Social partners push for changes in sickness insurance

Since 2004, employers must pay wage compensation to employees for the first 10 calendar days of their temporary sickness absence. The government has proposed further changes to employees’ sickness insurance with the aim of decreasing the compulsory contributions of employers. The intended changes mean that employers will pay less social insurance but will have to pay wage compensation for up to 14 days. However, the social partners have criticised and rejected the intended changes; as a result, the government has revised the original proposal for changes.

Sickness insurance entitlements

Contributions to compulsory insurance funds (for unemployment, sickness, health, accidents, old age and disability insurance) - which are divided between employers and employees by a ratio three to one - are generally considered to be high. Taking into account the contributions of employers as well as employees, the total rate of these levies is fixed at 48.6% (self-employed persons pay almost the same rate at 47.15%). Therefore, employers in particular require that their contribution rate be lowered. The government is also interested in decreasing the insurance burden while maintaining the present insurance system. In the field of sickness insurance, there is some room for lowering insurance rates because the Social Insurance Company (Sociálna poisťovňa, SP) has a surplus of income from insurance benefits relative to the sickness benefits that it pays out.

The financing of sickness benefits was provided for by Act No. 274/1994 on the Social Insurance Company, which fixed the contribution rates for employees and employers. For the employee, this rate amounted to 1.4% based on an assessment of a gross monthly wage (or salary) and 3.4% for the employer, which is based on the sum of gross monthly wages paid to all employees. These resources were used to fund sickness insurance of the SP. The contributions for other categories of persons (students, the unemployed and soldiers on military service) were paid by the state.

The sickness insurance benefits, granted to employees as compensation of wages during a temporary sickness absence, were already fixed by Act No. 54/1956 - Sickness Insurance of Employees. Even though the calculation of the benefit took the income of the employee into account (e.g. the benefit amounted to 90% of his or her wage from the third day of sickness absence), the maximum value of the benefit was fixed, e.g. to SKK 180 per working day in 1992; this limit was gradually increased up to SKK 350 per working day in 2003. While in 1992 this sum amounted to approximately 79% of the average wage in the national economy, in 2003 it only amounted to 49% of the average wage. This means that the relative level of wage compensation for sickness absence of the employee was gradually decreasing. Moreover, for groups of employees with higher wages, the ratio between the contributions paid to the SP and the wage compensation dramatically deteriorated.

Changes under the new act

The new Act No. 461/2003 on Social Insurance made the amount of sickness insurance benefit more realistic in relation to the wage of the employee. An employee would now receive 55% of their wage from the third day of their temporary sickness absence. The assessment base for the calculation of the benefit is limited by the value of maximum 1.5 times the average wage in the national economy (which is the upper limit for contributions paid to the insurance company).

The new Act also decreased the rate of the employers’ contributions by 1.4%. However, the subsequent Act No. 462/2003 on Compensation of Income during Temporary Sickness Absence of the Employees obliged the employer to compensate the employees for the first 10 calendar days of their temporary sickness absence. The amount of compensation is set in the following way: during the first three days it amounts to 25% of the wage, after which it rises to 55% of the wage. In this way, the SP lowered its income from compulsory insurance contributions, but at the same time also lowered its expenses - it pays the sickness benefit to the insurant only from the eleventh day of his or her temporary sickness leave. At the same time, the employers pay less for sickness insurance, and they have higher expenses for compensation of wages during the first 10 calendar days of the employees’ temporary sickness absence (the less the employers pay to the SP, the more they pay to their employees). The new system did not have much of an impact in large companies; however, in companies with a small number of employees, the risk of momentary high expenses increased because of the costs of wage compensations, e.g. in case of a sudden epidemic.

This Act has also changed the situation of self-employed persons. They now pay only 4.4% (half of the average monthly taxed income recorded for the previous year) instead of 4.8% into the sickness insurance fund. However, the amount of their contributions paid into the reserve fund of the SP has increased. Therefore, the amount of sickness benefits of self-employed persons is now more realistic and the rate is the same as for employees (25% for the first three days of temporary sickness absence and subsequently 55%, with a maximum of a 1.5 multiple of their monthly income). Nonetheless, a precondition for granting this benefit requires at least 270 days participation in the sickness insurance scheme during the two years preceding the insurance case. The same holds also for the entitlement to maternity benefits for self-employed women. For employees, no necessary term of insurance is set for the purposes of paying sickness benefits.

Further changes proposed

Recently, the Slovakian government has decided to pursue the reform of social protection by making changes in the sickness insurance system for employees. The government aimed at reducing the contribution rates of the employers and of self-employed persons within the current system of sickness insurance. However, this proposal meant reducing the level of employee social protection. The contribution rate of the employers would drop from 1.4% to 1% only if the employers would compensate the salary of their employees for longer than at present, i.e. from 10 to 14 calendar days of their temporary sickness absence. This would imply a decrease in contributions together with an increase in the risk of payment of high benefits.

The government proposal also suggested decreasing the amount of sickness benefit from 55% to 50%. Equally, the amounts of other allowances (i.e. attendance allowances and compensatory pregnancy and maternity allowances) should also be decreased. For the employers, the implementation of this proposal would imply a partial improvement of the ratio between the payment of contributions into the SP and the disbursement of benefits to the employees. However, for the employees it would mean a definite decrease in the amount of received benefits, without any change in the amount of contributions paid (the contribution rate of 1.4% paid by the employees would not change according to the proposal). Some changes for self-employed persons were also suggested. Accordingly, they should pay a base contribution of 2.4%, on condition that the amount of the disbursed sickness benefit would decrease to 50% of the assessment base (similar to the employees). The proposals of the Ministry of Labour, Social Affairs and Family (Ministerstvo práce, sociálnych vecí a rodiny Slovenskej republiky, MPSVR SR) were presented for comments.

Objections of the social partners

Both trade union and employer organisation representatives have put forward several objections to the proposed amendments to the Act.

Representatives of the Federation of Trade Unions (Konfederácia odborových zväzov Slovenskej republiky, KOZ SR) fundamentally disagreed with the decrease of employers’ compulsory contributions to the social insurance funds. In their opinion, while this may imply a reduction of their contribution burden, on the other hand, it would also imply a disbursement of lower benefits for the employees (decreasing from 55% to 50% of the employee’s income). The trade unions also objected to the prolongation of the compensation period from 10 to 14 days. According to the trade unions, as the government did not sufficiently explain the reasons for the implementation of the proposed changes, they feel that the only reason for the amendments is to reduce the contribution burden of the employers (who have long demanded this from the government) at the price of a deterioration in employees’ working conditions. Moreover, they consider it interesting that the reduction of the disbursed sickness benefits and the period of their provision by the SP were proposed, despite the fact that during the implementation of the new wage compensation system, the total number of instances of sickness absences, as well as their average duration, have decreased. In the trade unions’ view, the decline of sickness absence of employees should be a sufficient reason for the decrease of employers’ contributions to the SP without decreasing the disbursed sickness benefits to the employees.

The employer representatives also had some objections to the proposed changes. According to representatives of the Federaration of Employers’ Associations (Associácia zamestnávateľských zväzov a združení Slovenskej republiky, AZZZ SR), the introduction of employers’ participation in the covering of sickness benefits for the first 10 calendar days of sick leave is not viewed as advantageous for employers. In terms of employers’ expenses, the change is more neutral than advantageous, as it means a higher administrative burden in the management of their employees’ sick leave. Moreover, the perception that the above-mentioned change has contributed to a decline in the number of employees’ sickness absence days, because of the supposedly better ability of the employer compared with the SP to control the employees’ recuperation, does not necessarily reflect the reality. In practice, big companies and organisations cannot check up on the condition of their employees on sick leave, as it is forbidden by law to violate the privacy of the employees. Also, employers who want to apply disciplinary measures to employees on sick leave, who they suspect are not adhering to a prescribed healing regimen, are often criticised by trade unions.

The employers also evaluated with great caution the proposal to prolong the wage compensation to sick employees from 10 to 14 days. In their opinion, this proposal could have negative or even a ruinous financial impact on small and micro-enterprises, which often do not have sufficient financial reserves for the disbursement of sickness benefits as compensation to their employees.

After evaluating the different perspectives, the government decided to reconsider the originally planned changes and exclude several of the previously proposed amendments from the final proposal. In the final proposal, the government prepared amendments to the Acts on social insurance and employees’ income compensation, recommending the transfer of part of the liability for the wage compensation to the relevant categories of contribution payers. For self-employed persons, the contribution rate into the sickness insurance fund may be decreased from 4.4% to 2.8%, however, only on condition that the self-employed person on temporary sickness absence would receive the sickness benefit from the eleventh day of their sickness absence. For those self-employed people who consider this increase of liability unfair, the original insurance rate with the disbursement of the benefit from the first day of sickness absence should remain the same. This proposal was presented by the government to the parliament in October 2005 and it is expected that the parliament will support its recommendation.

Commentary

Although it cannot be unambiguously claimed that the government has changed its original proposals due to the objections of the social partners, in this instance, the social dialogue does appear to have had a significant impact on the proposed changes to social policy. Moreover, even if not all the social partners’ arguments against the proposed changes have been completely relevant, many have had a rational basis.

For example, the trade unions regard the proposed cancellation of the hitherto protection period of the dismissed employees as an unacceptable interference of employees’ social security. The implementation of this change would, in practice, enable a situation to arise, whereby an employee dismissed due to administrative reasons who becomes sick the day after his or her dismissal from employment, would not be entitled to sickness benefits. However, the employers argue that such an employee is protected by the social insurance system, because he or she is entitled to an unemployment benefit (provided that the employee has paid contributions into the insurance funds for at least 36 months within the last four years). Nevertheless, the trade unions do not consider this to be a sufficient argument, as in practice an employee who becomes sick directly after their dismissal probably would not manage to register in time. Even if they did manage to register in time, they would have to actively search for a job. However, if a person is on a sickness absence, he or she is most likely not sufficiently capable of actively seeking a job.

Circumstances other than the control of employees by their employers probably have a greater impact on the decline of sickness absenteeism, e.g. low sickness payments in comparison with the amount of an employee’s wage or salary; or an employee’s apprehension about potential job loss in cases of frequent sick leave. These circumstances could lead to a situation where ill employees prefer to use their holiday leave to recuperate rather than being officially declared unfit to work by the doctor. This assumption could be confirmed by data which shows that employees with higher incomes take less sick leave than those with lower incomes. Medical and healthcare experts should assess the impact of using holiday leave instead of official sick leave. Some doctors signal that such a practice inhibits the recuperation of employees, and in turn can have a negative impact on their quality of work and long-term productivity. The experience of employers also confirms that only a healthy employee can deliver the best performance. (Rastislav Bednárik and Ludovít Cziria, Bratislava Centre for Work and Family Studies)

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