Here is the October edition and I hope it is a good way to catch up on some of the latest developments around the world.
Happy reading,
Helga
BELGIUM
Belgian government announces a decrease of labour cost by lowering the employer’s contribution to 25%
Following what is known in country as “tax shift†(a shift from taxes on labour to taxes on property and consumption in order to generate the necessary revenue to finance the proposed reduction in salary costs), the Belgian government announced a considerable decrease in the social security (SS) contributions of employers.
The national SS system is financed by both employer and employee contributions based on the employee’s gross salary; employer’s contributions for blue-collar workers are set at approximately 48% and for white-collar workers around 35% of their respective gross salaries.
The government’s proposal to lower the employer’s contribution to 25% aims to increase the competitiveness of Belgian businesses compared to those in neighbouring countries such as Germany and the Netherlands, which have relatively lower salary costs.
Even though this sounds really good news, the financial impact these measures will really have on businesses in terms of reducing the cost of labour is not clear. Employers in the private sector already benefit from significant structural reductions in social security contributions, meaning the effective rate of social security contributions is currently estimated at an average of approximately 28%. Thus, if the rate is fixed at 25% in the future, the benefits may not be as substantial as one would initially assume. What will definitely make a difference though is the fact that the lowering of the rate to 25% will probably result in simplification of the current rules as the complex system of structural reductions will most likely be repealed.
COLOMBIA
Government seeks to streamline labour law with unified decree
As Colombia aims to become a member of the Organisation for Economic Cooperation and Development (OECD), it had to consider several of the OECD’s recommendations, including one suggesting the Colombian legal system be streamlined to make it simpler and easier to understand. It is thought that the nature of the Colombian regulatory system has led to a significant loss of business opportunities and made some investors reluctant to invest in the country.
On this basis, the Colombian government issued Conpes 3816 with the aim of improving and rationalising existing standards and the results have become known as the ‘unified decrees’. One of these unified decrees concerns the labour sector. The decree collates many of the applicable rules governing employer-employee relations into a single statute. It is divided into three main sections, governing:
- collective labour law, which relates to collective bargaining and trade unions;
- individual labour law, which deals with issues such as working hours and special contracts; AND
- social security law with provisions on issues such as professional risks, unemployment protection mechanisms and tax benefits.
The decree represents a major step forward in the codification of Colombian labour law and the government hopes this will make the overall business climate more conducive to investment.
FRANCE
Compulsory medical insurance to be provided to all staff
As it is at the moment, basic social security cover in France does not refund medical expenses in full, so in an effort to provide improved health care to all salaried employees, the government has ruled that all companies employing staff in the country must provide additional medical insurance as of 1st January 2016.
Those employers already providing a medical plan will need to make sure it is compliant with the new requirements; if not it needs to be upgraded by the end of 2015. Those who do not have a plan in place yet will need to have it all set up quickly so it is effective by the provided deadline.
If the employer doesn’t have a medical plan for staff, it must be set up as soon as possible and become effective on 1 January 2016 at the latest.
In order to comply with the new law an employer needs to ensure:
- Minimum coverage to be offered by the plan (including things such as dental and optical fees, etc)
- Insurance premium cost split (with at least 50% paid by the employer)
- Mandatory enrolment (it has to be automatic and compulsory for all employees)
- Tax-compliance of the plan – avoiding the taxable benefit status
- Possible exemptions from the employees’ mandatory enrolment
- Enrolment of employees’ dependents: optional or mandatory (the employer can decide which one they want to offer)
The company’s insurer or broker should be the primary point of contact for setting up a new or upgrading an existing plan and providing a ‘decision unilatérale’ template if necessary.
ITALY
Further to the creation of a legislative decree, Italian authorities seek to incentivise taxpayers to encourage adoption of electronic invoicing
After Portugal, Italy has decided to use incentives to try and increase the number of business to business e-invoicing with the aim of simplifying administration and accounting as well as reducing reliance on paper documents.
The new decree came into force on 2nd September and as part of the initiative, a free system for the creation and use of e-invoices by VAT-registered businesses will be provided by the Revenue Agency. This system is to be rolled out by 1 July 2016.
Further incentives include exemption from submitting certain compulsory communications, priority status for e-invoicing taxpayers with regard to VAT refunds as well as simplifications in some taxable person categories with regard to VAT compliance, and the complete exemption from input and output VAT bookkeeping and conformity check.
The e-invoicing system is aimed at increasing visibility of transactions to Italian tax authorities and over time, decreasing the number of transactions that are currently ‘invisible’ for the tax office.
A transparency hike in day-to-day transactions is something that needs to be reached – not only in Italy but across the EU – to stop the VAT system from leaking.
JAPAN
Amended Dispatch law comes into force
The New Dispatch Law in Japan entered into force at the end of September despite failing to pass in previous occasions, causing much controversy and facing fierce opposition in country. The new law permits companies to fill a role with dispatch (temporary) workers on an indefinite basis, as long as the actual worker is replaced every three years. The new rule also affects what used to be recognised as the 26 specific job categories that require special skills (i.e. translation, computer programming, etc) as workers in one of these roles used to be able to fill the same position indefinitely. Under the new law, these workers too will have to change jobs every three years.
Critics claim the amendments will lead to higher job insecurity and just benefit companies that will potentially rely more and more on temporary staff. The government believes that the provisions in the legislation requiring a dispatch (staffing) agency to ask their client companies to hire the temporary worker on a permanent basis at the end of the three-year period will be sufficient to deal with those challenges, even though the client company is under no obligation to do so. Should that fail, the agency will be required to assist the worker in finding a new temporary role or possibly hire the worker directly under an indefinite term contract.
The new law also stipulates that end clients using temporary workers will have to provide them with information on vacancies for permanent positions. Finally the dispatch agencies will be required to obtain government permission to operate so to increase quality and the level of supervision within the industry.
QATAR
Introduction of the Wage Protection System in Qatar
Qatar’s Ministry of Labour and Social Affairs (MoLSA) and the Qatar Central Bank (QCB) are introducing Wage Protection System (WPS) and companies must be compliant by 3 November 2015.
Following the implementation of the system in other Gulf Cooperation Countries (GCC), the Qatari authorities expect higher level of compliance with the local labour law as well as a reduced number of payroll-related legal disputes once employees are guaranteed to receive their salaries on time.
The MoLSA and the QCB will cooperate to control and monitor all salary payments. As part of the process, the payments will be compared to official records such as visa quota and visa numbers, employment contract and salary details to ensure the correct salaries are paid to holders of valid visas. All payments will have to be made to local bank accounts and in local currency (Qatari riyals) only.
It is the employer’s duty to open a bank account for its employees and also their responsibility to ensure all personnel information is correct, particularly salary details. There will be no grace period for new joiners, however one month is given to arrange the visa and bank account for each employee.
Those found in breach of compliance will face fines of up to QAR 6,000 per breach and company managers could face imprisonment if the system is not implemented as per the regulations. Consequences to submission of incorrect filings would include visa restrictions, reduction or elimination of visa quotas or having the company banned from future hiring.
SAUDI ARABIA
Amendments to the Saudi Arabian Labor and Workmen’s Law
Earlier this year the Saudi Arabian Ministry of Labour announced an overhaul of the Labour Law that would include 38 amendments (the Amendments) to its statutory provisions. The Amendments were approved by HRH King Salman by Royal and was due to come into force on 18th October 2015. As a whole, the Amendments sought to boost Saudization and increase workers’ rights in general, with a small number of provisions favouring employers. Some of the Amendments are:
- Notice Period and Judicial Remedies (Articles 75, 78, and 77): instead of the previous 30-day notice period for terminating an indefinite term contract, now a minimum of 60 days have to be given as advance notice and the requirement for a valid reason remains in place. The worker won’t be able to demand reinstatement in case of an invalid reason for dismissal, but liquidated damages can now be negotiated and agreed between the parties.
- Probationary Periods (Articles 53 and 54): the initial probationary period of 90 days can now possibly be extended for the same period if a separate, subsequent additional written agreement is executed by both parties
- Maternity Leave (Articles 151 and 152) both articles have been amended requiring the employer to give the female employee at least 10 weeks of fully paid maternity leave, to be divided as the employee desires, with at least six of those weeks being immediately following delivery plus the right to extend the leave for one additional unpaid month. Even if paid for maternity leave, a female worker will not have to compromise on payment for annual leave anymore.
- Training of Saudi Employees (Article 43): the amendment states that employers who employ 50 or more employees must train annually at least 12% (and not only 6%) of their Saudi Arabian employees;
- Wage Protection System (Article 90.2): Saudi Arabia is currently implementing a Wage Protection System (WPS) whereby businesses are required to deposit salaries into an in-Kingdom bank account for each employee. The WPS has been implemented in phases, beginning with the largest firms with 3,000 employees or more. Currently, the WPS is in its eighth stage and applies to firms with 130 or more employees. Article 90.2 as amended encapsulates the WPS requirements.
UK
Modern Slavery Act 2015: new UK disclosure requirements from October 2015
From October 2015, organisations carrying out business in the UK will be required to prepare a slavery and human trafficking statement each financial year. The statement must describe steps taken to ensure that slavery and human trafficking are not taking place in their businesses and supply chains, or state that no steps have been taken. The government expects that “businesses who disclose that they take little or no action may be subject to particular scrutiny and public pressure which may jeopardise both their reputation and their profitâ€.
The Act provides that a statement may include information about the organisation’s policies in relation to slavery and human trafficking; its due diligence processes in its business and supply chains; the parts of its business and supply chains where there is a risk of slavery and human trafficking taking place, and the steps taken to assess and manage that risk; its effectiveness in ensuring that slavery and human trafficking is not taking place in its business or supply chains, measured against appropriate performance indicators; and training about slavery and human trafficking it makes available to its staff.
The new requirement will apply to any corporate body, LLP or partnership (whether incorporated or formed in the UK or overseas) which: carries on its business or part of its business in the UK; supplies goods or services; and has a turnover of at least £36 million per annum.
The statement must be approved by the appropriate board of directors and signed by a director and published on the organisation’s website with a link to the statement in a prominent place on the homepage. If a company does not have a website, it must provide a copy of the statement within 30 days on request of any person.
IR35 legislation under review
With the rise of individuals – who might otherwise be employees – providing services to businesses through a ‘personal services company’ (or, PSC) and what is perceived as revenue loss, HMRC is currently reviewing the IR35 rules, considering whether to take the burden of proof of IR35 compliance away from the ‘worker’, and give it to engagers of contractors.
This would represent a dramatic change in the way IR35 is currently operated; however, we have already seen similar approaches introduced in other countries, such as the changes announced in the Netherlands earlier this year.
If this arrangement became law, then those who engage a worker through a PSC would need to consider whether or not IR35 applies (in the same way as they would need to consider whether a worker should be self-employed or actually be an employee). If, following this analysis, IR35 does not apply, the business which engages the worker would need to deduct the correct amounts of income tax and NICs (national insurance contributions) as they would for direct employees. This increases the burden on businesses which engage such persons.
The Government has indicated that an element of any reform could be to simplify the multi-factor test for determining if IR35 applies. One option put forward for comment could be to align the test with that used for temporary workers in the agency rules, which is based on supervision, direction or control. Determining a worker’s employment status is currently a complex matter, with ‘control’ being just one of a number of relevant factors.
Even though the initial consultation ended on the 30th September 2015, there will be at least a subsequent formal public consultation. The UK Government refuses to consider abolishing the legislation, despite the HMRC accepting it is not working in practice. Critics argue the legislation remains too subjective and is in practice too expensive for HMRC to administer, especially when compared to the additional tax collected.
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