SOCIAL SECURITY PREMIUMS

SOCIAL SECURITY PREMIUMS PAYABLE BY CONTRACTORS DayaRahyaft Audit & Management Services Firm www.dayarahyaft.com

Social Security Organization has just made a revision of its regulations and circulars concerning contractors and consultant engineerings works by making certain additions and deletions in the relevant regulations. The new edition contains the circulars that are being used most in dealing with contractors issues, while old contracts shall remain subject to the circulars in force at the time of signature of the said contracts. This issue of LIS contains a translation of the selected circulars of the Social Security Organization. 1

SOCIAL SECURITY PREMIUMS PAYABLE BY CONTRACTORS Social security premium is a percentage of the contract price: 7.7% in respect of works where materials required in the work will be supplied by the contractors and 16.68% in respect of works without materials and machinery (please see LIS dated August 28, 2002 Page 19). The above premiums have been determined by the Social Security High Council on the basis of the authorization given to the said Council under Article 38 of the Social Security Act. The said Article provides that in case of those professions that the accuracy of payroll lists cannot be easily verified by the inspectors of the Social Security Organization, a percentage of the value of the work will be fixed as social security premium by the Social Security High Council. In contract works where the workers change rapidly, the above coefficients apply. On a construction site the workers hired to do excavation will soon be replaced by mould and re-bar and concrete workers and these, in turn will be substituted with yet masonry workers. All these replacements may happen in a short period of time and social security inspectors may thus be unable to check the accuracy and correctness of the payroll lists submitted by a contractor. It has been translated already a large number of the circular letters issued by Social Security Organization and published them through Legal Information Service in the past. We provide you in this issue of LIS, the up-dated version of SSO circulars that are currently in force.. 2

DECREE ON INSURANCE PREMIUMS PAYABLE BY CONTRACTORS AND CONSULTING ENGINEERS RATIFIED ON APRIL 13, 1991 BY THE SOCIAL SECURITY HIGH COUNCIL In accordance with Article 41 of the Social Security Act, the insurance premium subject of Article 28 of the said Act regarding employees working for contractors and consulting engineers is hereby determined as follows: Article 1. Social security insurance premium for employees engaged and put to work in the following types of contracts is determined and shall be collectable on the basis of fifteen percent (15%) of the contracts' total gross value: All contracts for execution of which all materials to be consumed shall be supplied and provided by the Employer (client). All contracts whose subject is the provision of services, be it installation, technical, consultation, training, design, drawing, surveying, supervision, accounting, auditing, cleaning services, etc. in which there will be no need for materials to perform the delegated task being the subject of the contract. Note- In cleaning contracts, cleaning agents shall be considered as materials. Article 2. The Insurance premium for employees engaged through other types of contracts shall be collectable on the basis of 7% (seven percent) of a contract's total gross value. Note- The price of equipment purchased by the Contractor from abroad through opening a letter of credit, shall not be subject to deduction of insurance premium. Article 3. In cases where part of the materials shall be supplied by the Contractor and the other part will be supplied by the Employer, the price of all materials to be provided by the Contractor shall be added to the contract's total gross value and then the provisions of article 2 (above) shall be applied. 3

If the Employer, refrains from mentioning the value of such materials, the insurance premium shall be collectable on the basis of 15% (fifteen percent), in accordance with the provisions of Article 1 above. Article 4. In cases where the contract works are limited to providing services carried out in both mechanical and manual forms, the provisions of Article 1 above and if the work is expressly mechanical, the provisions of Article 2 above shall be applied. Article 5. In all the above cases, if the insurance premium actually paid, according to the lists submitted by the Contractor, will be higher, the amount paid according to the lists shall be the Contractor's premium due for payment. Article 6. The contracts pertaining to development plans which are subject of Decree No.129 and 143 of the Social Security High Council as well as the contracts which come under the said decrees shall be exempt from these provisions and remain governed by the relevant regulations. Note- The fixed insurance premium rates for contractors and consulting engineers which enter into contracts with the Islamic Revolution's Housing Foundation shall be one percent less than the percentages stated in Articles 1 and 2 above. However, they must also observe the provisions of Decrees No.129 and 143 of the social security supreme council regarding submission of their payroll lists and payment of their due insurance premiums. Article 7. The contracts concluded prior to the approval of this decree shall not require to observe these new regulations and shall be governed by regulations which were in force before. Article 8. In cases where there are any ambiguities, the expert opinion of the Income Department of SSO shall serve as the criteria for further proceedings to be followed. 4

ON RELEASE OF CLEARANCE CERTIFICATE FOR CONTRACTORS AND CONSULTANT ENGINEERS Circular No.1043 issued on June 23, 2003 Please note the following pursuant to Circulars 14 and 14.1 issued by Social Security Organization s (SSO) Income Department: 1. As regards the contracts falling under the provisions of Article 38 of the Social Security Act, for which SSO clearance certificate may only be issued by inspection of the statutory accounts books but such inspection shall not be possible to be made within a short period, the clearance certificate may be released in case the contractor shall not be in default for submission of payroll lists and shall not have any debts to the SSO and the accounts books may be inspected at a later date. However, in case no books shall be submitted to inspectors upon their call to the office of the contractor in due time, then action may be taken in accordance with Circular No.14 of the SSO Income Department. 2. considering that the SSO premium has been fixed to be 7% of the contract value according to a decision of the Social Security High Council dated April 12, 1991 in respect of contracts carried out by means of mechanical equipment, therefore consultant engineers contracts shall be subject to collection of a premium of 15% except those parts of the contract that have been carried out by mechanical equipment to be confirmed by the employer by giving details of the equipment used. 3. As regards the works carried out under the contracts concluded with natural persons, that portion of the work carried out personally by the contractor shall be subject to payment of SSO premium applying to wages and the balance shall be subject to collection of premium according to the applicable co-efficient. The amount of contractor s wages shall be determined by SSO Income Department in accordance with the provisions of Article 8 of the Resolution dated April 12, 1991 of the Social Security High Council. 5

4. In the case of those auditing contracts concluded with a member of the board of directors or the managing director of a firm of accountants and auditors, if the contract price shall be paid to the firm and registered in the accounts books of the firm, SSO shall deem the work to have been carried out by the personnel of the firm and SSO clearance certificate shall be issued by inspection of the said books according to Sub-clause f of Circular No.14 of SSO Income Department, in compliance with the provisions of Sub-clause 1 above. 5. With due regard to Article 8 and the provisions of Sub-clause 2 of Article 1 of the a bove said Resolution of the Social Security High Council in respect of cleaning works of office, commercial, hospital and educational buildings and maintenance of the installations and landscapes of the said buildings, it should be noted that a part of the remuneration for the above works shall be on account of the equipment used in cleaning. Therefore, 25% of the contract value shall be treated as mechnical, while 75% will be treated as money paid on account of manual work. The SSO premium shall thus be calculated according to the provisions of Sub-clause 3.5, Chapter II of Circluar No.14 of the SSO Income Department. 6. Should, in non-development projects, the employer and the contractor concerned agree that SSO premium shall be deducted from the value of progress statements of the contractor and paid to the SSO, action shall be taken according to Sub-clause g, Part 3 of Chapter II of Circular No.14 of SSO Income Department. In the said cases, if the employer shall fail to deduct the applicable sums or pay the said deducted sums to the account of the SSO in due time, the contractor shall be held liable for payment of the principal amount as well as penalties accruing thereon. The contractor shall thus be compelled to pay the above sums directly to the SSO. SSO general managers and income departments shall be in charge of good implementation of the above provisions. M. H. Sharif zadegan - Chairman and M. D. of the SSO (Sgd.) 6

Social Security Organization (SSO) Circular No. 14 of the Income Department of SSO Date: 28 July, 2001 Subject: Instruction on Determining the Insurance Premiums of Contract works and Consulting Engineers Contracts (The manner of calculation, collection and Issuance of clearance certificate) To: SSO Dept. General of. Province SSO Branch/Representative Office With Greetings, Introduction: Upon establishment of Social Security Organization in 1954, the workers employed in contracting activities, were among the first groups covered by insurance law. At various times, several circular letters and instructions have been issued on the manner of calculation and collection of insurance premiums of those personnel employed in contract works, some of which have been applicable only for a fixed period of time and some have had a high degree of enforceability. Thus, all the circulars and instructions issued on contracting activities have been reviewed with respect to the laws, regulations and approvals of the Social Security High Council and after omitting the superfluities, all the circulars and instructions issued previously are being hereby substituted in this present circular letter. Chapter 1- Legal Requirements 1- Article 38, Social Security Act In cases where execution of a work is assigned to natural persons or legal entities by contract, the employer must, in the contract which he enters into with the contractor, obligate the contractor to insure his own employees as well as the employees of the sub-contractors with the SSO and to pay the total premium in the manner provided for by Article 28 of this Act. Payment of 5 per cent of the total price payable to the contractor concerned by the employer shall be contingent upon presentation of clearance 7

certificate issued by the SSO. In case of contractors who, within the prescribed time, submit the payroll sheets of their employees and pay their insurance premium to the SSO, an amount equivalent to the premium paid shall be released, on the request of the SSO, from the said amount. Where an employer pays the last installment due to the contractor without demanding from the contractor a clearance certificate issued by the SSO, the employer shall be held liable for paying the prescribed premium and the applicable compensation for losses. However, the employer may demand and collect the sums paid in this respect to the SSO from the contractor. All ministries, government organizations and companies as well as municipalities, chambers of guilds, non-government organizations and charitable and public utility organizations shall be covered by the provisions of this Article. The Note annexed to Article 38 of the Social Security Act at a session held on 16 May, 1993 of the Islamic Consultative Assembly: All employers being subject of Article 38 of the Social Security Act as well as Article 29 of the defunct Social Insurance Act, shall be under the obligation to report to SSO the names and particulars of all their contractors and consultants who, after one year from the date of completion of their work or any termination, suspension or cancellation of their contract have not yet proceeded to pay the insurance premium due on their contract and obtain SSO clearance certificate. Employers shall likewise pay to SSO the amount of 5% of the total contract value and the last installment due to contractors which have been deducted from the amounts payable to the said contractors and consultants pending submission of SSO clearance certificate. The amount of the insurance premium shall be notified by SSO after finalization in accordance with the Social Security Act and on the basis of a judgement to be issued by the appellate board set forth under Article 44 of this Act. The respite provided for clients to pay the requested sum shall be a maximum of 25 days. 2- Article 41 of the Social Security Act In cases where the type of work necessitates, the SSO may, on the proposal given by the Board and approval of the High Council, determine the ratio 8

of the wages vis-à-vis the value of the total work performed and demand and collect the pertinent premium at the same ratio. Chapter 2- Classification of Contracts Contracts mentioned in Article 38 of the Social Security Act are divided into three categories as regards the calculation of insurance premium as follows: Chapter 1- Contracts subject to regulations of development projects. Chapter 2- Non-development contracts Chapter 3- Special cases in non-development contracts Chapter 1- Contracts subject to regulations of development projects: A- Necessary conditions According to Decrees No. 129 and 143 of High Council of Social Security (Addendum No. 1), those contracts shall be deemed as subject to regulations of development projects which hold the two following conditions at the same time: 1- The contract has been made on the basis of the unit prices given by the Plan and Budget Organization (contract works agreements) or in accordance with the basic contractual regulations of the PBO (consultancy agreements), and 2- The budget of the operations has been secured wholly or in part out of the government s development credits (national, regional and provincial development credits). B- The Manner of Calculation of Insurance Premium of Contracts on Development Projects The basis for calculation of insurance premium of all contracts subject to regulations of development projects, on the basis of Decrees No. 129 and 143 of the Social Security High Council has been as follows since 7 July, 1984: 9

1- SSO Insurance Premium of consulting contracts is fixed at 14 per cent of gross turnover plus 1/6 per cent as unemployment premium totaling to 15/6 per cent of gross turnover. (contractor s share 3/6 per cent and employer s share 12 per cent). 2- Social Security Premium of contract work agreements is fixed at 6 per cent of gross turnover plus 0.6 per cent as unemployment premium totaling to 6/6 per cent of gross turnover. (1/6 per cent as contractor s share and 5 per cent as employer s share). Note- Premium of all consulting contracts which have been terminated before 7 July, 1984 as well as the statements related to the period prior to the said date of contracts commenced before 7 July, 1984 and terminated afterwards, shall be computed by auditing the statutory accounts books and with regard to contract work agreements it shall be computed on the basis of 3/2 per cent. Note 1- Unemployment premium as of 28 July, 1990 shall be calculated as mentioned in Clauses 1 and 2 above. Note 2- According to Decree No. 4409 dated 9 Aug., 1987 of the Social Security High Council, in cases where a contractor who carries out a contract being a development project, shall assign to a sub-contractor, the execution of part of the works under the contract, and the premium of the main contract will be paid, no premium shall be collected in respect of the subcontract. Note 3- According to the written opinion of the Technical Bureau of the Management and Planning Organization (Former Plan and Budget Organization) all the contracts entered into for the purpose of executing construction projects with a maximum infrastructure of 2000 Sq.m. in accordance with Circular No. 102/2700/53/2000 dated Aug., 1996, shall be deemed as those made on the basis of the unit prices of the Plan and Budget Organization. Therefore, if budget of the said contracts are secured out of the credits of development projects, they shall be subject to Decrees No. 129 and 143 of the Social Security High Council and the pertinent 10

premium and unemployment insurance shall be calculated on the basis of 6 per cent and 0/6 per cent respectively. Note 4- In accordance with Circular No. 1-6772-54/2800 dated 19 Sept., 1985 of the Plan and Budget Organization, in cases where a contract of a development project which has been entered into through bidding and where the price proposed by the contractor shall be 10 per cent higher than the bid price, if such contracts hold a license issued by High Technical Council of Management and Planning Organization, they shall be subject to regulations of development projects and Decrees No. 129 and 143 of the Social Security High Council. However, if these contracts lack a license of High Technical Council of the PBO/MPO, they shall not be subject to the regulations of development projects in respect of determining the premium but shall be subject to the regulations mentioned in Chapter 3 of the present Instruction. C- Special Authorizations Regarding the contract works and consultancy agreements of development projects belonging to Defense Industry Organization, contracts of leveling and preparing the lands of Ministry of Housing and Urban Planning, construction contracts of Iran Telecommunication Company and those belonging to the Ministry of Defense and Logistics of Armed Forces as well as the contracts of Social Security Organization concluded with contractors (regardless of how the funds of projects are provided), if such contracts have been entered into on the basis of unit prices and regulations of Plan and Budget Organization plus a maximum 9/9 per cent, they shall be subject to Decrees No. 129 and 143 of the Social Security High Council. Chapter 2- Contracts of Non-development Projects A-Those Subject to These Regulations All the contracts lacking the conditions mentioned in the Chapter on development projects, shall be deemed as contracts of non-development projects and the premiums of such contracts shall be calculated and collected in accordance with the regulations and approvals made by the Social Security High Council as mentioned below: 11

B- Manner of Calculating the Insurance Premium By taking into consideration the decrees of the Social Security High Council, the manner of calculating the insurance premiums payable under contracts mentioned above, shall be as follows: 1- Contracts concluded before 23 Sept., 1986 Regarding the above-mentioned contracts, since almost all such contracts have come to an end at present time, there is no need to explain in this regard furthermore but the table of the relevant coefficients will be attached for possible use (addendum No. 3) The manner of computing the insurance premium of the said contracts are as follows: (27% wage coefficient of the specific contract total gross turnover = contract s premium 2- Contracts concluded During 23 Sept., 1986 to 12 April, 1991 Wage coefficients of contracts concluded during 23 Sept., 1986 to 12 April, 1991, have been specified in chapter 6, with respect to the type of work and it could be referred to if needed. The manner of computing the insurance premium of the said contracts are as follows: (%27 coefficient of the specific contract total gross turnover = contract s premium 3- Contracts concluded after 13 April, 1991 In accordance with the Decrees made on 13 April, 1991 and 28 Nov., 1994 (addenda No. 4 and 5) by the Social Security High Council, some similar wage coefficients have been determined in respect of both development projects and non-development projects. Such ruling has much facilitated the collection of premium and issuance of clearance certificate. On the basis of a decree passed on 13 April, 1991, the insurance premiums payable for contract works and consulting engineers agreements, as regards the obligations undertaken by the parties and the manner of executing the work, shall be calculated in the following manner after the above date: 12

3-1 The insurance Premium of those contracts for the execution of which, the contractor concerned undertakes to supply and purchase, at his own expense, the whole required materials or the required computers and business machines in respect of which the works are required to be carried out by machines, shall be 7% of the total gross turnover (subject of Article 2 of the Decree dated 13 April, 1991) (7% total gross turnover = insurance premium) + (one ninth (1/9) original premium = unemployment insurance) 3-2 The insurance premium in respect of manual works and service agreements which require to be carried out by hiring personnel shall be 15 per cent of total gross turnover. (15% total gross value of work = insurance premium) + (one ninth(1/9) original premium = unemployment insurance) 3-3 In cases where supply of a part of materials has been undertaken and purchased by the contractor, at his own expense, and a part of which is undertaken by the client who assigned the works, the value of materials put at the disposal of the contractor shall be added to the total gross turnover and then the premium is calculated in accordance with Clause 3-1. 3-4 Price of equipment imported from outside the country and purchased by the contractors through opening letters of credit, are not subject to deduction of premium. Also, price of exclusive and special materials, elevators and installations, machinery and steel (in steel structure works) the provision of which are the responsibility of clients, fabrics in contracts of sewing, asphalt in contracts of road making and asphalt works, moqe, floor covering and cabinets in cases where they are supplied by the employer and delivered to the contractor free of charge, shall not be deemed as assigning materials and their prices shall not be added to the total turnover. 3-5 In cases where the subject of contract is offering services and the type of work requires that a part of work shall be carried out mechanically (with mechanical tools and machinery belonging to the contractor) and a part be carried out manually, the premium of the part (per cent) done mechanically shall be computed on the basis of 7% and the percentage of the works done manually on the basis of 15%. 13

Note: Should the mechanical tools and equipment be supplied by the client and given to the contractor without receiving any fee, with regard to the fact that work is done on wage basis, the pertinent premium shall be computed in accordance with Article 1 of the Decree dated 13 April, 1991 i.e. on the basis of 15%. 3-6 According to Note 6 of the Decree dated 13 April, 1991, the insurance premiums payable by the contractors and consultant engineers who are parties to the contracts entered into with Housing Foundation of Islamic Revolution, shall be 1% less than the amounts mentioned in Articles 1 and 2 of the said Decree i.e. 14% and 6% shall be considered as the insurance premium plus 1/9 of it as unemployment premium. 3-7 In cases where the supply, design and purchase of equipment will be carried out outside Iran and paid for by letters of credit and only the assembly works will be rendered in Iran, if the project operations include assembly works and construction works and other relevant operations under the condition that all required materials shall be procured by the contractor, the insurance premium shall be calculated on the basis of 7% of the turnover for works inside Iran, and if the project operations are limited only to installation of equipment, with a view to the manner of executing the work (mechanical or non-mechanical and/or both mechanical and manually), the relevant premium shall be computed, as the case may be, according to Articles 1 and 2 of the Decree dated 13 April, 1991 as mentioned above. 3-8 In cases where the main contractor assigns, through a contract, a part of project operations to sub-contractors, the insurance premium of the subcontractors shall also be computed and collected with respect to the parties obligations set forth under the contract according to the regulations. At the time of computing the premium of main contractor, an amount equivalent to the total turnover of sub-contractor shall be deduced from the total turnover of main contractor. 3-9 All foundations, organizations and ministries whose personnel are protected by a statutory scheme other than that provided in the Social Security Act, which may carry out a contract work by entering into an agreement with other institutions, ministries and organizations shall be 14

exempt from SSO regulations in respect of their workers if the employer organization, shall confirm in writing that the work subject of the contract was executed by the permanent personnel of the contractor organization who are covered by special protective schemes. It should be noted, however, that such contractors shall be under the obligation to submit to the SSO the payroll sheets of all the personnel receiving wage on daily basis as well as their provisional staff employed for the execution of that contract and pay the respective insurance premium. Issuance of clearance certificate shall be contingent upon paying the premium of the said personnel. Clients of such works are required, however, to observe Article 38 of the Social Security Act in respect of this group of workers. 3-10 In all cases where the actual insurance premium of non-development projects as documented by the payroll sheets presented by the contractor shows an amount more than the premium prescribed in accordance with the Decree passed on 13 April, 1991 by the Social Security High Council, the basis for computing the premium shall be the payroll submitted by the contractor. 3-11 In case of the contracts whose turnover are wholly or partly payable in foreign currency, the value of foreign currency set forth in the contract, shall be converted into rial to be used as the basis for calculation of the insurance premium. Chapter 3- Special Cases in contracts on non-development projects A- Contractors having manufacturing, industrial and technical workshops (fabrication) By virtue of the Decree dated 28 Nov., 1994 of the Social Security High Council, the manner of calculating the insurance premium payable by contractors possessing industrial, technical and manufacturing workshops in order to carry out the works under a contract in the said workshops, shall be as follows. It should be noted that such contracts shall be verified by the Social Security Branch Office where the contractor s workshop is located 15

and the clearance certificate of each contract shall also be issued separately by the same SSO branch office): 1- Legal Entities In case of the contractors being legal entities maintaining statutory accounts books and vouchers acceptable to the SSO, the issuance of clearance certificate shall be permissible after collection of the premium and pursuant to a report to be made after verification of the said accounts books. SSO branches shall be under the obligation to give a priority to investigating the statutory books of the said contractors. Should these contractors need a clearance certificate prior to the investigation, issuance of such certificate shall be permissible upon compliance with the following requirements: 1-1 The contractor, according to the contents of claim records related to workshops and head offices, must owe no final debts or must pay his debts and submit a letter of undertaking to the effect that he has maintained statutory accounts books, and shall present same to the SSO and pay his insurance premium in compliance with the said statutory accounts books under the authorized signature and seal of the legal entity concerned. 1-2 In cases where a contractor, according to the contents of the files related to the debts of his workshops and head office, owes a final debt to the SSO but cannot afford to pay it in a lump-sum (in cash), if he pays the contract premium according to Decree dated 13 April 1991, and also submits a letter of undertaking mentioned in Clause 1 and pays the balance of his debt by installments, issuance of clearance certificate for the contract shall be permissible. 1-3 Where a contractor does not keep accounts books or in case the submitted statutory books are not confirmed by the SSO or the contractor refrains from submitting his books to the SSO, the premium should be calculated in accordance with Decree dated 13 April 1991 in compliance with Article 102 of the Social Security Act. In such cases, if the contractor has paid the due premium for the personnel working in his manufacturing, technical and industrial workshop during the contract period, the paid 16

amount shall be deducted from the computed premium of the contract and the remaining balance shall be collected. 2- Natural Persons 2-1 In case of contractors possessing manufacturing, industrial and technical workshops which during the period of execution of a contract, have a claim record with a branch office of the SSO and submit the payroll lists of their workers working in the workshop to the SSO and/or the workshop has been inspected by the SSO, if the debts in respect of the workshops shall be fully paid, issuance of a clearance certificate for the contract shall be permissible. 2-2 In cases where a contractor cannot afford to pay in cash, his debt, as recorded in the claim record, if he pays the contract s insurance premium in accordance with Decree dated 13, April 1991 and shall further arrange to pay the balance of his debt through installments, issuance of a clearance certificate shall be permissible. 2-3 Where a contractor has no claim record in a branch office of the SSO or there exists no record of inspection and the contractor shall not submit the payroll list during the term of the contract, the insurance premium of his contract should be calculated and collected in accordance with the Decree dated 13 April,1991. B- Buy and Sale Contracts 1- Contracts on buying and selling commodities, materials and equipment without any need to perform any work and the contract is solely limited to buying or selling, shall not be subject to deduction of insurance premium and issuance of a clearance certificate without collecting any premium in respect of such contracts shall be permissible. Also, as regards the contracts on hiring various types of machinery and automobiles, if the vehicles will be hired without drivers, this clause shall be applicable. 2- In cases where a contractor (whether natural person or legal entity) possessing a manufacturing, industrial or technical workshop, proceeds with executing a contract of fabrication or sale (where the fabrication is carried out in his workshop) together with transportation and assembly 17

works, no premium shall be due by him in respect of fabrication according to Clause A and likewise no premium need to be paid in respect of sale. Regarding the transportation and assembly works the Decree dated 13 April, 1991 shall be applied. Further, should clients assigning the works, do not determine the extent of remuneration in respect of transportation and installation, the premium shall be computed in respect of the whole turnover whether construction or sale, transportation and installation in accordance with the said Decree. C- Gas Piping Contracts In contracts of gas piping concluded between National Iranian Gas Company and contractors, the pipes and joints, warning yellow stripes, insulation materials and special electrodes used in gas piping operations will be delivered to contractors by NIGC as exclusive materials. Therefore, the premium of such contracts must be computed as follows with respect to the type of work: 1- The premium of the contracts related to gas networks shall generally be computed in accordance with Article 2 of the Decree dated 13 April, 1991 at 7%. 2- Contracts for installation of gas connections are generally deemed as service work. With regard to the use of machinery and welding devices and in some cases compressors and drilling tools, they are subject to Article 4 of Decree dated 13 April, 1991, e.g. they are considered 70% mechanical work with the relevant premium being 7% and 30% nonmechanical work with their insurance premium being 15%. 3- Regarding the Contracts for installing regulators, if the relevant contract has been concluded separately and independent from installing the gas connections, with respect to the type of work, they shall generally be deemed as service and non-mechanical work and the relevant premium shall be computed in accordance with Article 1 of the Decree dated 13 April, 1991 at 5%. Should the installation of both the regulator and connection mains be included in one contract, Clause 2 shall apply. 18

D- Contracts on Urban Services and Preserving Greeneries In these contracts, 70% of the gross value, shall be considered as mechanical work turnover and the relevant premium is computed at 7% and 30% of gross value shall be deemed as non-mechanical work turnover and its premium is computed and collected at 15%. E- Contracts on Design and manufacture of Software and Offering Computer Services Regarding the contracts the subject of which is preparation and installation of software (computer), design and manufacture of different operational and information systems and also software and hardware support as well as repair and maintenance of the same systems, if the relevant contractor is a legal entity, the provisions of Clause A of this Section shall apply. F- Contracts on Auditing - study and Research : By taking into consideration Decree No. 1100/4112 passed on 23 June, 1999 by the SSO Board of Directors, computation of premium related to study, research and auditing contracts shall be carried out in the following manner: 1- In cases where the study and research contract is concluded with universities, scientific centers and/or affiliated institutions, if the said university or centers are affiliated to the ministries and owe no debt to the SSO according to the record kept with the SSO and/or if their personnel are not subject to Social Security Act, a clearance certificate may be issued without computing and collecting any sum as the contract premium. 2- In cases where the study and research institutions affiliated to universities or other scientific-governmental centers shall be independent legal entities and also where the study and research institutions of private sector keeping legal books, put the said books at the disposal of the SSO to be audited, the said books shall be used as the basis of calculating and collection of the premium of contracts entered into. Accordingly, if based on the statutory accounts books, no debt is revealed, issuance of the relevant clearance certificate shall be permissible. 19

3- Regarding legal entities without statutory accounts books, with respect to the use of computer, software, etc. for accomplishing research contracts, the said contracts are generally considered as mechanical and the relevant premium shall be computed and collected in accordance with Article 2 of the Decree dated 13 Apr., 1991. 4- In cases where a research contract entered into with natural persons (one person or several persons collectively), will be carried out by the said persons as required by the nature of the specialized works (regardless of manpower assigned to work), since the conditions relating to Article 38 of the Social Security Act do not apply here, such contracts will be exempt from paying insurance premium and it is necessary to issue a clearance certificate for these contracts without calculating and claiming any insurance premium whatsoever in this respect. Auditing Contracts With respect to the type of activity of auditing institutes and the fact that performance of the work subject of contracts which the said institutes, conclude, are carried out by their personnel, if the said institutes submit to the SSO, the wage list as well as the receipts for payment of insurance premium of their personnel on due time, and if they keep statutory accounts books and put the said books at the disposal of the SSO for assessment of the relevant premium, a clearance certificates shall be issued after collecting the relevant premium. G- Deduction of Insurance Premium by the Employer from the work progress statements of Contractors and Payment thereof to the SSO Regarding the method of payment of the premium and submitting the wage list of personnel employed in carrying out the contracts which are not subject to the regulations on development projects of which the relevant premium is deduced from the work progress statements and/or from a contractor s or a consulting engineer s statements on fixed basis by the employer and are paid simultaneously to Social Security Organization, the contractor may, within the period of executing the contract, only prepare the wage list of his own personnel as well as those of the sub-contractors according to the regulations and without paying premium, submit the same to the SSO on due time prescribed by Article 39 of the Social Security Act 20

and the Law on collecting penalties from Employers approved on 31 July, 1994 by Islamic Consultative Assembly. Regarding such contractors, considering that the prescribed premium is deducted from work statement of the prime contractor and paid to the SSO, if these contractors have entered into contracts with sub-contractors, issuance of clearance certificate for the sub-contractors without computing the premium shall be permissible provided that the total insurance premium of all the work progress statements of the prime contractor, up to the time a sub-contractor requests the issuance of clearance certificate has been paid. If, with respect to the type of contract work, the rate (co-efficient) of premium subject of Decree dated 13 April 1991, has not been observed by the employer of work, at the time of deduction and payment of premium from the work statement or from a contractor s or consulting engineer s statements, and instead of deducting and paying the premium on the basis of 15 per cent, 7 per cent has been paid, and also in cases where the basis for paying the premium has been observed, but the premium, documented by wage lists submitted by the contractor, is more than the premium prescribed by the said Decree, the difference will be calculated and collected from the contractor and a clearance certificate for the contract shall be issued. Chapter 3- The Manner of Computing the Penalties Section 1- Penalties in respect of Submission of payrol Lists The Regulations on submitting the wage lists in respect of contracts subject to development and non-development projects are the same. They are applied as follows: 1- Submitting the payrol lists of personnel employed for executing a contract during the whole or a part of the contract period, on due time, shall be deemed as complying with Social Security Act and the Law on Collecting Cash Penalties From Employers approved on 31 July, 1994 and the relevant contractor shall not be liable to pay the fines on delays and/or on non-submission of the list. 21

1-1 The lists for the months submitted with delay, shall be subject to penalties on delays on the basis of premium of the relevant month. 1-2 No lists which are submitted with a delay more than one month and/or presented after termination of operations may be acceptable and such lists must be, generally, rejected. Example: Company A, which carries out a contract concluded with the Ministry of Roads and Transportation, has submitted, to the relevant SSO branch, the list of personnel employed in executing the said contract, related to the months of Mehr (23 Sept. to 22 Oct.) and Aban (23 Oct., to 21 Nov.). Thus, the list related to month of Aban is being submitted on due time and is not subject to fine. However, the list for the month of Mehr has been submitted with delay and is subject to fine which shall be computed in accordance with the Instruction issued on collecting fines. 2- Those contractors who refrain from submitting to the SSO, the list of personnel employed in executing a contract within the prescribed respite, shall be liable to pay fine for not submitting the list, on the basis of the premium of the contract. In such case and when computing the said premium, the relevant fine shall also be calculated and collected. Example: Company B, in executing its contract entered into with the Ministry of Education, during the contract period, refrained from submitting the wage and salary list of personnel employed in executing the said contract for 3 months. When the contract operations come to an end, the original premium due by the company (without computing the unemployment insurance), shall be computed at the rate of Rls.32,350,000 and the relevant fine shall also be computed and collected as mentioned hereunder: 2,350,000 15% = 352,500 Attention: The fine for failure in submitting the list shall be computed only once (for one year) and in case of non payment of the insurance premium, no fine shall be added for the subsequent years. 22

Section 2- Penalty for delayed payment of premiums 1- Regarding those contractors paying the premium documented by the payroll lists during the contract period and also regarding the contracts subject to regulations on development projects, the relevant premium of which during the contract period, is deducted from the work progress statements as well as from contractor s and consulting engineer s statements and paid to the SSO, if, after computing the premium in accordance with the pertinent regulations, any balance in debt remains, the contractors may, within 30 days after the notice date, pay the balance or arrange to pay the same through an agreement reached with the SSO. Otherwise, they shall be liable to pay penalty on delay. Contractors should take into consideration that delay penalties shall be calculated and collected on the basis of the total remaining debt and with respect to the percentage of fines determined in the Law on Collecting Cash Penalties. Example: In carrying out a contract concluded with the National Iranian Gas Company (N.I.G.C.), Company "C" submitted the wage list of its employees engaged in completion of the works of the said contract to the concerned social security branch in full accordance with the Decree of the Social Security High Council dated 27 June, 1998. After completion of the works, the collectable insurance premium due was calculated for the stated contract price as per the current rules and regulations and after deducting the amount already paid, the remainder came to 4,500,000 I.R. Rials (which included insurance premium and unemployment insurance) which was claimed from the said company "c", however company "c" did not pay the above mentioned amount within 30 days after being served notice regarding the mentioned debt. Therefore, the relevant penalty for late payment shall be calculated and collected as follows: 4,500,000 22% = 990,000 I.R. Rials fine for one year of late payment (If the insurance premium is still not paid, penalty for late payment during next years, shall also be calculated according to the Law on Collection of Cash Penalties). 23

2- For those contractors who fail to act according to the provisions of Clause 1 above (fail to submit any lists for their employees during the course of performing the contract works and also do not pay any insurance premiums during the course of the contract) the collectable insurance premium shall be advised to the contractor in which penalties for one year, penalties for non submission of wage list and delayed payment penalty with the relevant percentage (calculated in proportion to the total debt) shall be indicated. In such case, if the contractor still fails to make the respective payment within 30 days from being served the official notice or makes no arrangements or does not come to an agreement with the Social Security Organization regarding payment of the principal premium as well as the stated penalties (for late payment), a separate penalty for the 2 nd year shall be calculated and claimed as a proportion of the whole debt. Example: Company "D" in carrying out a contract concluded with the Ministry of Agriculture regarding the cleaning of the Employer's main office building fails to submit any wage lists or pay any portion of the collectable insurance premium due for his employees performing the contract works during the course of the contract (which lasted from 21 st March 1998 thru 22 nd October 1999) to the concerned branch of the SSO. The contract's total gross income has been stated (reported) as 1,302,600,000 rials. The penalty for late payment of the collectable insurance premium of the said contract shall be calculated as follows: (the collectable insurance premium from 21 st 03 1998 thru 22 nd 10 1999) 1,302,600,000 15% = Rls.195,390,000 (the unemployment insurance premium from 21 st 03 1998 thru 22 nd 10 1999) 195,390,000 : 9 = Rls. 21,710,000 ------------------------------ Total Rls.217,100,000 (Penalty for one year late payment) 217,100,000 22% = Rls.47,762,000 ----------------------------------------------- 24

If the said company does not pay the above sum within 30 days from the date of being served notice of its debt, the sum of 47,762,000 rials shall be added to its outstanding debt as the 2 nd year s penalty. P.S.: In all cases, if the Social Security Organization's claims are settled by paying the whole of its claims as one lump-sum payment into its account and prior to the serving of letter of execution (subject of Article 50 of the Social Security Act), 30% of the collectable penalties shall be made exempt. Chapter Four- The Duties of Employers, Contractors and the Social Security Organization In view of Article 38 of the Social Security Act, the duties of employers (clients), contractors and the SSO in connection with the Social Security Act, shall be the following: Section 1- The Duties of Employers (Clients) vis-à-vis the Social Security Organization 1. To make the contractors insure their personnel in the projects with the Social Security Organization and submit the respective wage list as well as the insurance premium to the SSO within the specified time in accordance with Articles 28 and 39 of the Act. 2. To send a copy of the respective contract to the SSO after concluding the contract. 3. To deduct 5% from the value of each statement payable to the contractor and inform the contractor that the payment of the deducted sum as well as the contractor's last installment (statement) shall only be possible after presenting the accounts settlement certificate issued by the SSO. 4. At the end of the works, to inform the SSO of the required information including the total payments made to the contractor, the exact completion date, etc. and to send the contractors to the SSO to collect the accounts settlement certificate. 25

5. In accordance with the Note to Article 38 of the Social Security Act, if the contractors fail to submit the account settlement certificate issued by the SSO to the employers within one year after the date of completion or termination of the works and the contract and the said contractors owe any sums to the SSO on account of unpaid insurance premiums pertaining to contracts, and these liabilities (debts) have not been finalized, a notice shall be served on the employers and they shall be required to pay the amount owed to the contractor to the SSO (5% of each payment they have received) plus the outstanding sum of their last installment (unpaid statement) within 25 days after the said notice is served on them. 6. If the above shall not be complied with, the employers shall be held responsible for payment of the relevant insurance premium and any other applicable sums. P.S.: In case of contracts on development projects subject of Decrees No. 129 and 143 of the Social Security High Council, in view of the agreement between the SSO and the country's Budget and Planning Organization, the payment of the whole insurance premium shall be borne by the employers on the approved basis of 6.6% and 15.6%, which must be paid into the SSO account at the time of payment of each statement or invoice issued by contractors or consulting engineers. Section 2- Duties of Contractors vis-a-vis the Social Security Organization 1. To submit a copy of the contract concluded with their employers to the Social Security branch office within the jurisdiction of which the contract's works shall be performed. 2. To submit the wage/salary list of their employees engaged in performing the contract's works (whether civil or non-civil works) in accordance with Article 39 of the Social Security Act and within the specified times to the SSO and pay the legal/collectable insurance premium in accordance with Article 28 of the Social Security Act regarding contracts for purposes other than civil works. 26