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Publication date: 06.05.2024
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How do other countries deal with the problems of salary arrears
Salary arrears in EU countries differ from arrears in Ukraine in that they mostly concern bankrupt companies, companies that have changed ownership, or are the result of discrimination against certain categories of employees based on origin, gender, age, etc.
In the EU, the problem of non-compliance and ignoring the legislation is much less relevant than in Ukraine - according to the practice of the European Court of Human Rights, wages and pensions are private property rights.
The accumulation of significant amounts of salary arrears is prevented by the high level of development of the economic systems of European countries, where the availability of loans, a low level of corruption, effective state regulation, etc. contribute to solving the problem.
The experience of European countries shows that the main condition for minimizing debt is social dialogue, clear discipline of compliance with legislation, transparency and openness of discussion of these problems, wide use by employees of mechanisms of active struggle for their own labor rights.
The practice of subsidizing wages
One of the wage protection mechanisms, which was spread in many countries in order to counteract the impact of the crisis on the economy and the labor market, in particular during the COVID-19 pandemic, was the introduction of temporary wage subsidies.
Temporary wage subsidy was implemented under different names in Austria, Argentina, Belgium, Canada, Netherlands, Germany, France, Great Britain, USA, etc.Wage subsidy is characterized by the fact that it is clearly aimed at supporting and continuing employment relations. This helps businesses restore production capacity as quickly as possible, and prevents workers from losing their jobs and related benefits, including seniority savings, which in many developing countries are one of the few ways workers can increase their wages.
Social dialogue becomes the basis for the development of adequate schemes of temporary subsidization of wages in order to take into account the peculiarities of countries.
Wage subsidies are usually provided in the form of grants. In some countries, wage support interventions are implemented in the form of credits and loans. For example, the United States introduced the Employment Retention Credit, which encourages employers to retain workers.
Many wage subsidy schemes cover a wide range of workers but do not include unregistered workers or workers who do not work in the country legally. For example, in the UK, all workers are eligible for subsidies (including part-time workers) provided they are registered with the social security system and have a UK bank account.
Temporary wage subsidy schemes are usually financed through general taxation or through social contributions paid by employers and employees. In particular, in France, two-thirds is financed by general taxation, and one-third by unemployment insurance. In some cases, wage subsidies may be co-financed or financed by international donors.
The extent to which enterprises pay additional assistance to employees in addition to the subsidy is determined by regulatory norms or within the framework of social dialogue. For example, in Brazil, companies with revenue above a certain threshold are required to pay 30% of workers' wages, while subsidies cover 70%. In Cambodia, garment workers are paid US$40 by the government and employers are required to pay US$30.
What recommendations do EU countries give to Ukraine?
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It should be noted that international economists recommend the Government of Ukraine to provide a temporary wage subsidy to employees who change their place of work.This proposal is included in the study "Post-war macroeconomic architecture of Ukraine", prepared by international experts who are part of the Advisory Council on Economic Policy (its members will provide the Ministry of Economy of Ukraine with recommendations on ensuring the rapid recovery and development of Ukraine). The study argues that, given the large movements in the labor market, the philosophy of its regulation should change from protecting jobs to protecting workers.
Legislative regulation of wage protection in case of insolvency of the employer
The protection of wages in case of insolvency of the employer within the framework of the international labor standard is regulated by a number of acts, in particular:
• ILO Convention on the Protection of Wages No. 95;
• Convention of the International Labor Organization on Protection of Claims of Employees in the Event of Employer's Insolvency No. 173;
• ILO Recommendation No. 180 on protection of employee claims in cases of employer insolvency;
• European Social Charter (revised).
For example, ILO Conventions No. 95 and No. 173, the European Social Charter (revised) provide for two ways of protecting the claims of employees for the payment of wage debts in the event of enterprise insolvency: 1 — with the help of a privilege, when employees use the priority right to receive the owed salary during bankruptcy proceedings;
2 — by ensuring the claims of employees with the help of guarantee institutions that compensate for wage losses in the event of the employer's insolvency.
EU legislation, among other things, adopted Directive 2008/94/EC on the protection of employees in case of bankruptcy of the employer, which, in particular:
• requires Member States to establish an institution to guarantee payments. The guarantor institutions must ensure the payment of the outstanding claims of the employees within the period determined by the Member States;
• establishes a minimum guarantee period for the EU covering remuneration for the last three months (within a reference period of at least six months) or eight weeks (within a reference period of at least eighteen months);
• requires Member States to adopt the necessary measures to protect occupational supplementary pensions.
Application of EU legislation in practice
There is a relatively wide variety of approaches to the payment of wages and related claims for compensation in the event of enterprise insolvency.
Some countries have introduced a system of prioritization or giving preferences to claims for the payment of wages and other compensations without using a guarantee fund, insurance system or other social protection system aimed at directly compensating employees for wages and other losses in the event of enterprise insolvency.Other countries have introduced wage guarantee or compensation fund schemes or insolvency insurance schemes to pay wages to workers on demand. The biggest advantage of such funds is that they offer immediate financial payment to employees in the event of employer insolvency, where part of the claims are paid directly, and then work is done to collect the rest of the money owed to the employees from the debtor company after liquidation of its assets.
Some countries have adopted a hybrid approach in order to reduce losses for employees in the event of problems with the employer, adopting a system of priority claims of the employee in case of insolvency and creating a wage guarantee fund.
Wage guarantee funds are generally insurance schemes run by government (or executive) authorities that guarantee most or all of workers' wage claims in the event of business insolvency/bankruptcy.
The wage guarantee fund is most often financed by mandatory contributions, which are usually paid only by employers, but funding from the state may also be provided.
The experience of countries in the repayment of salary arrears, in particular with the help of a guarantee institution
In Denmark, there is an employer/industry funded Wage Protection Fund to meet employee wage claims in insolvency cases. The fund provides Danish companies with funds that will be used to pay employees outstanding wages and related claims.
Thus, the Fund provides assistance to employees and at the same time helps the company to avoid problems that could jeopardize its restructuring and also prevents job losses.
Germany has a wage protection fund to cover wage claims in insolvency proceedings, which pays net wages for the last three months prior to the opening of insolvency proceedings.
The Federal Employment Agency manages the guarantee fund. The fund is financed by monthly contributions from private employers (0.06% of the wage fund in 2018), which are paid together with social security contributions.
After paying the wage claims arising from the insolvency, the Federal Labor Agency becomes a creditor of the workers' claims, but without privilege.
In the event of a delay in salary for more than 2 months, the employee, after warning the employer, may not perform work duties and demand full salary calculation for this period.
If the employer delays the salary, it is possible to demand the payment of a penalty in the amount of 5% of the rate and compensation for material losses suffered by the employee.
