Compensation of wages during the crisis
One of the measures to support employers during the state of emergency in Estonia is compensation of wages up to 70% of the salary.
General information and detailed explanations about the possibility of receiving compensation can be found on the website of the Unemployment Insurance Fund.
https://www.tootukassa.ee/ru/content/posobiya-i-vozmeshcheniya/novoe-kompensaciya-zarabotnoy-platy
Its goal is to provide maximum employment for the working-age population. It is planned to use 250 million euros for the implementation of this support.
The new measure is set out in article 191 regulations. The text of the article and the explanations from the explanatory note have been translated by Kardis into Russian and are presented below.
The salary compensation service is intended for an employee (Article 7, Part 4 of the resolution), that is, a person who has concluded an employment contract with an employer. The type of legal entity of the employer is not important — it can be both representatives of the commercial and non-profit sectors, i.e. NGOs, as well as public institutions.
NB! On people, providing services and performing works under the obligation to— legal agreements (contracts and assignments), the measure also does not apply to members of the management board.
Excerpts from the resolution „Employment program 2017—2020“ and comments
„Article 191. Reimbursement of labor remuneration
(1) Salary compensation is paid to the employee, the activity of an employer that is noticeably difficult due to—due to extraordinary circumstances“.
The general basis for wage reimbursement is extraordinary circumstances, which in the sense of a specific measure are difficulties caused by the COVID-19 virus, which significantly affected all areas of the economy. In order for salary compensation to reach the addressee (employee) as quickly as possible, there is no need for the employer to mediate.
„(2) A noticeable difficulty in your business, named in the part 1 of this article, the current situation is considered, when at least two of the following conditions are met simultaneously::
1) employer’s turnover or, if there is no turnover, revenue per calendar month, for which compensation is requested, decreased by at least 30% compared to the turnover or income of the same calendar month of the previous year“.
For example, if salary compensation is requested for March, then the figures for March 2019 and March 2020 are compared. The employer can demonstrate the comparison, for example, in the form of an extract from the register of taxable NTDs.
„2) the employer cannot provide work in the agreed amount at least 30% employees and the employer applies the article 35 or 37 The Employment Contract Act;
3) based on the article 37 according to the Employment Contract Law, the employer has reduced the salary at least 30% minimum number of employees 30% or up to the minimum wage established by the Government of the Republic“.
The employer must submit an application and a corresponding justification to Yandex. Checkout. The concern is also considered an employer. For example, if the sales and production divisions of an enterprise are different legal entities, but they are related businesses, such an employer may apply for compensation.
„(3) Compensation for labor remuneration is paid to the employee, to whom the employer cannot provide work in the specified amount and whose employer applies the article 35 or 37 The Employment Contract Act.
(4) The Unemployment Insurance Fund pays the employee a refund 70% from the average employee’s salary, but in gross—the amount is not more than 1000 euro for one calendar month, considering what is set in the part 7 of this article. The average employee’s salary is calculated on the basis of the following part: 2 articles 142 the law on unemployment insurance“.
In other words, the amount of compensation is calculated according to the principle of compensation for insurance. That is, the average payment for one calendar day is determined by dividing the amount of payments paid in the nine working months preceding the last three months of work by the number 270. If the employee’s salary was paid for a shorter period than 12 months, the actual payments paid are taken as the basis, which should be divided by the product of the number of months worked and 30.
The unemployment insurance fund compensates for 70 % of the salary calculated on these grounds. The maximum compensation rate is 1000 euros per month (gross).
„(5) Compensation is considered to be paid by the employer, which the Unemployment Insurance Fund pays to the employee on behalf of the employer and at the expense of the Unemployment Insurance Fund“.
From the part of the salary paid to the employee by the Unemployment Insurance Fund, all taxes due on labor are also paid by the Unemployment Insurance Fund. When paying compensation on behalf of and instead of the employer by the Unemployment Insurance Fund, the employer’s obligation under article 29 of part 6 of the Employment Contract Law to pay remuneration to the employee for work in the amount of at least the minimum wage rate is also considered fulfilled.
„(6) The employer is obliged to pay the employee, receiving salary compensation, salary in the gross amount not less than 150 euro“.
150 euros is the minimum amount that the employer is required to pay in case of compensation to the employee. The employer has the right to pay a larger amount.
The employer pays taxes on remuneration for work from the amount actually paid to the employee.
„(7) The compensation paid by the Unemployment Insurance Fund will be provided to the employee together with the part specified in the contract. 6 minimum wage corresponding to the minimum wage rate stipulated in the employment contract of employment, established by the Government of the Republic“.
The minimum part paid by the employer to the employee, together with the compensation paid by the Unemployment Insurance Fund, will amount to at least the minimum wage. The Unemployment Insurance Fund will deduct income tax from the entire amount, without deducting non-taxable income.
If the employee’s salary is less than the monthly minimum wage for part-time work, the employer pays the minimum wage set out in Part 6 (150 euros), the rest of the average employee’s salary is paid by the Unemployment Insurance Fund. The employer pays social tax from 150 euros, and the Unemployment Insurance Fund pays additional social tax until the monthly social tax rate is met.
„(8) Employees are entitled to receive salary compensation for a period of up to two calendar months, when did the employer comply with the requirements set out in part 2 conditions of this article“.
Compensation can only be received for 2 months, the employer must choose for which two of the three months they would like to receive salary compensation.
„(9) The employer returns the refund in full, if the employment relationship with the employee is terminated in a calendar month, for which they apply for compensation of labor remuneration, or in the following calendar month due to a reduction based on the article 89 or 90 The Employment Contract Act“.
The ban on reduction is valid for the month for which you applied for compensation.
As well as the month following it. In this situation, it is not possible to pay compensation, since the purpose of compensation is to continue the employer’s activities and avoid the situation of reduction.
Since compensation for the employee’s salary is paid by the Cash Register instead of the employer, in this case the amount of payment will be withdrawn from the employer, and not from the employee, since in the absence of compensation, the employer would have to pay the employee money and taxes to the state itself.
„(10) To apply for compensation, the employer submits an application to the Unemployment Insurance Fund for each calendar month after payment of wages to employees, usually within five calendar days“.
Since a refund is effective, first of all, if it can be paid quickly, you must submit an application within 5 calendar days. At the same time, a later submission of the application before the end of the year (June 30) is not excluded.
An employer can also pay a salary earlier than the usual payday by submitting a request for compensation and ensuring that the employee receives his salary as early as possible. The cashier will review applications as quickly as possible, generally paying compensation for the relevant application within 5 business days.
„(11) In the application, the employer must specify:
- employee’s name, who cannot be provided with a job in the agreed amount or whose salary is reduced, their personal identification code or, if it is not available, their date of birth, address or email address. email address and bank account number;
- name (name), personal or registration code of the employer and its address or email address. yandex. mail;
- justifications and proofs of changes in turnover or income, failure to provide work in the agreed amount or a reduction in salary;
- confirmation of payment of participation. Named in the part 6 of this article.
- At the request of the Unemployment Insurance Fund, the employer must provide additional data and supporting documents necessary for assigning compensation..
- The Unemployment Insurance Fund pays compensation from the endowment funds services and benefits of the labor market, if there is money in the endowment capital of services and labor market benefits to pay compensation“.
Explanations of the Labor Inspectorate on the application of the article 37 The Employment Contract Act
Greete Kaar, Lawyer-consultant of the Labor Inspectorate: “There are currently two options for changing wages — by agreement of the parties under Article 12 of the Employment Contract Act (hereinafter referred to as the LTA) or by the employer unilaterally under Article 37 of the LTA.
According to article 12 of the Labor Code, an employment contract may be amended at any time if the parties so agree. In this way, the employee and the employer can agree that the employee’s salary will be changed the next day. If the employee does not agree, the employer cannot unilaterally reduce the salary from the next day.
Based on Article 37 of the Labor Code, an employer may reduce remuneration for work for up to three months (up to the minimum wage) if, due to unforeseen economic circumstances beyond the employer’s control, he cannot provide the employee with work in the agreed amount and pay the agreed salary.
Part 4 of Article 37 of the Labor Code stipulates that the employer must notify the employee’s authorized representative about the planned reduction in remuneration for work., if it doesn’t exist, employees themselves for at least 14 calendar days. During these 14 calendar days, the employee has the opportunity to express their opinion, as well as think about themselves about whether they are satisfied with working in the future for a lower salary.
If the employee is not satisfied with this, they can cancel their employment contract, but they must notify them at least five working days in advance (i.e., they must cancel the employment contract at least five working days before the reduced salary comes into force).
The ZTD does not provide for any special conditions under which the employer could unilaterally immediately reduce wages. If the employer wants to reduce the salary from the next day, this requires the employee’s consent. So the employee has the right to refuse to change the salary from the next day. If the employee refuses to do so, the employer can reduce the salary unilaterally only after 14 calendar days (Part 4 of Article 37 of the Labor Code)“”
To summarize:
- The proposed measure is temporary and will be effective from March 1 to June 30, 2020, allowing you to receive compensation for wages for two months out of three (March, April, May) at the employer’s choice.
- The measure is designed to support employers in times of economic difficulties in order to preserve the current economic models and supply chains as much as possible in order to provide workers with jobs.
- Employee — a person who has entered into an employment contract with an employer; employer — a person who has provided an employee with work under an employment contract, regardless of the type of legal entity.
- The employer must meet two of these three conditions and prove this compliance with the following documents::
- employer’s turnover or income decreased by at least 30 %compared to the same period last year;
- an employer cannot provide employment for at least 30 % of employees (Article 35, Article 37 of the Labor Code);
the employer has reduced the salary of at least 30 % of employees by at least 30 % (Article 37 of the Labor Code).
The employer is obliged to pay the employee at least 150 euros, the Cash Register pays the employee no more than 1000 euros gross. The employer and the unemployment insurance fund pay labor taxes each on their own part of the payment.
The Unemployment Insurance Fund pays the employee 70 % of their monthly income calculated on the basis of the previous 12 months, but not less than the current minimum wage (584 euros), except in cases where the employee works part-time. In this case, the payment is made in the amount of the previous salary.
Employees who receive compensation cannot be reduced in the month for which the compensation was paid and in the calendar month following it, since in this case the employer will be obliged to return the money paid to the employee to the state.
Some statistics:
According to the NTD, in February 2020, 555,261 people received payments under an employment contract, 74,357 of them (i.e., 13 %) received the minimum wage, and 16,125 of them (22 %) worked part-time. In February 2020, 460,506 people worked with full-time employment, that is, 83% of all recipients of payments under the employment contract, of which 58,232 (13 %) were recipients of minimum or even lower pay. In February, 94,755 people (17%) worked part-time, of which 16,125 people (17 %) received minimum or lower wages.
The median gross salary for all activities was 1,145 euros, while the average gross salary was 1,462 euros.
The Ministry of Social Affairs has compiled a table that calculates the employer’s and cash register’s payments and the corresponding taxes when applying the compensation measure.
It follows from the table that if the employee’s salary was in the range from the minimum (584 euros) to 1428 euros, then the share of compensation from the Cash Register will be 74 % of the employee’s total salary. If the employee’s salary was over 1428 euros and since
If the cash register does not pay more than 1000 euros, then the share of the refund of the Cash Register in the employee’s salary decreases. If the employee previously received 300 euros gross, the Cashier and the employer together pay him all his previous gross salary (income is replaced by 100%). The employer and the Cash Register will also reimburse the employee who received the minimum wage in full. In other words, the measure will have the maximum impact on those employees who worked part-time and/or received the minimum wage.
Approximate calculations, if the reason for the salary reduction is the article 37 The Employment Contract Act
| Previous gross value—з/employee id (€) | 300 | 584 | 1428 | 1600 | 3000 |
| Part paid by the employer (minimum obligation 150 €) | 150 | 150 | 150 | 150 | 150 |
| Employer taxes (social tax and unemployment insurance) | 51 | 51 | 51 | 51 | 51 |
| Amount of compensation to the Unemployed’s Cash Register | 150 | 434 | 1000 | 1000 | 1000 |
| Social tax and unemployment insurance contribution from the refund (paid by Yandex. Checkout) | 51 | 147 | 338 | 338 | 338 |
| New gross—employee compensation (€) | 300 | 584 | 1150 | 1150 | 1150 |
| The employee will receive in comparison with the previous payment— gross (%) | 100 % | 100 % | 81 % | 72 % | 38 % |
| Expenditure of the Unemployed’s Cash Register (including taxes) | 201 | 581 | 1338 | 1338 | 1338 |
| Employer’s expenses (including taxes) | 201 | 201 | 201 | 201 | 201 |
| Employee’s expense | 0 % | 0 % | 15 % | 23 % | 55 % |
If, according to article 35 of the Employment Contract Law, the employer cannot give the employee any work at all, but must keep the employee’s salary, then in order to maintain the employee’s previous income, the share of the cash payment will increase until the employee’s gross income reaches 1,150 euros (together with the employer’s share). In the table below, based on approximate calculations, it can be seen that if the employee’s previous income was 1,428 euros, then the share of the Cash Register will be 1,000 euros, and the employer must cover 428 euros from it. If the employee’s previous salary was 3,000 euros gross, the cashier will pay 1,000 euros gross (33 %), and the employer will pay 2,000 euros gross (67 %).
Approximate calculations, if the reason for the salary reduction is the article 35 The Employment Contract Act
| Previous gross value—з/employee id (€) | 300 | 584 | 1150 | 1428 | 1600 | 3000 |
| Part paid by the employer (minimum obligation 150 €) | 150 | 150 | 345 | 428 | 600 | 2000 |
| Employer’s taxes (social tax and unemployment insurance) | 51 | 51 | 117 | 145 | 203 | 676 |
| Amount of compensation to the Unemployed’s Cash Register | 150 | 434 | 805 | 1000 | 1000 | 1000 |
| Social tax and unemployment insurance contribution from the refund (paid by Yandex. Checkout) | 51 | 147 | 272 | 338 | 338 | 338 |
| New gross—employee compensation (€) | 300 | 584 | 1150 | 1428 | 1600 | 3000 |
| The employee will receive in comparison with the previous payment—gross (%) | 100 % | 100 % | 100 % | 100 % | 100 % | 100 % |
| Expenditure of the Unemployed’s Cash Register (including taxes) | 201 | 581 | 1077 | 1338 | 1338 | 1338 |
| Employer’s expenses (including taxes) | 201 | 201 | 462 | 573 | 803 | 2676 |
| Employee’s expense | 0 | 0 | 0 | 0 | 0 | 0 |
| Allocation of expenses | (previous gross—the employee’s income is equal to 100 %) | |||||
| Expenditure of the Unemployed’s Cash Register (including taxes) | 50 % | 74 % | 70 % | 70 % | 62 % | 33 % |
| Employer’s expenses (including taxes) | 50 % | 26 % | 30 % | 30 % | 28 % | 67 % |
| Employee’s expense | 0 % | 0 % | 0 % | 0 % | 0 % | 0 % |
If we compare the impact of the measure on the employer, much depends on which of the articles of the Employment Contract Law is applied. Suppose the employee’s gross salary was 1,600 euros, then:
- when applying article 37, that is, the employee continues to work, but his salary, as well as possibly working hours, are reduced — the employer is obliged to pay the employee a minimum of 150 euros, and the Cash Register pays an additional 1000 euros.;
- when applying article 35, that is, there is no work at all, the employer is obliged to keep the average salary, the cash register covers a maximum of 1000 euros, the remaining up to the average 600 euros is paid by the employer.
Thus, the measure will reduce the increase in the number of people who could lose their jobs, because for economic reasons the employer would not be able to provide them with a job, which means that this will save jobs and avoid reduction. By ensuring that income is maintained, the state will curb the growth in the number of people who apply to local governments for social benefits and whose household income will not fall below the poverty line. According to the Statistics Department, the unemployed were the most vulnerable — in 2018, 52.5% of the unemployed lived in relative poverty, and 16.7% of the unemployed lived in absolute poverty. The majority of non-working people were also among the recipients of social benefits and social assistance.
Maintaining income or slowing down the reduction in wages will allow households to purchase basic necessities, as well as avoid non-fulfillment of financial obligations (loans, alimony), as well as cope with unexpected expenses.
Analyzing the number of employers who will be able to take advantage of the measure, the authors of the amendment noted the following::
- the maximum impact of reducing the tax burden and salary expenses in general will be seen in small businesses, whose turnover and income mostly depend on the amount of salary expenses and which will find it easier to meet the conditions for receiving compensation, since the number of employees is usually also small,
- the impact will be on those enterprises where, judging by the situation, it is possible to assume the greatest drop in turnover and income, as well as the need for labor (accommodation, food, art, entertainment, free time, manufacturing, electricity production).
Potentially, all employers who have at least one employee under an employment contract will be affected. According to the Statistics Department, there were about 131,000 enterprises/institutions in Estonia in 2018, of which 53,683 had at least one employee with an employment contract or a board member was registered as an employee. In total, there were about 552,000 employees in these enterprises, so the target group is about 43% of Estonian enterprises and 83 % of employees.
According to the NTD, in February 2020, 555,261 people received payments under an employment contract, including 17.8 % in the processing industry, 4 % in the field of accommodation and public catering, and 1.8% in the field of art, entertainment and leisure. In February, 0.8 % of recipients of payment under an employment contract worked in the field of providing electricity, gas, steam and air-conditioned air. In comparison, the largest number of recipients of the minimum wage was in the field of accommodation and food (25.3 % of all employees in this field received payments in February 2020). 16.1 % of those receiving the minimum wage worked in the arts, entertainment and leisure sectors, and 10 % in the processing industry.
Among the negative effects of the measure, one of the 5 expected scenarios can be implemented and the cost will grow in the range from 330 million to 1.157 billion euros.
Special thanks to Cardis for the information provided in Russian
The review was compiled and translated by Elena Korosteleva, Master of Law degree, lawyer „Cardis“