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Labor law

There are opportunities for labour cost savings

The government aid measures to alleviate the corona crisis have become rather confusing for entrepreneurs. According to Äripäev's radio program "Kasvukursil", there are in fact several ways for labour cost savings.

Many employers are currently facing difficult decisions due to declining incomes, involving both redundancies and wage cuts. Although the government has come up with supportive measures, their implementation of these measures has become confusing for businesses. To illustrate this, qualifying for temporary subsidy program concerning wage compensation by Unemployment Insurance Fund, raises questions. First criteria being that the company must have a 30% drop in turnover. "At the same time, it is not clear whether cash-based or sales-based turnover is intended," said Kristel Tiits, legal manager at Grant Thornton Baltic.

Additional questions rise in terms of the second criteria, according to which the company qualifies for the subsidy, if the employer cannot provide at least 30% of the employees the agreed amount of work. According to the Employment Contracts Act, there are two ways for reduction of work. First one being that the employer cannot provide any work for the employee and, the second one, that the employer cannot provide, for example 50% of the agreed work to some employees.

“It is not clear, which situation is being considered when assessing qualification for the subsidy, whether 30% of employees do not have work at all, or whether employer is unable to give more than 50% agreed work for 30% of employees,” Tiits explained.

Favors scheming

As the employer must contribute only 150 euros when qualifying for an Unemployment Insurance Fund temporary subsidy program, it portrays risk that the subsidy would be used to a greater extent than actually necessary. "The employer can use the opportunity to pay the prescribed minimum, although there is possibility to provide more," said Tiits. "Nevertheless, applying for the subsidy should still be based on company’s real needs, not on the agenda of how the subsidy can be used to the maximum extent."

In addition to the subsidies of the Unemployment Insurance Fund, experts consider the simplified process of taking sick leaves problematic. It is feared that employers may use it to send employees on temporary “leave”, leaving the costs of the employee to the Health Insurance Fund in the form of sickness benefits, while at the same time temporarily avoiding paying wages. “Yes, the family doctor must always confirm the sick leave, but in current situation I would like to see a family doctor who does not do it," Tiits noted.

Several ways for achieving the goal

Although the qualifications for government aid are confusing and leave room for interpretation, there are in fact several other ways for labour cost savings. For example, Tiits points out the articles set in the Employment Contracts Act, which allow reducing employee’s wage three months in total within period of 12 months. In this case, however, the employer must acknowledge that the employee has the right to the equivalent amount of free time or, if he or she does not agree with the wage cut, he or she can terminate the employment contract based on articles concerning redundancy.

There is also an option to agree between the parties to reduce the wage indefinitely. "It is always possible to agree between the parties on something, based on the principle of reasonableness," said Tiits. She added that in addition to lowering wages, companies can also consider sending employees on regular or unpaid leave. According to Tiits, these measures may seem more acceptable to some entrepreneurs than the use of subsidy by Unemployment Insurance Fund. "In case of a subsidy, it should be borne in mind that during the calendar month of using the subsidy, and the following month, the employer may not terminate the contract due to redundancies, otherwise the compensation must be reimbursed."