Italy: Streamlining of social safety nets in new Jobs Act

Unions in Italy are divided over reforms in the new Jobs Act regarding welfare payments for workers who are temporarily unemployed. Employer organisations, however, have generally welcomed the way the act has streamlined certain measures. 

Introduction

The latest four legislative decrees implementing the Jobs Act were issued on 23 September 2015. They covered the following aspects: 

  • the reorganisation of rules on special social safety nets to be activated for workers who are still in employment (Legislative Decree no. 148/2015) – ‘JATC’;
  • rationalising and simplifying inspection activities concerning employment and social security legislation (Legislative Decree 14 September 2015, no. 149) – ‘JALI’;
  • reorganising norms governing employment services and active labour market policies (Legislative Decree 14 September 2015, no. 150) – ‘JALM’;
  • rationalising and simplifying procedures and obligations for citizens and businesses, as well as other provisions concerning employment relationships and equal opportunities (Legislative Decree 14 September 2015, no. 151) – ‘JAS’.

The provisions of JATC reshaped the wage guarantee funds and the solidarity contract, introducing stricter criteria for applicants. They are also aimed at extending the coverage of social safety nets using paritarian funds (social protection funds set up through collective agreements at company level).

Streamlining measures

Wage guarantee funds

JATC streamlines previous law provisions by distinguishing between general rules and rules applying to the Ordinary Wages Guarantee Fund (CIGO) and the Extraordinary Wages Guarantee Fund (CIGS). These are funds aimed at protecting workers’ income in case of suspension or reduction of work due to business crises. 

Workers who claim CIGO and CIGS are hired under subordinate employment contracts; this now also applies to professional training apprentices (but not domestic workers or executives).

A worker can claim CIGO and CIGS for a maximum of 24 months (to be calculated over a five-year period from the date when the payment begins). The amount of subsidy given is 80% of the gross pay for non-worked hours. However, the previous ceiling, limiting the base for computation of non-worked hours to a maximum of 40 weekly hours, has now been removed. Furthermore, additional contributions due from companies activating CIGO or CIGS are no longer linked to their size. Instead, contributions increase in line with the duration of the benefit. The periods covered by the subsidy will continue to be counted for the purposes of access to pensions and also for the computation of pension benefit. (This is the case for the so-called ‘virtual contributions’, based on the gross pay due for non-worked hours.)

Different events may trigger the use of wage guarantee funds. For CIGO, the reasons are loss of pay due to the following:

  • the business situation, caused by temporary events that cannot be ascribed to the company or to its employees, including seasonal bad weather;
  • temporary market situations, including unavoidable events that could not be predicted within the normal range of business risk.

CIGS can be applied for when business activities are suspended due to the following:

  • a business restructuring (the programme for this must include an action plan aimed at tackling productive inefficiency; it must be targeted at recovery in employment, and it is established that – as in the case of a corporate crisis – layoffs can be authorised for up to a maximum of 80% of workable hours in the production unit and within the time span set out in the approved programme);
  • a corporate crisis (the management plan for this has to include a recovery plan aimed at tackling corporate imbalances; from 1 January 2016, cases of cessation of production or of branch closure are excluded);
  • ‘solidarity contracts’ (these are agreed by companies through firm-level collective bargaining agreements that envisage a reduction in working time).

It should be noted that transitional arrangements have been made for 2016, 2017, and 2018. These mean that, within the spending limit of €50 million, a further extraordinary wage subsidy can be approved (for a maximum of 12, nine, or six months, respectively) if a company ceases production.

The act also abolished the Special Wages Guarantee Fund (CIGD), which was an additional social shock absorber for employees not covered by CIGO and CIGS, or whose CIGO and CIGS benefits had expired. The activation of CIGD, decided at regional level, and on a largely discretionary basis, often led to a patchy use of resources and abuses of the system.

Solidarity funds

Solidarity funds guarantee income support measures to workers who are still in employment but not covered by the wages guarantee system.

The JATC decree sticks to the framework set out in Law 28 of June 2012, No. 92, which states that solidarity funds are the responsibility of the most representative trade unions and employer organisations at national level.

The act sets out four types of funds:

  • paritarian solidarity funds;
  • alternative paritarian solidarity funds;
  • Wage Subsidy Fund (which replaces the Residual Solidarity Funds);
  • the local cross-sectoral fund of the provinces of Trento and Bolzano.

Paritarian solidarity funds guarantee protection to employees when they face short-time working, or work is suspended. These funds are established by the Ministry of Labour and Social Policies and the Ministry of Economy and Finance, and managed by the National Institute of Social Security (INPS).

The alternative paritarian solidarity funds  apply to the craft sector and to temporary agency work. These funds ensure that an ordinary allowance and/or a solidarity allowance is paid for at least 26 weeks over a two-year period (from the date when payment begins). In order to become operative, these funds must be entered by collective bargaining agreements to be signed by the social partners before 31 December 2015  and entailing an ordinary financing rate of at least 0.45% of pay, subject to social security charges. If these conditions are not met, companies with more than five employees will be covered by the Wage Subsidy Fund.

From 1 January 2016, the Residual Solidarity Funds are being replaced by the Wage Subsidy Fund. If an alternative paritarian solidarity fund has not been set up, employers that have more than 15 employees will be covered by the Wage Subsidy Fund.

The JATC decree, unlike previous rules, also included in the coverage of the fund employers with between 5 and 15 employees. From 1 July 2016 onwards, they are entitled to claim the solidarity allowance if working time is suspended or reduced.

The fund in the provinces of Trento and Bolzano, because of its cross-sectoral nature, will be accessible to a significant number of employers. This highlights the attempt to include, within a common solidarity fund, workers in small and medium-sized enterprises (SMEs) not entitled to CIGO or CIGS or any other solidarity funds.

Solidarity contracts

The reform makes solidarity contracts more attractive than CIGO and CIGS. While CIGO and CIGS last for a maximum of 24 months for each employee over a five-year period, the solidarity contract can apply for a maximum of 36 months.

The act under examination identifies a new limit applying to the reduction in working hours: currently, it cannot exceed 70% of each employee’s working time over the contract term.

Expansive solidarity contracts are reorganised: in particular, it is established that if firm-level agreements envisage a steady reduction in working time with a decrease in pay, as well as simultaneous hiring of new personnel under permanent contracts, employers are entitled to receive (for each newly hired worker) a subsidy amounting to 15% of the gross pay for the first 12 months.

For each of the following two years, this 15% subsidy, which is paid by the INPS, is reduced to 10% and 5%, respectively. If workers taken on are aged between 15 and 29 years, employers pay reduced social security contributions (equal to the rate for apprentices).

Social partners’ perspectives

Among the trade unions, there is a variety of reactions to the new rules. The Italian General Confederation of Work (CGIL) is generally opposed to the maximum duration of 24 months for wage guarantee funds. It says that some of the regulations will leave workers worse off, including:

  • the reduction of the time span for which wage guarantee allowances are paid;
  • the increase in terms of social security contributions to be paid by businesses.

CGIL says this will not foster the use of social safety nets, but will encourage the misuse of collective dismissals.

The Union of Italian Workers (UIL) has also criticised JATC, saying that while more people could benefit, the quality and quantity of wage guarantee allowances is worse. UIL adds that, with paritarian solidarity funds, it is necessary to restore the balance between ‘public’ bilaterality and ‘contractual’ bilaterality envisaged in the alternative paritarian solidarity funds and the wage subsidy fund. However, UIL has welcomed the fact that the rules have been streamlined into a single text.

The Italian Confederation of Workers’ Unions (CISL) is generally satisfied with the new provisions of the Jobs Act. It says that the new rules mean that solidarity contracts can, if used alone, last longer. The union adds that the link between active and passive labour market policies is very important because it is crucial for workers to re-enter the labour market as soon as possible.

Employers’ organisations – such as the General Confederation of Italian Industry, Confindustria, and RETE Imprese Italia – are generally satisfied with JATC. They too criticise the expected increase in social security contributions from the paritarian solidarity funds. They would like more integration between public resources and contract-based resources, particularly for companies with more than 15 employees.

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