This is an article I have had in mind to write ever since Law 3/2014, 28th Feburary, was approved back in March of this year, however, as has been the case with numerous Government initiatives to combat the crisis, they are not always as they appear to be on face value but now this policy has been active for a few months, we can examine whether it measures up to the hype or not.
Created to incentivize business owners to give their employees indefinite or fixed contracts (full or part-time) in return of reductions on normal employee costs, the contract would only cost a mere 100 Euros per month over a 24-month period instead of 38-40% of the gross salary, it was welcome news.
All companies regardless of their size are eligible to apply and contracts must be received before the 31st December 2014 to be valid. Payable costs vary depending on the hours stipulated in contract:
- Full-time: only 100€/ month
- Part-time (at least 75% of a full-time contract workday): only 75€/month
- Part-time: (equivalent to 50% of a full-time contract workday): only 50€/month
This is the spiel the Government bombarded us with and hey, everything sounds great. Business owners can hire at a fraction of the price but when do we ever get something for nothing? So what were the other conditions that were not really explained properly or made evident?
As is the norm, there are requirements the employer must meet to benefit from this reduced rate:
- Must be up-to-date in all tax and Social Security obligations at the time of application and throughout the period in which the reduced rate will apply
- Cannot have dismissed employees in the 6 months prior to the application. Not applicable if it occurred before 25th February 2014.
- Must not have been excluded from applying due to serious labour violations in the past
Everything still sounds perfectly reasonable but some clauses of the law were not actively disclosed:
- The new contract must equate to an increase in the company’s work force and number of fixed contracts within the company. This means you cannot change an existing employee’s contract, you have to hire new blood which is risky as you cannot simply fire that person without consequences if it doesn’t work out, however, there is nothing to stop you from converting existing contracts onto the new system later.
- Maintain the same number of employees and the same number of fixed contracts in the company for a 3-year period. If the employee leaves the company, somebody else under the same contract must replace them, if not, you would be liable to pay social security back.
Another drawback that was not specified in the propaganda is that this reduced rate only applies to one concept payable to social security, namely Common Contingencies. Even though this concept is the most expensive, calculated at 23,6% of the gross salary, all other concepts such as unemployment, professional training etc. must still be paid on top so the resulting amount is not going to be the 100€ flat rate promised and if your employee receives a higher than minimum salary, expect to pay quite a bit more. The outcome is more like a 100 Euro discount, which is a completely different scenario.
Further reductions can apply after the initial 24-month period as long as there were at least 10 employees contracted to the company at the time the first fixed contract was issued but as mentioned, if all conditions are not met, the business owner is liable to return monies saved under the scheme in the manner detailed in the law.
Only 23,4% of the 292,273 new indefinite contracts registered between March and May came under the new scheme and comparisons from previous years show that the measure has not increased work stability. Before diving in, ensure you read and comprehend the Law in its entirety before making any type of decision.