Monthly Legislative Update Europe

Transcription

1 Monthly Legislative Update Europe November 2010 The Monthly Update summarizes recent legislative developments related to cost of employment, labor environment, employment terms and conditions, retirement and social security, health care, taxation of compensation and benefits, and issues for expatriate employees. Austria The Austrian government has presented a bill to parliament that would require employers to disclose the average pay of their male and female employees to their works council. The goal of the bill is to lower the wage gap between male and female employees. According to the European Union, Austrian women earn 25.5% less per hour than male employees. Works council members and employees would be prohibited from publicizing the information outside the company. The bill follows an agreement reached by social partners (unions and employers associations) and is expected to be approved by the parliament. Large employers (1,000 or more employees) would be required to comply as early as Belgium In Belgium, individuals retiring before age 65 are now entitled to a guaranteed pension. The GRAPA (Guaranteed Income for the Elderly) pension provides financial assistance to low-income individuals; it is subject to a means test. As of November 2010, retirees under age 65 may apply for the pension. The GRAPA pension for a single individual is EUR 7, per year. Copyright 2010 Aon Hewitt Inc. 1

2 Bulgaria The Bulgarian social partners (government, unions, and employers associations) have agreed on social security reform measures including increases in contribution rates, the number of contributions, and the retirement age. After employers rejected a three-percentage point increase in the total contribution rate, the social partners agreed to a 1.8% increase (0.7% for employees and 1.1% for employers). Contributions would increase by four months each year, beginning in 2012, until the contribution period reached 37 years for women and 40 years for men in As of 2021, the retirement age would increase by six months each year until it reached age 63 for females (in 2026) and age 65 for males (in 2024). These reforms must still be approved by parliament. (Refer to the October 2010 Update for additional information.) Taxation of Compensation and Benefits A new Insurance Premium Tax will be effective on January 1, 2011 in Bulgaria. The 2% flat tax will be applied to all insurance products with the exception of life insurance, international cargo insurance, property insurance, and reinsurance contracts. The tax was introduced in response to the fiscal crisis. Czech Republic The Czech Chamber of Deputies approved the government s austerity measures that affect social welfare benefits including sick pay, parental leave, and child allowances. Employers obligations for sick pay would increase from the first two to the first three days of sick leave. Sick pay would be capped at 60% of pay for the entire sick leave period. Parental leave benefits would be capped; disability subsidies would be reduced; and the child benefit paid to low-income families would be eliminated (refer to the October 2010 Update for additional information). The only change to the government s proposal is the retention of a social benefit for families caring for a child that suffers from a long-term illness or disability or that is severely disabled. The Senate must now vote on the measures. Estonia Taxation of Compensation and Benefits In Estonia, stock options will be taxed at exercise rather than at grant, effective January 1, Stock options will no longer be subject to the fringe benefits tax at grant. Instead, they will be taxed at exercise. Options will not be considered a fringe benefit if held for at least three years. The proposed change has been pending for several months. The Parliament adopted the new tax treatment in October Copyright 2010 Aon Hewitt Inc. 2

3 European Union The European Commission has published its strategy to strengthen data privacy rules. The Commission plans to modernize its framework data privacy legislation to meet the following goals: --Strengthen individuals rights by limiting the collection and use of personal data to the minimum necessary; creating greater transparency as to how and why personal data are collected, who is collecting the data, and for what length of time data are held and used; and establishing the right to be forgotten; --Enhance the single market through the uniform implementation of data protection rules across the European Union (EU) and, thereby, reduce administrative compliance burdens for companies; --Ensure high levels of protection for data transferred outside the EU through improved and streamlined procedures for data transfer; and --Create more effective enforcement mechanisms by harmonizing the role and powers of national data protection authorities. The Commission has opened a public consultation on its proposed strategy. It expects to present proposals for a new general data protection framework in The European Parliament (EP) approved amendments to the European Union (EU) Pregnant Workers Directive that would expand employees rights related to childbirth and adoption. The EP strengthened measures included in the European Commission s (EC) 2008 proposal on amending the directive to include 20 weeks of maternity leave at full pay; two weeks of paternity leave; a right to adoption leave; time off for breastfeeding; restrictions on overtime for pregnant employees or employees who recently gave birth; improved guarantees for employees returning from maternity leave; and increased protection from dismissal. The most controversial difference between the EP s and the EC s versions are the length of maternity leave and pay the EC proposed that maternity leave be extended from 14 weeks to 18 weeks and that EU Member States be able to cap maternity leave benefits at a level equal to cash sickness benefits. The EC proposal did not address paternity and adoption leave. The draft directive now goes to the European Council for review. Since many Member States do not support the maternity leave and pay provisions that the EP has proposed, the governments must agree on a common position and submit this position to the EP. The Advocate General (AG) of the European Court of Justice (ECJ) issued an opinion stating that the use of actuarial and statistical factors based on gender is incompatible with the principle of the equal treatment of men and women. Directive 2004/113/EC prohibits discrimination on the basis of gender in access to and supply of goods and services. In principle, it prohibits gender from being considered with calculating insurance premiums and benefits Copyright 2010 Aon Hewitt Inc. 3

4 with respect to insurance contracts concluded after December 21, Article 5 (2), however, allows Member States to permit gender-specific differences in insurance premiums and benefits if gender is a determining risk factor that can be substantiated. In review of the case Association Belge des Consommateurs Test-Achats ASBL and Others, the AG determined that none of the arguments presented for different treatment based on gender was sufficient. The AG found that, like race and ethnic origin, gender is a characteristic which is inextricably linked to the insured as an individual and over which he or she has no influence. Also, gender, unlike age, is not subject to any natural changes. The AG determined that there are a number of factors, other than gender, that influence life expectancy such as economic and social conditions and lifestyle choices. The opinion will be considered by the ECJ before it rules, possibly sometime in 2011, but it is not binding. If the ECJ accepts the AG s reasoning, insurance premiums for men and women will have to be equalized. The outcome of the ruling also may affect pension plans, as pension calculations will have to be equalized. Finland Social security contributions will decrease and benefits will increase in Finland during Employer contributions for sickness insurance will decrease from 2.23% to 2.12%. Employee contributions for sickness insurance (including the daily allowance contribution) will decrease from 2.40% to 2.01%. Contributions are based on total pay. The national pensions index is linked to the cost-of-living index. As the result of a slight increase in the inflation rate, old age, survivors, and disability pensions and employment benefits and labor market subsidies will increase by 0.4% on January 1, The monthly old age pension for a single pensioner will increase from EUR to EUR , and for married pensioners, it will increase from EUR to EUR The cap on earnings for individuals receiving a disability pension will increase from EUR 600 to EUR , effective March 1, Under newly implemented legislation, child benefits, child care subsidies, and minimum-rate cash sickness, maternity, paternity, and parental benefits will be index-adjusted for the first time on March 1, Beginning in 2012, these benefits also will increase on January 1. France Labor Environment The French parliament adopted legislation providing for union elections in companies with less than 11 employees. Under Law of October 15, 2010, regional polls will be held every four years to assess union support among employees in small companies. Employees will vote for unions rather than specific candidates, and voting will be conducted by mail or electronically. The first round of elections will be held in Law Copyright 2010 Aon Hewitt Inc. 4

5 follows the parliament s rejection of legislation that would introduce joint commissions in small companies (refer to the September 2010 Update). In France, the Pension Reform Law (Loi No of November 9, 2010) has been enacted, following adoption by the Senate and the National Assembly at the end of October and a review by the Constitutional Court. The Law s provisions include and/or address: --Increase in the minimum retirement from age 60 to age 62 As of July 1, 2011, the minimum retirement age will increase by four months each year until it reaches age 62 in The Law allows for some exceptions (individuals in hazardous or arduous work, with special diets, etc.); --Increase in the retirement age for a full pension The retirement age for a full pension will increase from age 65 to age 67, regardless of the number of quarters of contributions. Effective July 1, 2016, the retirement age will increase by four months each year until it reaches age 66 in 2019 and age 67 in 2023; --Number of contributions The Law confirms the scheduled increases in the 2003 Act. To receive a full pension, insureds born in 1953 and 1954 must have 41 years and one quarter of contributions. In 2020, the contribution period will be 41 years and two quarters of contributions; --Individuals with long careers Individuals who entered the workforce at age 16 or age 17 may continue to retire at age 60. Individuals who entered the workforce at age 14 or age 15 may retire at age 58 or age 59. The retirement age for individuals with long careers will gradually increase at a rate of four months each year until it reaches age 60; --Mothers with three children and parents of children with disabilities For mothers with three children, who currently are age 55 or over and have interrupted their careers to care for their children, a full pension at age 65 is maintained. Parents of disabled children who have interrupted their careers to care for them also will continue to receive the full pension at age 65, regardless of the number of quarters of contributions; -- Equal pay for men and women Employers need to initiate negotiations and take measures to reduce the wage gap between male and female employees or financial penalties will be introduced; --Maternity and retirement Maternity benefits will be taken into account in calculating retirement pensions so that female employees are not penalized for leaving the active workforce; and --Recruitment of mature-age employees Employers that hire unemployed individuals over age 55 will receive assistance equal to 14% of pay for one year. (Refer to the October and September 2010 Updates for additional information on the history of the pension reform.) Copyright 2010 Aon Hewitt Inc. 5

6 Germany Health Care System The German Bundestag has passed a controversial health care reform bill, resulting in higher health care contributions in The reform increases employee contributions from 7.9% to 8.2% and employer contributions from 7.0% to 7.3%. The change in contribution rates will be effective January 1, The cap on additional contributions that insurers can charge employees to make up any shortfall in revenue has been eliminated. (Refer to the October and September 2010 Updates for additional information on the health care reform.) Hungary Employment costs may increase for some employers in Hungary in The government has proposed a 4.5% increase in the minimum wage for Currently, the minimum wage is HUF 73,500 per month for unskilled employees. Under the government s proposal, it would increase to HUF 76,800 per month. The government claims the increase is needed to offset the impact of the flat-rate income tax. Debate continues over the role of second-pillar funds in Hungary. In October 2010, the Parliament passed legislation that suspends contributions to second-pillar pension funds for 14 months, stopping short of nationalizing the funds. As of November 2010, these contributions are being diverted to the first-pillar. (Refer to the October 2010 Update for additional information.) Opposition parties requested a review of this move by the Constitutional Court; however, the government blocked the review. The European Union is expected to review the government s actions. In related news, the Parliament passed and President Schmitt signed the Law on the Free Choice of Pension Funds at the end of October Membership in second-pillar funds is optional for individuals just joining the workforce, and second-pillar members are permitted to return to the first-pillar pay-as-you-go system until the end of Government officials have indicated that they see a future for the pay-as-you-go system and voluntarily funded private pension funds. Also, an amendment to the 2011 tax bill calls for an increase in rate of employees pension contributions from 9.5% to 10.5% of gross pay. Taxation of Compensation and Benefits The Hungarian Parliament is reviewing the government s 2011 tax proposals, which, if passed, would affect individual income and employee benefits. Under the government s proposals, a 16% flat rate income tax would be introduced. The effective personal tax rate would be approximately 20.32% with the supergross tax base (gross income plus employer contributions). Copyright 2010 Aon Hewitt Inc. 6

7 Tax credits would be capped at HUF 12,000 per month. The full credit would be available to individuals with annual income up to HUF 2,750,000. Credits would be reduced for individuals earning up to HUF 3,960,000. Benefits in kind would no longer be treated separately for tax purposes. Generally speaking, individual taxpayers would have to pay tax on these benefits as part of their tax base. Additional rules would apply. Instead of the 54% or 25% tax paid by employers, sports services, transportation services, training and other noncash benefits would be subject to the 16% individual income tax. If the value of a noncash benefit could not be determined, the employer would be responsible for the 16% tax. The taxation of interest income, dividends, and capital gains also would change. This income would be taxed at 16%. Currently, interest income is taxed at 10%, dividends at 20%, and capital gains at 25%. Ireland The Irish Pensions Board announced a deferral of the deadline for the submission of funding proposals, which had been November 30, 2010 to May 31, No revised deadline has been announced, but it is expected that it will not be before July 1, The deadline has been extended to allow employers offering pension plans to consider a new form of defined benefit (DB) plan, outlined in the National Pensions Framework in March The key features of the new DB plan include: fixed contributions for members and employers; flexible benefits to cope with investment volatility (i.e., core benefits that are guaranteed and subject to the funding standard and noncore benefits that depend on economic conditions); and allowances for increasing life expectancy. Italy In Italy, the Parliament approved the Related Work Law, addressing early retirement for strenuous work, apprenticeships, layoffs, and arbitration. The Related Work Law (Law No. 83 of November 4, 2010) was under review for two years. The Law s provisions include: 1) early retirement at age 57 with a minimum of 35 years of contributions for employees engaged in strenuous work; 2) apprenticeships at age 15 (previously age 16); 3) dismissal appeals within 60 days of notice; and 4) availability of arbitration during the probationary period if there is a dispute about work. Taxation of Compensation and Benefits Employers in Italy should review their equity award plans to determine if they are in compliance with new guidance issued by the National Institute for Social Security (INPS). In October 2010, the INPS issued a document clarifying which equity award plans were exempt from social security contributions. Plans that grant stock options or provide for free share awards are exempt. Share plans Copyright 2010 Aon Hewitt Inc. 7

8 must meet the following requirements: 1) shares must be offered to a specific group of employees or individual employees; and 2) the plan must include a vesting period. Netherlands Dutch pension funds that do not meet their coverage requirement will not have to increase premiums until Pension funds are required to notify the Central Bank if they intend to postpone premiums. They will be required to submit a detailed outline of their investments and a financial recovery plan. Industry analysts estimate that over one-third of pension funds have failed to meet the minimum coverage ratio. It was feared that premiums would have to increase by 20% to 30% to make up the shortfall. Norway Issues for Expatriate Employees Norway has signed a social security totalization agreement with India. Under the agreement, employees on short-term employment contracts of up to five years would not be required to pay social security contributions in their host country provided they continue to contribute to their home country system. Any contributions paid to the host country system would be recognized by the home country for benefit purposes. The agreement must be ratified by the respective legislatures before it is effective. Poland The minimum wage in Poland will increase from PLN 1,317 to PLN 1,386, effective January 1, The government unilaterally decided to increase the minimum wage after the social partners (government, unions, and employers associations) failed to reach an agreement (refer to the September 2010 Update for additional information). Currently, increases are based primarily on forecast inflation. The government is considering linking changes in the minimum wage to the average wage, keeping the minimum wage at 40% to 50% of the average wage. The government also is studying a proposal that would break the link between the minimum wage and other benefits. Copyright 2010 Aon Hewitt Inc. 8

9 Russia Employers in Russia are reminded that their total social contribution rate will increase from 26% to 34% as of January 1, The increase was included in the Federal Law No 212-FZ of July 24, 2009, which governs contributions to the Pension, Social Insurance, and Medical Insurance funds. Contributions are indexed to growth in average pay. Currently, the cap is RUR 415,000 per year. The projected cap for 2011 is RUR 463,000. Under pending legislation, sick pay and the calculation of benefits for temporary disability, maternity leave, and child care leave would change in Russia. Employers would be responsible for paying for the first 3 days of sick leave (currently, the first two days). The Social Insurance Fund would pay a cash sickness benefit from the 4 th day of illness. Temporary disability, maternity, and child care benefits would be based on average pay for the 2 years preceding leave rather than the 12 months preceding leave. Employees would receive 100% of their average earnings with 15 or more years of contributions; 80% with 8 to 15 years of contributions, and 60% with fewer than 8 years of contributions. If passed, the changes would be effective January 1, Slovenia In Slovenia, the parliament is reviewing the government s social security pension reform bill. Under the bill, the retirement age for females would increase from age 63 to age 65 with 15 years of contributions. Eligibility for early retirement would be age 60 for males and females, with 40 years and 38 years of contributions, respectively. Early retirement also would be permitted for employees who entered the workforce at an early age age 60 for males with 43 years of service and age 58 for females with 41 years of service. Pension benefits would be based on 34 years pay rather than 18 years pay. Spain In Spain, pension reform is not likely before Congress s pension reform commission reported that it will finish its report on changes to the social security system by the end of this calendar year, and a bill is expected to be submitted to the full legislature next year. The government s proposed reforms include an increase in the retirement age, the number of contributions to qualify for a pension, and greater restrictions on early retirement. Copyright 2010 Aon Hewitt Inc. 9

10 Switzerland Employees in Switzerland may receive additional protection against unfair dismissals. Currently, employees have the right to claim a maximum of six months pay in the event of an unfair dismissal. The federal government is proposing to increase the amount of damages to 12 months pay. Ukraine Employers in Ukraine should review their salary payment procedures to make certain they are compliant with new requirements. Employers must pay salaries in at least 2 installments that are no more than 16 days apart. Employees must receive their pay within 7 days of the end of the pay period. The terms and conditions with regard to pay can be stipulated in a collective agreement or in an official statement issued by the employer that is approved by the relevant union or authorized employee representatives. The changes are the result of amendments to the Labor Code and the Law on the Payment of Labor and are effective November 20, Working time may become more flexible in Ukraine. The government will introduce an amendment to the Labor Code that would permit employers to average work time over, as yet, an unspecified number of weeks. Under an hour averaging system, the maximum number of hours of work per week could not exceed 48 hours. Currently, the standard workweek is 40 hours. This was set in 1993 by an amendment to the constitution and to the Labor Code. In Ukraine, the government will not raise the retirement age for women in the near future. Earlier this year, the government proposed to increase the retirement age for women in order to reduce the social security budget deficit. It has determined that it can make up revenue through other means. Currently, the retirement age in Ukraine is age 60 for men and age 55 for women. Increasing the retirement age for women and men may still be reconsidered. The increase was a condition in the country s International Monetary Fund lending agreement. United Kingdom The U.K. Department of Work and Pensions (DWP) published a report that confirms the government s plan to increase the State Pension Age (SPA) to age 66. The DWP indicated that the SPA will increase by three months every four months. It also confirmed that it will adjust the timeline for equalizing the retirement age for males and females from April 2016 so that the SPA for Copyright 2010 Aon Hewitt Inc. 10

11 females will reach age 65 by November This change will affect the minimum qualifying age for Pension Credit. The SPA for males and females will increase from age 65 to age 66 between December 2018 and April (Refer to the October 2010 Update for additional information.) The U.K government is expected to issue a Green Paper on state pensions that calls for a new flat-rate pension. The government wants to simplify the pensions system by eliminating the need for means-tested and earningsrelated top-ups. The flat-rate pension would be GBP 140 per week or GBP 7,280 per year. Eligibility would be based on residency rather than the number of National Insurance contributions. The new system would be introduced in 2015 before the retirement age for women increases. The U.K. government announced increases in National Insurance Contribution (NIC) rates for Employees Class I (employed persons) NIC is expected to increase by 1% to 12%. Employers Class I NIC also is expected to increase by 1% to 13.8%. The additional Class I rate paid by employees currently earning in excess of GBP per week is scheduled to increase by 1% to 2%. In the United Kingdom, the coalition government released the results of a review into autoenrollment and the National Employment Savings Trust (NEST). The government announced that it intends to proceed with the implementation of autoenrollment on the basis of the report s recommendations, specifically proposals for an increase in the earnings threshold for automatic enrolment; elimination of the NEST exemption for micro-employers; and consultation around schemes certifying that they meet the qualifying requirements. The earnings threshold at which an individual is automatically enrolled into a workplace pension is to be aligned with the income tax personal allowance (GBP 6,475 in 2010/11, but going up to GBP 7,475 the following year). However, the threshold at which pension contributions become payable will be aligned with the National Insurance primary threshold (GBP 5,720 in 2010/11). This reduces the likelihood of low earners who might not ultimately benefit from autoenrollment from being included, while ensuring that those who are included have a reasonable sized pension pot when they retire. Workers with earnings between these two thresholds can opt in, in which case they will be eligible to receive the employer contribution. The report recommends that there should be no exemption for micro-employers from the autoenrollment obligation. In the opinion of the review team, NEST is uniquely suitable for the smallest employers and without it, autoenrollment would not be feasible for companies employing fewer than 20 employees. The report also recommends that the government should legislate to remove, in 2017, the limit on contributions payable to NEST and to remove the restrictions on transfers in and out of NEST. One other long-standing issue has been how pension plans that use a pensionable salary definition which differs from the qualifying earnings definition can certify that their plan meets the quality test (the self-certification issue). The review team has addressed this issue and has recommended that the following contribution structures in a defined contribution (DC) plan should be certifiable: --Nine percent of pensionable pay, including at least 4% from the employer; Copyright 2010 Aon Hewitt Inc. 11

12 --Eight percent of pensionable pay, including at least 3% from the employer provided pensionable pay constitutes at least 85% of the total pay bill ; and --Seven percent of pensionable pay, including at least 3% from the employer provided the total pay bill is pensionable. These compare with the quality requirement for DC schemes set out in the Pensions Act of 8% of band earnings, including at least 3% from the employer. A consultation on this proposal will be held. The largest employers, scheduled to be brought into the reforms in October and November 2012, will be allowed to automatically enroll as early as July Employers will be allowed to operate a waiting period of up to three months before an employee needs to be automatically enrolled into a workplace pension. Workers can, however, opt in during the waiting period. There will be no minimum employer contribution rate required in order to operate this waiting period. With the exception of some detail around self certification, the final pieces of the puzzle are now in place. Therefore, companies can start to finalize their plans for complying with their autoenrollment obligations. * * * The Aon Hewitt Country Profiles eguide provides a summary of the statutory environment affecting employment in nearly 90 countries. You can learn more about the Country Profiles eguide here. Copyright 2010 Aon Hewitt Inc. 12

13 About Aon Hewitt Aon Hewitt is the global leader in human capital consulting and outsourcing solutions. The company partners with organizations to solve their most complex benefits, talent and related financial challenges, and improve business performance. Aon Hewitt designs, implements, communicates and administers a wide range of human capital, retirement, investment management, health care, compensation and talent management strategies. With more than 29,000 professionals in 90 countries, Aon Hewitt makes the world a better place to work for clients and their employees. For more information on Aon Hewitt, please visit Copyright 2010 Aon Hewitt Inc. This document is intended for general information purposes only and should not be construed as advice or opinions on any specific facts or circumstances. The comments in this summary are based upon Aon Hewitt's preliminary analysis of publicly available information. The content of this document is made available on an as is basis, without warranty of any kind. Aon Hewitt disclaims any legal liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. Aon Hewitt reserves all rights to the content of this document. Copyright 2010 Aon Hewitt Inc. 13