EMCC European Monitoring Centre on Change

The right of employers to reduce salary and working time

Estonia
Phase: Management
Tipo:
  • Response to COVID-19
  • Income support for workers
  • Working time flexibility
Ultima modifica: 03 August, 2021
Nome originale:

Töötasu ja tööaja vähendamise õigus

Nome in inglese:

The right of employers to reduce salary and working time

Coverage/Eligibility

In situations of unforeseen economic difficulty, employers are entitled to reduce the working time and corresponding salary of their employees.

COVID-19 response

Between March and May 2020, employers were eligible to a governmental wage subsidy if they

  • have suffered at least a 30% decline in turnover or revenue for the month they wish to be subsidised for (compared to the same month in the previous year);
  • are not able to provide at least 30% of their employees (i.e. those who work with an employment contract) with work;
  • have cut wages of at least 30% of employees by at least 30% or to the minimum wage.

The above measure was prolonged to June 2020, while the terms were changed. In June 2020, employers were eligible to the wage subsidy if they

  • had suffered at least a 50% decline in turnover or revenue in June compared to June last year;
  • were not able to provide at least 50% of their employees with work and the work load of the employees has been cut by at least 30%;
  • had cut the wages of at least 50% of employees by at least 30% or down to the minimum wage.

As of 1 April 2021, the subsidy can be applied by employers whose turnover in March or April 2021 declined by at least 50% compared to the period of December 2019 to February 2020 or to the average turnover of the second half of 2020 (thus including those companies who started their activities in 2020). The budget for this round of wage subsidy is €140 million, of which €38 million is covered by the EUIF and the rest by the government. 

Employees who work in the company as of 1 January 2021 and whose workload or pay has decreased can enjoy the subsidy. 60% of the average gross wage of the employee (max €1,000) will be subsidised. Meanwhile, the employer must pay additionally at least €200 before submitting the application. The subsidy is also eligible for the self-employed in the amount of €584 (national minimum wage) if their business income in 2020 was 50% lower than in 2019.

Main characteristics

If an employer, due to unforeseen economic circumstances beyond his/her control, fails to provide an employee with work to the agreed extent, the employer may reduce the salary to a reasonable extent for up to three months over a period of 12 months. The reduced wage cannot be lower than the national minimum wage.

Before reducing wages the employer must offer the employee other work, if possible.

Before reducing wages an employer shall inform the employee representative or, in his or her absence, the employees and consult them. The employer shall provide notice of the reduction of wages no less than 14 calendar days in advance. The employee or their representative shall give his or her opinion within seven calendar days as of the receipt of the employer's notice.

The employee has the right to refuse to perform work in proportion to the reduction of the wages. Also, the employee has the right to cancel the employment contract instead of accepting the reduced pay.  In this case, the employee must notify the employer 5 working days in advance. In this case, the employee must be paid compensation to the extent of one month’s average wage. Also, cancelling the contract on those circumstances (that is, cancelling the contract due to reduced salary) gives the employee the right to receive unemployment insurance benefit. In other circumstances, unemployment insurance benefit is not paid to employee if the employment contract is cancelled at the initiative of employee.

COVID-19 response

Employers fulfilling the above criteria could apply for a governmental wage subsidy covering 70% of the average monthly wage of the employee up to €1,000 for March, April and May. For June, the amount of the subsidy was 50% and up to €800. The employer must additionally pay a wage of at least €150 to the employee. In case the 70% (50%) of the previous earnings is lower than €434, the EUIF still pays €434 to ensure that with the employer's contribution the employee receives at least the minimum wage (in case of full-time employees). Those earning less than the minimum wage due to part-time work receive the total of their wage and the percentage paid by the EUIF is smaller. If approved, the subsidy is paid directly to the employee. The employer pays the employment and social security taxes on their share of the wage, while the EUIF paid the taxes from the subsidy.

Funding

  • National funds
  • Employer

Involved actors

National government
Legal framework; funding
Employer or employee organisations
Before reducing the salary, the employer must inform and consult the employees' trustee (or alternatively directly the concerned employees).

Effectiveness

Since employers are no longer required to inform the labour inspectorate about using this measure since July 2009, information is no longer collected on cases of reduced salary and working time.

Regarding the wage subsidy designed as a COVID-19 response, there were altogether 6,738 companies in March whose employees received the subsidy, the total amount paid to those employees was €27.6 million. In April 2020, it was paid to employees of 16,064 companies in the total amount of €113.7 million; in May, employees of 10,489 employers received the subsidy in the total amount of €90.4 million; in June employees of 387 companies received the benefit in the total amount of €7.8 million (as of 7 July).

 

Strengths

Reducing salary enables employers to react to changes in economic situation flexibly and for a limited period of time. In response, employees are allowed to reduce their working time accordingly. The wage subsidy helped many companies to stay afloat during the crisis.  

Weaknesses

No information available.

Esempi

No information available.
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