Italy: New solidarity contracts boost inter-generational staff turnover

The aim of the 2016 Stability Law is to create stable permanent work for younger, less experienced workers while ensuring that the skills and experience of the older generation are not lost, and that shorter working hours or reduced social contributions do not erode entitlement to welfare benefits and pensions.

Italy’s 2016 Stability Law has created a system to encourage ‘intergenerational staff turnover’ in companies. This would allow for knowledge transfer from older to younger workers, and a phased, flexible movement into retirement for those close to the end of their working lives.

The new law also regulates the so-called ‘solidarity contracts’ that allow employers to reduce the working hours of older workers hours while preserving their social security benefit entitlement, so that new, younger workers can be employed on permanent employment contracts. To do this, the law establishes a link between paritarian solidarity funds, paritarian institutions, and employers to ensure that workers whose hours have been reduced under the measure do not lose the social security contributions that would have been calculated and paid on the share of their lost wages.

Introduction

One of the most important goals of the 2014 Jobs Act (Act no.183/2014) was to standardise the protection offered by Italy’s social welfare ‘safety nets’. It turns passive income support measures into a system of active policies based on compliance mechanisms, aimed at encouraging the reintegration of beneficiaries into the labour market.

The 2016 Stability Law (Act No. 208/2015)) adopts the same approach. Article 1, paragraph 284 sets out how the Jobs Act – unemployment scheme for temporary crises (JATC, (Act No. 148/2015) can be applied through higher flexibility in the pension system. Its provisions offer support for workers close to retirement who wish to leave the labour market, making it possible for them to turn their full-time employment contract into a part-time one, with a reduction in working time of between 40% and 60%.

Article 1, paragraph 285 of the Stability Act complements provisions on social security contributions, in particular in relation to solidarity contracts aimed at hiring new workers on permanent employment contracts by the reduction of working time. This type of contract was previously governed by Article 2 of Act No. 863/1984. The Stability Act makes it possible for paritarian institutions and paritarian solidarity funds to make up the shortfall in social security contributions for workers whose hours have been cut.

Social partners will be responsible for establishing the level of supplementary contributions, taking into account the economic performance of the sector. It is hoped that all these measures combined will encourage intergenerational staff turnover, helping to deal with the two key challenges of youth employment and company investment.

 

New solidarity contracts

Provisions of the agreements

JATC governs the new solidarity contracts by imposing limits on the content and management of each agreement. This type of contract is governed by Article 14 of JATC which stipulates that, in order to increase the number of employees, company-level collective agreements may allow for the permanent reduction in working time and pay to be complemented by the hiring of new staff under permanent contracts. For each worker hired in this way, employers are paid a subsidy by the National Institute of Social Security (INPS) amounting to 15% of gross pay for the first 12 months as set out in the applicable collective bargaining agreement. This subsidy is expected to be reduced for the following two years to 10% and 5% respectively.

Article 41, paragraph 2 of the JATC establishes that if workers hired under this type of contract are aged between 15 and 29, employers pay the same share of contributions as they would for apprentices (currently 0% for employers with nine employees and 10% for those with 10 or more employees), irregardless of the share of contributions to be paid by the worker.

These provisions should be linked to Article 41, paragraph 5 of JATC, which applies the aforementioned framework to workers two years away from the statutory retirement age. These workers shall have agreed to work for no more than half of their previous working time. As for solidarity funds, JATC adheres to the framework set out by Act No. 92/2012, which is that the most representative trade unions and employers’ organisations at national level are solely responsible for setting up such funds.

Types of solidarity funds

The JACT lists five types of solidarity funds available:

  • ‘INPS-related’ Paritarian Solidarity Funds;
  • Alternative Paritarian Solidarity Funds;
  • Residual Solidarity Fund, renamed ‘Wage Subsidy Solidarity Fund’ as of 1 January 2016;
  • Territorial Intersectoral Solidarity Fund of the Autonomous Provinces of Trent and Bolzano;
  • pre-existing solidarity funds (such as those in the banking and transport sectors).

Unlike previous legislation, JATC covers employers with an average of 5–15 employees: these employers will be entitled to the solidarity allowance (assegno di solidarietà) in the case of working time reduction or suspension from 1 July 2016 onwards.

Pension contributions

The newly passed 2016 Stability Law links the two sets of rules under scrutiny by adding paragraph 2bis to Article 41 of JATC. This means that when employees’ working time, and consequently their pay, is permanently reduced, employers, paritarian institutions and solidarity funds can still pay them the amount of pension contributions calculated on the share of their lost pay (where such contributions are not paid by INPS).

This measure is based on the employee’s choice as well as on an individual agreement between the employer and the employee. This is in line with recent pension reform that makes it possible for workers to retire at any time between the age of 62 and 70, but rewards those who decide to work longer with higher pension, and pays a reduced pension to those who choose early retirement.

Position of the social partners

The social partners have not made any detailed statement on the issue. The Italian General Confederation of Work (CGIL) stressed that the provisions on part-time jobs and the modification to the JATC could have positive effects if collective bargaining makes the best use of it. The confederation added that the social security rules contained in the 2016 Stability Law are still incomplete and do not address the problems of the Italian pension system. 

The Union of Italian Workers (UIL) has backed the new provisions, but is worried about how they will be funded. The budget for the INPS subsidy of social contributions is capped at €60 million in 2016, €120 million in 2017, and €60 million in 2018 and INPS will not accept any further applications once these thresholds are reached.

According to the Italian Confederation of Workers’ Unions (CISL), the attempt to encourage intergenerational staff turnover is positive; however, CISL believes it should be complemented with other specific interventions.

CGIL, CISL, and UIL have recently presented a joint proposal on amendments to the current pension system. The leaders of the three confederations intend to speed up the debate and to tackle the issue jointly and are campaigning to end a provision in recent pension reform that links retirement age to any change in life expectancy in Italy. They are also arguing for making flexibility schemes available to all workers close to retirement age, setting the minimum age at 62 years, and enabling all workers with 41 years of contributions to retire with no penalties. 

Employer organisations are generally satisfied with the JACT, particularly its simplification and clarification of regulations compared to previous legislation. 

Conclusions

The new stability law aims to encourage intergenerational staff turnover through voluntary and flexible measures. Nevertheless, in the past, these measures were not very widely used because workers would lose both working time and wages. In the next few months it will be possible to assess whether the new rules have overcome these drawbacks. 

 

 

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