Latvia: Latest working life developments – Q4 2016

The adoption of the 2017 State budget, an increase in the minimum wage to €380 and a protest by employers over changes to the microenterprise tax are the main topics of interest in this article. This country update reports on the latest developments in working life in Latvia in the fourth quarter of 2016.

Changes in legislation and state budget adopted

In the fourth quarter of 2016, the government adopted the state budget for 2017. This was supplemented by a legislation package that increased the statutory monthly minimum wage to €380 from 1 January 2017.

The Latvian Parliament (Saeima) adopted more drastic rules on the eligibility for employment benefits. Up to 1 January 2017, an individual could claim unemployment benefits if they had paid social contributions for nine months in the 12-month period before becoming jobless. However , a claimant now has to have paid social contributions for at least 12 months in the 16-month period before becoming jobless.

From 1 January 2017, the costs of catering paid for by employers according to their collective agreements (up to a maximum of €480 per year) will be tax deductible, provided the employers comply with all the relevant rules. It is hoped that this will encourage employers to conclude collective agreements.

There was fierce debate on two issues in the final stages of adopting the State budget. In 2016, the Saeima adopted amendments to the law on State social insurance. This provides for an employer’s social insurance contributions to be calculated on the basis of 34.09% of payroll costs, with 10.5% coming from an employee’s salary. This was to be paid for all employees (including part-time workers); however, there were several attempts to introduce exceptions to this and, in November, before the amendments became valid, some special cases were introduced such as microenterprise workers, old-age pensioners and students, who will pay social contributions from a reduced base. However, the amount from which the mandatory social insurance fees are to be calculated cannot be smaller than three-quarters of the country’s minimum wage (€380 in 2017).

Another hot issue at the end of 2016 was microenterprise tax. The government proposed reducing the microenterprise tax to 5%, but this rate would not include social contributions. In addition to microenterprise tax, employers would pay social contributions as mentioned above. However, these two issues were tied together and the proposals were not adopted after a sharp reaction from both employers and employer organisations.

Debate in construction sector

In the construction sector, the debate continued on measures aimed at reducing the shadow economy, which accounted for 40% of the country’s construction sector in 2016. The government and the sector’s representatives have signed a cooperation memorandum that aims to halve the shadow economy by 2019. At the end of November 2016, a conference was held in Riga, where representatives of the construction sector, experts and supervisors were invited to discuss implementing the memorandum. Proposals about the necessary steps differed: the Partnership of Latvian Building Contractors (representing the largest construction companies) pushed for concluding a national-level general agreement in the sector and setting up a sector-specific minimum wage.

The Latvian Construction Contractors’ Association (LBA), representing small and medium sized enterprises (SMEs), proposed introducing electronic identification cards to ensure the selection of qualified workers and to record worked time in order to monitor productivity. Construction workers already have identification cards, but they are not electronic, and they have not been effectively monitored, so that workers without the necessary training and skills have been employed in the sector, thus endangering the quality of work and safety. Construction workers are also not registered, which can lead to hidden employment. Electronic cards would show all the necessary information about a worker’s education, skills and qualifications, and only those with electronic cards would be considered for a job. The information collected would also be passed to the state revenue service for the registration of worked time. It is expected that the system of electronic cards will be managed by the social partners – the Latvian Builders Trade Union (LCA) and LBA.

Start-up law

The law on State support for fast-growing technological enterprises (start-ups) was adopted on 23 November 2016 and came into force on 1 January 2017). The support measures include:

  • one fixed payment instead of personal income tax payments and social contributions;
  • a special income tax regime;
  • helping with the hiring of highly qualified workers, including foreigners.

It is expected that the support programme will promote the registration of 20 new enterprises and involve 120 highly qualified employees.

Commentary

Unusually, the adoption of the State budget passed without harsh debates and protests, except for the proposals about microenterprise tax and social contributions calculated on a mandatory base. Employers’ protests were powerful and doubts were raised about the stability of the government and quality of the decision-making process in the Saeima.

It is expected that the government will now focus on reforms in the tax system, education and healthcare. These are sensitive issues and may provoke the social partners, but no legislative changes in industrial relations and working conditions are expected.

The Latvian Trade Union of Education and Science Employees (LIZDA) began talks with the Ministry of Education and Science (IZM) about the closure of the Riga Pedagogical and Management Academy (RPIVA) and it is expected that reforms in higher education will continue.

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