Redundancy Fund

Cyprus
Phase: Management
Τύπος:
  • Income support for workers
  • Monitoring of redundancies
  • Start-up support
Τροποποιήθηκε: 21 September, 2020
Εγγενές όνομα:

Ταμείο Πλεονασμού

Όνομα στην Αγγλική:

Redundancy fund

Coverage/Eligibility

The fund covers only employees and workers of the private sector; public servants and employees of governmental organisations operating on the basis of public law, hourly-paid workers of the government, fixed-term and indefinite-term employees of the government are not covered.

In accordance with the Termination of Employment Law (Law 24, 1967-2016) employees are entitled to compensation payments from the redundancy fund, if:

  • They were made redundant due to economic and production related reasons (closing down of the company or local undertakings or departments of the company, modernisation, mechanisation of the production or any other change in the methods or organisation of the production reducing the required number of employees of the company, marketing or financial difficulties of the company  and reduction of the company's turnover); and
  • Before redundancy, they were employed in the company for a continuous period of more than 104 weeks.

Main characteristics

The redundancy fund is based on the Termination of Employment Law (Law 24, 1967-2016) and was established immediately after the initial enforcement of the law in 1967. The instrument is financed through employers' contributions amounting to 1.2% of the employees' gross salaries/wages. With the establishment of the fund for the protection of employees' rights in the case of employer's insolvency (insolvency fund) in 2001, 16.6% of the employer's contributions to the redundancy fund are transferred to the insolvency fund. The redundancy fund is administered by the Social Insurance Services and has a board with a tripartite composition. Contributions are payable on a monthly basis together with the main contributions for the social insurance scheme.

The compensation is intended to support the redundant employees to sustain their standard of living during the transition to a new job or to self-employment.

The instrument is available for both collective and individual redundancies. However, every application is examined individually.

Once a dismissal qualifies as redundancy, the affected employee is entitled to compensation payments by the fund. The compensation is calculated on the basis of the length of service as follows:

  • For the first 4 years of employment the compensation totals to 2 weeks' wages for every 52 weeks of employment;
  • For more than 4 years up to 10 years of employment the compensation totals 2,5 weeks' wages for every 52 months of employment;
  • For more than 10 years up to 15 years of employment the compensation totals 3 weeks' wages for every 52 months of employment;
  • For more than 15 years up to 20 years of employment the compensation totals 3,5 weeks' wages for every 52 months of employment;
  • For more than 20 years up to 25 years of employment the compensation totals 4 weeks' wages for every 52 months of employment. 

For the calculation of the total compensation upper thresholds apply, which as of 2020 are as follows:

  • Maximum payable weeks are set to 75.5;
  • Maximum payable amount per week is set to €703.60;
  • Maximum payable total amount is set to €53,121.80.

The Labour Disputes Court (LDC) is responsible for adjudicating over conflicts involving claims towards the redundancy fund.

Lastly, the redundancy fund may be asked by the LDC to make compensation payments to unlawfully dismissed employees. In such a case, the redundancy fund would be asked to cover any awarded compensation of employees for unlawful dismissal exceeding the equivalent of one year of the employee’s actual earnings. The LDC can award compensation to unlawfully dismissed employees of up to two years of the employee’s actual earnings. The employer is obliged to cover compensation payments of up to one year of the employee’s actual earnings.

Funding

  • Companies

Involved actors

National government
Provision of legal framework and supervision of the fund's operations.
Public employment services
The Social Insurance Services receives employers' contributions and administers the operations of the fund.
Employer or employee organisations
Represented both in the board of the redundancy fund.

Effectiveness

The instrument is highly appreciated by all social partners for its effectiveness as regards the provision of income support to redundant employees. Due to its sound and wide reserves basis, the fund managed to successfully withstand the pressure caused by the strong growth of redundancies during the economic crisis. The fund was annually providing compensation to some 1,500-2,000 redundant employees before 2010. With the outbreak of the crisis, the fund saw an influx of approved redundancies peaking at 10,919 in 2013 and at 10,704 in 2014. In the following years, and in line with the improvement of the labour market situation, the number of redundancies began to decline, remaining however significantly high compared to the pre-crisis level: in 2015, 2016, 2017 and 2018 the fund approved and provided compensation to 5,411, 4,558, 2,583 and 1,930 redundant employees respectively.

In terms of expenditure, the fund has paid in 2009 a total of €18.7 million to 2,129 employees, in 2010 a total of €27.9 million to 3,231 employees, in 2011 a total of €31.1 million to 3,679 employees, in 2012 a total of €54.4 million to 5,219 employees, in 2013 a total of €90.7 million to 10,919 employees, in 2014 a total of €99.8 million to 10,704 employees, in 2015 a total of €49.98 million to 5,411 employees, in 2016 a total of €52.05 million to 4,558 employees, in 2017 a total of €28.01 million to 2,583 employees and in 2018 a total of €17.49 to 1,930 employees (data until 2016 are final; data for 2017 and 2018 have not yet been audited by the General Auditing Service of Cyprus).

Strengths

The fund provides income support to redundant employees, thus helping them to withstand the hardship of unemployment, beyond the six-months period where they receive unemployment benefit.

The higher level of compensation, in line with the length of service, is particularly beneficial for older redundant employees whose transition to new employment may be generally a long process (even longer during the contraction of the economy).

The fund builds up reserves in times of high economic growth and low redundancies thus enhancing its capacity to respond effectively to the rising challenges posed by increased redundancies during a contraction of the economy, even by a prolonged one as it was the case in 2012-2015. The fund’s reserves have been rising up to the end of 2012, peaking at €396.1 million compared to €200.2 million at the end of 2007. Due to increased redundancies, the fund’s expenditure which had increased by €90.7 million in 2013 and €99.8 million the next year, saw its reserves decrease to €329 million at the end of 2014. From 2015 onwards, the reserves returned back to positive growth, however at a lower rate. The fund’s reserves at the end of 2018 were €447 million with a total of 1,841 pending applications.

Weaknesses

The major weakness of the instrument is the length of the procedures since the redundant employees do not receive their compensation when they need it most. The average observed time for processing an application is over a year and during the peak of the crisis with the exponential increase of applications, it increased to around one and half year. A considerable part of the delay is due to the underlying legislation, which determines that an employer who proceeds to redundancies is not allowed for the next eight months to hire new staff without providing priority to the redundant employees. Obviously, the fund is expecting the eight months period to elapse before proceeding to the final stage of an application. 

Occasionally, social partners voice demands for reformation of some of the fund’s features. The employer organisations, for example, asked in the past – in view of the fund’s accumulated reserves - the reduction of the employers’ contributions to the fund. On the other side, trade unions multiplied request for the scheme’s treshold to be increased, both in terms of maximum payable total amount, maximum payable total weekly wages, as well as the maximum length of service.

More recently, trade unions have raised objections against one of the features of the scheme requiring the redundancy fund to make compensation payments to unlawfully dismissed employees. The unions argue that the share of the unlawfully dismissing employer on the total compensation of the dismissed employee should be higher than one year’s actual gross earnings. With the current threshold, employers tend to resort to unlawfully dismissals knowing that in the event of a verdict by the Labour Disputes Court, the compensation payable to the concerned employee(s) cannot exceed the total of one year of the employee’s actual gross earnings.

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