoy the benefits granted by the system.

To be sure, Section 73 of the General Resolution No 2,537 establishes that: “The loss of the benefits (...) shall constitute sufficient ground to demand the full compliance with the otherwise released obligations (...)”.

That is to say that one of the principal risks that this regulation involves is that the rule demands that the employer should maintain the registered employees for an extended period and if it reduces its payroll, it will be forced to pay the otherwise released obligations to the social security system, plus interests and fines.