Romania: Latest working life developments – Q4 2017
Trade union opposition to the shift in responsibility for the payment of social security contributions to the employee is the main topic of interest in this article. This country update reports on the latest developments in working life in Romania in the fourth quarter of 2017.
Responsibility for paying social security contributions shifts to employee
In June 2017, the government adopted a new law on pay in the public sector, stipulating an average wage increase of 25% as of 1 January 2018. In an attempt to finance the increase, and to avoid a hike in the public deficit, the government adopted a series of amendments to its fiscal legislation. The most controversial change, from 1 January, is that employers and employees no longer to have joint responsibility for paying social security contributions, with the burden now resting solely on the employee. This will result in a significant increase in the tax burden for the employee and might bring a decrease in their net salaries.
Some studies suggest that if employees’ gross wages are not increased accordingly (by about 20%), the transfer of social contributions will generate a drop in private sector employees’ wages by 16.6% (PDF). Furthermore, the measure will partially neutralise the effects of the wage increases in the public sector and will result in a net increase of only 3%–4%, instead of 25%.
In order to counteract the negative impact on the net salaries of minimum wage earners (who make up 25% of the overall employment), the government also decided to increase, also from 1 January, the gross minimum wage from RON 1,450 (€310 as at 25 January 2018) to RON 1,900 (€406). This represents an increase in the gross wage of 31%, the highest in 10 years. However, the net income will be far less impressive, amounting only to RON 1,163 (€249), compared to RON 1,065 (€228) in 2017, an increase of only 8%.
National protests and mandatory collective bargaining
From the very beginning, trade unions opposed the shift of the social contributions, arguing that, as well as the risk of diminished net incomes, the amendments undermine the key principles of the European Social Model. The European Trade Union Confederation (ETUC) wrote to the Romanian government (PDF) supporting the claims of the Romanian trade unions and stating that the change contravenes the spirit, text and case law of the European Code for Social Security and the Revised European Social Charter, both ratified by Romania.
The National Trade Union Confederation (CNS Cartel Alfa) and The National Trade Union Bloc (BNS) organised several protests both in Bucharest and nationally, and the National Confederation of Free Trade Unions of Romania – Brotherhood (CNSLR-Frăţia) announced a general strike, but abandoned the idea following negotiations with the government.
In an attempt to minimise the negative effects of the transfer, the government issued an Emergency Ordinance (82/2017), obliging all employers to initiate collective bargaining for the implementation of the changes occurring to the fiscal Code between 20 November and 20 December 2017. Some employer organisations have criticised the move.
Employers’ confederation Concordia and the National Council for Small and Medium Private Enterprises (CNIPMMR) claimed that the Ordinance was adopted without consultation with the social partners and unfairly gives them the responsibility of fixing the negative effect of the government’s unilateral decision. BNS and other unions stated that there is no guarantee that the collective bargaining will end with a wage increase, especially in those companies that lack a representative union.
The amendment on social security payments makes Romania the first EU country where employers will no longer contribute to financing the social security system. Although it is predictable that some employees will see their salaries shrink, the true magnitude of the impact is unknown. It is possible, depending on the size of the impact, that there will be increased social tension in the first few months of 2018.