Unions criticise subsidy for companies which allow shorter working week

In January 2009, the government introduced new legislation which grants subsidises to companies introducing a shorter working week instead of laying off workers due to a drop in demand. However, trade unions and the Association of Workers’ Councils of Slovenian Companies have criticised the legislation. They argue that it is not precise enough and that the legislation should specify that workers’ pay should not be reduced.

On 14 January 2009, Slovenia’s parliament passed the Law on Partial Subsidisation of Full Working Time (LPSFWT), which grants subsidies to companies that introduce a shorter working week instead of laying off workers due to a drop in demand for products or services. The measure is one of the focal points of the government’s €800 million economic stimulus package – entitled ‘Measures of the state to alleviate the consequences of the economic crisis’. It follows amendments to the laws on tax procedures and income tax, which are worth a combined €50 million.

Details of company subsidies

Compensation amount

Under the LPSFWT, companies that reduce the working week from 40 to 36 hours will receive a subsidy of €60 for each worker. In order to shorten the working week, a company must conclude a company collective agreement on a shorter working week with the company trade union. According to Article 142 of the Law on Labour Relations (LLR) (SI0206101N, SI0706019I), ‘the law or a collective agreement may stipulate a working time shorter than 40 hours a week (maximum full working time), but full working time should not be shorter than 36 hours a week’.

Companies are also eligible to receive a further €60 for each worker if they reduce the working week to 32 hours. In such instances, Article 2 of the LPSFWT stipulates that the company must conclude with the representative trade unions an agreement providing for a shorter working week. In this case, the employer is obliged to pay the worker compensation covering the difference between the 32 hours and the full working time. Social security contributions are paid on the latter basis and the labour law status of the worker is not changed. The worker retains all rights pertaining to those who are employed full time: in other words, as specified under Article 41 of the LLR, the employer must provide the worker with the work agreed on in the employment contract for full-time work. Article 137 of the LLR states that the worker is entitled to wage compensation when they do not perform their work due to reasons put forward by the employer – for example, due to circumstances in the market. In such cases, the employer is obliged to pay wage compensation to the worker for the working days and hours that are not worked by the worker.

Company criteria

The longest period for which subsidies for a reduced working week can be awarded is six months. During this time, the recipient companies:

  • must pay wages and social security contributions for the workers for whom they are receiving subsidies;
  • cannot lay off workers;
  • are prohibited from ordering overtime work and paying executive bonuses for the whole financial year.

The deadline for submitting an application for the subsidy is 30 September 2009.

Value of compensation

For employers, the sum of €60 for each worker included in the scheme will provide for the:

  • repayment of almost the entire cost of four hours of pay in sectors where the average pay is low – predominantly in labour-intensive sectors;
  • repayment of social security contributions for four hours of pay in sectors where remuneration is at the average pay level;
  • partial repayment of social security contributions for four hours of pay in sectors where pay is above the average level.

Cost of measure

According to Slovenia’s new Minister of Labour, Family and Social Affairs, Ivan Svetlik, the measure is estimated to cost €230 million – a sum which would subsidise the wages of some 250,000 workers.

The government explains that the measure is in line with the European Economic Recovery Plan (128Kb PDF). Among other provisions, the latter plan also proposes lower taxes and social security contributions, accompanied by greater flexibility in working time arrangements, to avoid unnecessary redundancies in industries that are temporarily affected by a short-term downturn in demand.

Trade unions criticise legislation

In response to the new legislation, the Union of Free Trade Unions of Slovenia (Zveza svobodnih sindikatov Slovenije, ZSSS) staged a brief protest in front of parliament buildings, arguing that the LPSFWT did not protect workers’ standard of living and allowed for abuses as it did not prevent pay cuts. According to ZSSS, the LPSFWT should include a stipulation to ensure that workers’ pay does not drop; under the current provisions, pay would decrease in most of the companies introducing a shorter working week in spite of the subsidies.

ZSSS is concerned that companies receiving subsidies to compensate for the introduction of a shorter working week will cut pay and make a profit. Therefore, it believes that company accounts should be assessed to ensure that the subsidies are really being allocated to the workers. The ZSSS trade unions find it unacceptable that budget funds could be turned into company profits and insist that the subsidies should profit the workers.

ZSSS reiterated its concerns that the companies seeking subsidies to compensate for shorter working time would simply make employees redundant following the six-month period during which they are forbidden to cut jobs under the LPSFWT. Thus, it argues that the LPSFWT is not designed to save jobs but will merely postpone layoffs. Moreover, retaining the job does not necessarily provide social security for workers as, in addition to pay cuts, many companies delay workers’ pay due to the economic crisis.

Moreover, there is no control over which companies are eligible for funds: establishments that are doing well and those that are experiencing difficulties can both opt for a shorter working week and hence for subsidies.

The ZSSS Executive Secretary for legal and employment affairs, Andrej Zorko, also highlights that the sectoral collective agreement determines the lowest possible basic pay for full-time work, regardless of whether the working time amounts to 40 or 36 hours a week. Therefore, a shorter full-time working week of 36 hours does not automatically mean lower pay according to the principle of lower pay for less work. From a labour law perspective, the lowering of pay constitutes a different procedure – determined through sectoral and company collective bargaining, or the conclusion of an employment contract – than the shortening of the working week (Article 142 of the LLR, see above).

Alleged shortcomings of legislation

The Association of Workers’ Councils of Slovenian Companies (Združenje svetov delavcev slovenskih podjetij, ZSDSP) is organised within the Studio Participatis – Study Centre for Industrial Democracy (Studio Participatis – Študijski center za industrijsko demokracijo, ŠCID) (SI0312101F). ZSDSP called on the Ministry of Labour, Family and Social Affairs (Ministrstvo za delo, družino in socialne zadeve, MDDSZ) to address the shortcomings concerning the implementation of the LPSFWT, as some companies have cut working time as well as pay, which goes against the LPSFWT.

The intention of the LPSFWT is ‘to partially subsidise full working time by co-financing pay for full working time’. According to the MDDSZ: ‘although workers will work a few hours less, their years of service concerning pension insurance will not be diminished. On the other hand, this measure will lower labour costs for employers during the crisis and protect the social security funds by not diminishing the contributions.’

ZSDSP argues that, in theory, it may seem that workers’ pay is being subsidised. However, because some employers have cut working time as well as pay, this is not the case in practice. Furthermore, the intention of the LPSFWT is to subsidise employers’ labour costs. The association therefore questions why it is the employers that lower labour costs by cutting pay that are eligible for subsidies, thus being rewarded by the state for reducing workers’ rights.

Article 3, Paragraph 1 of the LPSFWT states that the employer must pay wages during the period in which they are receiving the subsidy. However, the legislation does not clearly state whether these wages should be as high as before or of a particular amount; the wages can therefore be reduced at will. ZSDSP contends that the vague formulation and incorrect interpretation of the latter paragraph, along with the insufficient guidelines regarding the implementation of the LPSFWT, have led to anomalies that have counteracted the main purpose of the law. It has thus called on the MDDSZ to immediately supplement guidelines and forms used for applying for subsidies with an explanation outlining that only employers that do not cut wages are entitled to receive subsidies for a shorter working week. Exceptions would only be possible on a temporary basis and if companies agree to reimburse the difference to workers after the crisis period ends.

Conflict at Mura textile company

At Mura, Slovenia’s largest textile company, the management of the ZSSS company trade union threatened to organise a strike over pay provisions following the shortening of the working week. The most important strike demand was that the company management should withdraw the annexes to the employment contracts; the latter stipulated that basic pay, determined by the collective agreements, would be lowered by between 1% and 5%. All employees working a shorter working week were asked to sign these annexes after the introduction of a 36-hour working week on 1 February 2009. The company trade union advised the workers not to sign the annexes, although their superiors – according to the strike board President, Drago Forjan – threatened them with dismissals if they refused to do so.

Mura employs 3,450 workers, 3,115 of whom have been included in the subsidisation scheme. The average gross wage at Mura is just under €700. About 1,500 Mura workers receive the statutory gross minimum wage, which amounts to €597 and cannot be lowered. However, by signing the abovementioned annex, many of the workers whose pay is only a few euro higher would receive remuneration lower than the minimum wage.

On 25 February 2009, the management and company trade union at Mura reached a compromise, whereby pay will not be reduced and employment contracts will be concluded instead of annexes.

Štefan Skledar, Institute of Macroeconomic Analysis and Development

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