EMCC European Monitoring Centre on Change

Fund for the protection of employees' rights in case of employer's insolvency

Cyprus
Phase: Management
Típus:
  • Income support for workers
Utoljára módosítva: 12 July, 2021
Név:

Ταμείο για την Προστασία των Δικαιωμάτων των Εργοδοτουμένων σε περίπτωση Αφερεγγυότητας του Εργοδότη

Angol név:

Fund for the protection of employees' rights in case of employer's insolvency

Coverage/Eligibility

Generally covers all workers. Excluded are:

  • employees who have special links and common interests with their employer, leading to collusion between employee and employer;
  • employees who are shareholders and members of the board of directors;
  • employees of the naval, military and air forces of the UK government;
  • employees who do not habitually reside in Cyprus;
  • employees who alone or with first generation relatives own a substantial part of the business;
  • officers working for the government.

Main characteristics

The legislation for the protection of employees' rights in case of employer insolvency covers workers against bankruptcies. In particular, all outstanding payments by employers to employees are safeguarded by a special fund established for this particular purpose. Over a period of 78 weeks prior to the date the employer's insolvency commenced, the employee is entitled to the following payments from the fund:

  • all unclaimed wages due from the employer for the last 13 weeks of employment prior to the insolvency declaration;
  • the equivalent of all unclaimed paid leave for the above mentioned 13 weeks (in the event that the employer possesses a certificate of exemption from payment of contributions to the central holidays fund);
  • the equivalent of the thirteenth and fourteenth salary or the wages of the 53rd–54th weeks for the same period.

The fund is financed exclusively by employer contributions (0.2% on employees' gross salaries).

    Funding

    • Companies

    Involved actors

    National government
    Legal framework.
    Public employment services
    The Social Insurance Services are responsible for the application of the legislation and thus also for the administration of the fund for the protection of employees' rights, in the event of insolvency of the employer.

    Effectiveness

    From 2009 to 2020, the insolvency fund has received 657 applications. However, 310 of the applications were from 2013 and 2014, and only 84 cases were approved by the end of 2020. It is noteworthy that from 2018 to 2020, the fund has only approved 2 applications. Some of the accepted or rejected applications may have been submitted to the fund earlier than 2009. From 2008 to 2019, the fund has made payments to applicants amounting to only €318,342, while the administrative costs amounted to €569,938. It becomes obvious that the fund is following a restraint approval and payment policy. The annual surplus of the insolvency fund, from 2008 to 2019, averaged to nearly €14 million annually. In 2015, the fund increased its reserves to approximately €179 million. The fund's reserves at the end of 2017 amounted to €205 million and at the end of 2019 to €237 million.

    Strengths

    The fund can provide income support to employees who, due to insolvency of their company, are faced with a loss of income from their wages or salaries.

    This instrument creates financial reserves in a period of high economic growth. The reserves of the insolvency fund were €69.2 million at the end of 2007 and increased to €205.5 million at the end of 2017.

    Weaknesses

    The fund is following a restraint approval and payment policy, which might be explained by the inadequacy of the underlying legislation.

    Depsite the fact that the instrument was introduced in 2006, it still remains not particularly known among employees, resulting in relatively low numbers of applications, even during the difficult years of the economic crisis with around 1,000 companies declaring insolvency. The low acceptance rate of applications as well as the low compensation payable by the Fund and lengthy procedures might be an additional reason discouraging employees to submit applications.

    In this respect, trade unions are pushing for the reformation of the underlying legislation to ease acceptance and accelerate the process of applications. In this context, the Pancyprian Federation of Labour (PEO) has submitted to the Minister of Labour a comprehensive proposal for overhauling the underlying legislation. PEO’s proposal included changes as to when an employer becomes insolvent as well as expanding of the reasons for which employees may apply and receive compensation from the Fund. However, this initiative has not resulted to a significant reform of the legislation. The Ministry of Labour, Welfare and Social Insurance has prepared in 2019 a draft amendment, addressing solely some changes of the bankruptcy and company laws. This amendment is as of June 2020 still pending.  

    Employers, in view of the fact that the fund has built up high reserves, are periodically requesting a reduction of the rate of their contribution to the fund.

    Példák

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