This weekly compilation of stories from wire services, newspapers and other sources is intended to keep Mercer employees and registered visitors to mercer.com informed of benefits, compensation and HR developments around the world. Facts have not been independently verified, and opinions expressed are those of the editor. Readers are invited to clarify, correct or expand on these items.
Top stories in this issue:
Canada: 2011 Budget
China: Administration’s short-term goals
EU: Parliament passes single permit directive
Hong Kong: Minimum wage guidance posted
India: PFRDA bill published
UK: 2011 Budget
Recent reports that the President had signed the National Minimum Wage Bill (IH 03/23/11) proved premature. The Nigerian Labour Congress (NLC) had to renew its threat to disrupt next month’s elections if the President didn’t sign the bill. He finally inked it on March 28 and he will meet with union confederations this week to discuss implementation issues.
The state pension accounts are so depleted that the government decided to skip the benefit payment for this quarter and divert the funds to programs for orphans and vulnerable children. The Deputy Prime Minister has advised the Senate that a supplemental budget now in the works should allow the government to resume pension payments soon.
Super tax regime sweetened; Centrelink compliance rules
ABC, Courier Mail, Tax Analysts
The government’s endorsement of the Policy Transition Group’s resource tax recommendations will ensure financing for tax incentives for superannuation contributions. These include the Henry Tax review measure (IH 05/05/10) lifting the contribution cap to $50,000 per year for those above age 50 with less than $500,000 in their accounts. From July 1, 2012, the government will contribute up to $500 per year to offset superannuation contribution tax for people earning up to $37,000.
Also, the Employment Participation Minister said that forthcoming legislation would suspend Centrelink payments to unemployed people who don’t keep their appointments with employment service providers. First offenders who “re-engage” Centrelink would be entitled to back pay and those with a valid reason for missing an appointment would be exempted.
Administration’s short-term goals; Smoking ban
Eastday, China Daily, People’s Daily
The 2011 Report on the Work of the Government and recent comments from the Minister of Human Resources and Social Security flag some notable plans for the near future:
- The minister divulged that his inquiry into retirement age deferral isn’t just for women in the private sector (IH 03/09/11) and that there is broad support in the administration for a retirement age hike. He gave no timetable, noting that this “very complicated issue” must be thoroughly examined.
- The government will “vigorously overhaul and standardize” income distribution with a new tax rate structure and regulation of “excessively high income.”
- The basic pension for the private sector will have an automatic inflation peg.
- There are coverage expansion targets for both social security and the national health system.
- A range of support programs for internal migrant workers will include legal services, vocational training and psychological counseling.
Also, the Health Ministry has announced new regulations that will ban smoking in all public enclosures and place restrictions on designated outdoor smoking areas. The rules will take effect on May 1 and will supersede a widely disregarded smoking ban that was enacted in 2003.
Minimum wage guidance posted
China Daily, SCMP, The Standard
The final draft of guidance on the Minimum Wage Ordinance (IH 03/09/11), Statutory Minimum Wage: Reference Guidelines for Employers and Employees was finally released this week. It gives numerous examples of when the law does and doesn’t apply to commuting time, meal time and standby time. There is also discussion of exceptions for apprentices. It confirms that some key issues, like rest days and many meal breaks, are left to collective bargaining. The Employers’ Federation of Hong Kong (EFHK) – aware of this in advance – has already offered its members guidance on compliance, which emphasizes that it is not necessary to pay workers for meal breaks or rest days. The Hong Kong Federation of Trade Unions (HKFTU) has condemned this statement and has advised workers against accepting revised contracts. The ordinance comes into force on May 1.
PFRDA bill published; Industry rebels against EPF interest rate hike; Various
Hindustan Times, Business Line, Business Standard
The Pension Fund Regulatory and Development Authority Bill, 2011 (IH 03/23/11) has finally reached Parliament. It sets out the “duties, powers and functions” of the PFRDA and has some provisions governing the National Pension System (NPS). The bill includes a prohibition on investing subscribers’ funds outside India. The controversial issue of foreign direct investment in the sector is deferred. It is expected to be addressed in an executive order, which wouldn’t need the legislature’s approval. The bill reportedly now has the votes to pass.
Now that the government has reached agreement on a rise in the guaranteed interest rate for employee provident funds (IH 03/23/11), the business sector – particularly companies that run their own EPF trusts – is refusing to go along. The Employers Federation of India maintains that private trusts should not be held to a higher interest rate just because the Employees Provident Fund Organisation (EPFO) has decided to share its windfall with members. An EPFO official warned that the government will take over any private trusts that do not pay the higher interest rate.
In other news:
- The Finance Ministry has formally confirmed that the new budget’s unpopular health services tax (IH 03/16/11) will be withdrawn.
- The EPFO’s annual account statement will be replaced by a more detailed monthly report as early as the end of this year. Goals include greater transparency and catching defaulting employers faster.
- The Finance Ministry is keen on tightening, if not removing, the provisions on partial withdrawal of EPF funds. The Labour Ministry has come out against ditching the partial withdrawal option or setting a lock-in period for the funds.
Employment insurance hike; Stricter rules on migrant workers; Pension sector oversight
Korea Herald; Joins.com, Asia Pulse
The Ministry of Employment and Labor (MOEL) said that the 0.9% employment insurance contribution, split evenly between employers and workers, will have to rise to 1.1% in April. Critics have noted that MOEL has repeatedly tapped unemployment benefit reserves for things like job programs and child care allowances. MOEL had recently reassured stakeholders that no one’s premium would rise by more than 15% between 2011-13 despite the appearance of a steep hike under a much broader definition of the salary subject to the levy. Now that the premium is rising by more than 15%, it is unclear whether the premium rise under the new salary definition will still be capped.
The ministry has also announced reforms to the employment permit system:
- The migrant workforce quota will be cut.
- Foreign workers whose permits are near expiration will receive vocational training or job seeking assistance geared toward placement in their own countries.
- Effective July 1, employers who hire illegal workers will be warned after the first offense and get a three-year suspension of their right to hire overseas after the second.
Also, noting rapid expansion in the private pension market, The Financial Supervisory Service said that it fears lively competition will engender risky practices, so it will put more resources into monitoring pension sales and the governance of pension funds.
Minimum wage, social security deal
Katmandu Post, Himalayan Times, Republica
The main trade unions and employer organizations have reached a compromise in their minimum wage negotiations (IH 02/16/11). Effective March 15, the minimum monthly wage has risen from Rs.4,600 (US$64.36) per month to Rs.6,100, and the daily wage from Rs.190 to Rs.250. The unions abandoned a demand that the minimum wage be doubled when employers agreed to contribute 10% of total payroll to a coming social security fund (IH 11/24/10). The fund will cover unemployment insurance, maternity leave, disability benefits, workers' compensation and sickness benefits.
KiwiSaver may lose some tax incentives
Manawatu Standard, Nelson Mail, Dominion Post
The Prime Minister refused to deny advance reports that the next budget will feature a reduction of tax incentives for the KiwiSaver scheme. The cutback is expected to include proposals from the Savings Working Group (IH 02/09/11) to:
- Remove the tax break on the first 2% of employer contributions
- End the government match on contributions for the well-off and those over age 40
- Split the initial $1,000 “kick-start” payment into $200 for each of the first five years
Night work bill advances
GMA, Manila Bulletin
The House of Representatives has passed in its third and final reading HB 4276 (IH 03/23/11), the bill that would essentially end the ban on night work for women. There would be exceptions for certain “industrial undertakings” such as mining, power plants and shipbuilding. It is not yet clear whether the Senate will vote on this bill or pass its significantly different counterpart measure and then have the two bills reconciled by a conference committee.
National health insurance scheme
The Peninsula, Gulf News, Gulf Times
The Supreme Council of Health (SCH) (IH 04/15/09) has outlined a three- to four-year timetable for the introduction of a national health insurance scheme. The public and private health sectors would collaborate in providing a basket of basic health services to citizens, residents and visitors. Financing details are not yet available, but SCH gave assurance that the premium would be affordable.
Global Post, NPR, HIS
The King has responded to social unrest with a package of social benefits. The minimum wage (public sector only) is now 3,000 rials (US$800) per month and the unemployment allowance for citizens is 2,000 rials, twice the average wage in the private sector.
Tougher labor law enforcement
The Council of Labor Affairs (CLA) is pursuing enforcement of workers' rights on a few different tracks. It is reviewing loopholes in the Labor Standards Act that are blamed for a rash of recent deaths from overwork. The law allows a “system of job responsibility” wherein – under certain circumstances – a professional’s job is to perform a set group of tasks and that may entail unpaid overtime. In practice, the system is widely adopted without government authorization, particularly in the high-tech sector. Also, CLA had drafted legislation sharply raising employer fines for infractions so complying with the law is clearly more profitable than breaking it. This would be accompanied by a name-and-shame program.
Tax reform proposal; State provider for 2P
PDM, Prague Post, CTK
The Finance Minister’s tax reform plan would tax 19% of gross wages rather than 15% of super gross wages, reportedly not a huge difference for most people. A number of tax exemptions would be lost, including such perquisites as meal vouchers and travel cards. This would be offset by a 3,000K (US$173) annual tax cut.
Also, the Prime Minister has divulged more details on the administration’s evolving pension reform plan (IH 02/24/11). The government is now thinking of offering a state-run alternative provider to the private pension managers under the voluntary second-pillar pension scheme. This would help keep fees competitive. The ruling coalition has yet to agree on anything beyond a blueprint of the plan and the necessary legislation is now said to be three to six months away.
Fringe benefits tax relief proposed
The Tax Ministry announced (Danish only) that it is consulting (Danish only) with stakeholders over draft legislation waiving both income tax and reporting requirements (IH 02/02/11) on small gifts and other fringe benefits up to an annual threshold. The limit would actually be split between 700 kroner (US$133) for Christmas gifts and 1,000 kroner for modest perks such as tickets to cultural events. The change would apply to tax year 2011.
Parliament passes single permit directive
EU Commerz, BBJ, PNP
Last week, Parliament announced the adoption without further amendment of the draft single permit directive (IH 03/23/11) in a plenary session. Non-EU workers not protected by other rules would now have equal entitlements under pay, leave, occupational safety and working time rules. Member states would have some flexibility on limiting social security access. The rules would not apply to employees of multinational firms who are posted in one of their company’s EU offices. The bill will now be reviewed by member state justice and home affairs ministers. The UK, Ireland and Denmark have already opted out.
Ruling on personal use of bonus miles
The Supreme Administrative Court has issued a decision (Finnish only) clearing a worker of tax authority charges that personal use of bonus miles derived from work-related air travel should be taxable as income. The ruling cited, among other factors, the difficulty an employer would have enforcing such a levy.
Protocol for foreign job offers; Training programs to sync with job market; Various
Planet Labor, Le Monde, The Guardian
The Ministry of Labor has released a circular (French only) offering further guidance on the requirement that multinational employers explore the option of transferring a worker overseas to avoid a redundancy (IH 06/30/10). This is not an obligation to offer “any position anywhere” and the circular offers employers a safe harbor for sensitive handling of this process. A sample questionnaire is appended. There is also a press release (French only) available.
Another Labor Ministry initiative to get maximum traction from the job market is the POE (Operational Readiness in Employment) agreement (French only) with 14 major training organizations. Signatories to a “charter of shared commitments” will coordinate with stakeholders to ensure that vocational training is tailored to the labor market’s actual needs.
In other news:
- Social partners have reached an agreement on the terms for unemployment insurance from June 1, 2011, to December 31, 2013, and some longer range goals. Contributions will remain steady until 2015 when the viability of reductions of up to 0.4% per year will be considered. A working group will meet in the fourth quarter of this year to address proposals to increase the age for the unemployment bridge to pensions from 61 to 62 and to raise the threshold for the three-year senior unemployment benefit from 50 to 52.
- Union federation CFDT-Cadres, the head of employer group MEDEF and the Minister of Social Cohesion all support an extension of paternity leave and a higher compensation level for the benefit. They have not united behind a single proposal, but the MEDEF chief envisions expanding it to two months.
- The President has broached the topic of “a new branch of the welfare state” covering long-term care for the elderly and the disabled. Details, including funding sources, are yet to be determined, but one option is to have French workers sacrifice one day of statutory leave per year.
Professional qualification approval for foreign workers; Cabinet approves family leave plan
ABS, Dow Jones
The Cabinet has adopted (German only) draft legislation on an expedited process for reviewing the professional qualifications of foreign skilled workers. In 500 professions, a welter of equivalency tests and evaluations would be replaced by a three-month process that would conclude in qualified applicants recognized as having the German counterpart of their home country degrees or credentials. The announcement appends the draft legislation and a document on benchmarks for recognizing foreign qualifications.
Also, the Ministry of Labour and Social Affairs has announced (German only) that the family care leave plan (IH 03/23/11) now has the Cabinet’s approval. Employers would have an interest-free loan from the state bank to cover the advance on salary in the first stage and employees would take out an insurance policy against any contingencies that might keep them from performing their duties in the second stage.
New constitution bans gay marriage
The new constitution, on track for adoption next month, includes a provision defining marriage as the bond between a man and a woman. It would take a super majority vote to overturn this provision. The Constitution would not affect the existing registered partnership rules for gay couples.
VHI split eyed; Pension guarantee in doubt; Stock compensation PRSI clarification
SBP, Irish Independent, Irish Examiner
Following a review of the cost drivers (largely, a dearth of utilization management) behind government-owned health insurer VHI's rate hikes (IH 02/16/11) and the concession that it will not be able to cover care in some new private hospitals, the Health Minister advised the press that VHI must be divided into two or three separate entities. One or two segments would go private and one of them would be the state-owned public option under the universal health insurance scheme (IH 03/16/11), which is now scheduled for a 2016 debut.
Meanwhile, a Finance Department official has told the Commercial Court that the terms of Ireland’s International Monetary Fund/ European Union bailout will prevent the government from fully complying with the employee pension protection requirements in the EU’s Insolvency Directive. The Pension Insolvency Payment Scheme (PIPS) of 2009 (IH 04/29/09) was Ireland’s third attempt to transpose the directive. The government will be referred to the European Court of Justice (ECJ), which has already ruled against another member state in a similar case (IH 01/22/09).
Also, the Department of Finance has posted a statement addressing a grey area in the National Recovery Plan (IH 12/02/10) measure on applying the PRI levy to share-based remuneration. Employers and employees who committed to a stock scheme in a written agreement concluded before January 1, 2011, are exempt from this charge. The legislative language supporting this clarification will appear in the next social welfare bill.
Bonus clawback measure
Financial Times, Reuters, Expatica
Parliament has approved a motion calling for a 100% tax on bonuses since 2008 at banks that have received government bail-out money. This was a largely symbolic move that the Finance Minister had warned was unconstitutional. He will, though, soon deliver legislation to Parliament that would prevent bonuses in any future bank bailouts.
Austerity plan defeated
EU Observer, AP, NYT
The administration’s latest package of austerity measures (IH 03/16/11) was defeated in what was viewed as a no-confidence vote and the Prime Minister has resigned. The day before that vote, the social partners signed a “temporary agreement ” (Portuguese only) with the government on essentially the same set of measures. The Labour Ministry has since had to post a “clarification” (Portuguese only), asserting that the accord is valid.
Labor Code declared constitutional
The new Labor Code (IH 03/23/11) is one step closer to formally becoming law now that the Constitutional Court has rejected a handful of legal challenges to it. The President is expected to sign the law, but it won’t be out of the woods until the European Commission has finished vetting it.
Annual pension indexing
The President has just signed a freshly passed measure that will combine the two annual pension indexation stages (inflation peg in April and wage inflation in July) into a single blended index in April. The bill was expedited so the first benefit boost could arrive next month.
Conditions for health insurers earning profits
The Health Ministry has drafted legislation to comply with the Constitutional Court’s ruling that it is illegal to disallow profits for private health insurers (IH 02/02/11). Before claiming a profit, an insurer would have to replenish technical reserves earmarked for reducing queues. This way, the right to earn profits is restored, but the profit motive doesn’t impede delivery of care. The measure should take effect on August 1.
“Sack law” passed
Milliyet, Today’s Zaman
Parliament has approved the omnibus sack law (IH 02/09/11) featuring a handful of labour reform measures that would extend unemployment benefits to part-timers and establish a regulatory framework for unpaid internships. It would also introduce a disability allowance for workers without social security coverage who are sidelined by a work injury. The law still requires the President’s signature.
Taxation of severance pay, nonresidents
The State Tax Administration’s Letter No. 4628/6/17-0715 offers guidance on two changes under the new tax code. From January 1, 2011, severance pay is subject to income tax. That date also introduced a tax schedule for nonresidents, whose income is taxed at 15% on up to 10 times the minimum annual salary, and 17% for anything higher.
2011 Budget; NEST investment strategy
Personnel Today, Professional Pensions, IPE
The Chancellor delivered the 2011 Budget last week. Among the highlights:
- It confirms the lower cap on pension tax relief (IH 11/04/10).
- It provides more detail on the uniform universal pension. The green paper is said to be close behind.
- There would be a longevity peg for retirement age increases.
- The uniform state pension’s introduction would entail an end to contracting out to occupational pensions.
- The indexation switch from RPI to CPI (IH 03/23/11) is set to take effect from 2012.
- There will be a consultation on limiting tax relief to employers making asset-backed contributions to their defined benefit schemes.
- Tax avoidance schemes due to be shut down include employee benefit trusts (EBTs) and employer-financed retirement benefit schemes (EFRBs).
- There will be a consultation on merging National Insurance Contributions (NIC) and income tax with an offset against a tax increase for pensioners.
- The proposal to remove “unnecessary” occupational health and safety regulations in many of the less hazardous sectors is already coming under criticism.
Measures incorporating these proposals as well as addressing the April 2011 termination of the requirement to take an annuity at age 75 will appear in the forthcoming Finance Bill 2011. A Mercer bulletin provides a more detailed review of the budget.
Also, the National Employment Savings Trust (NEST) has disclosed its statement of investment principles (SIP), which confirms a penchant for low-risk investment strategy. Mercer is among the observers expressing concern over this approach. NEST noted that it has signed both the UK Stewardship Code and the UN’s Principles for Responsible Investment.
Toronto Star, Canadian Press, Benefits Canada
The 2011 Budget is perhaps most remarkable for the absence of a pension reform proposal (IH 12/22/10). There are, nonetheless, several items worth noting:
- Finance has identified a batch of tax avoidance schemes involving Registered Retirement Savings Plans (RRSPs). The RRSP rules will be revised to close these loopholes.
- Tax dodges under employee profit sharing plans and individual pension plans are also targeted.
- There would be a mechanism for members of Registered Disability Savings Plans (RDSP) to tap their accounts early in cases of “shortened life expectancy.”
- A pair of employment insurance pilot projects and work-sharing arrangement schemes are getting a reprieve.
- Coverage for employees affected by an employer bankruptcy would be expanded under the Wage Earner Protection Program.
- The Canada Revenue Agency (CRA) will soon issue guidance on tax relief for workers and pensioners who receive a lump sum from a bankrupt employer in exchange for their right to medical benefits.
- Pending legislation would – with few exceptions – ban a mandatory retirement age for federally regulated workers.
- Small firms that create jobs are slated to receive a $1,000 subsidy on the cost of employment insurance premiums.
Mercer has produced a Communiqué on select provisions of this budget. This budget's status is uncertain at press time. The three major opposition parties have found the minority government of the Conservative Party in contempt and there will be a general election on May 2. The ruling party is said to have a fair chance of consolidating power in this election.
Workplace equality law
La Prensa, Notimex
The legislative assembly has approved an equal rights bill. Its workplace nondiscrimination measures ban sexual harassment in the workplace and job advertisements that specify gender. The law also provides for a nondiscrimination watchdog to enforce these bans.
Labour reform dissension
El Economista, ESM, Azteca Noticias
The PRI party, sponsor of the new labor reform legislation (IH 03/16/11), proved to be bitterly split over the package during plenary debate in the House of Representatives. This coincides with global unions supporting Mexico’s union confederation UNT in its campaign against the bill. Opponents charge that it would:
- Promote individual contracts over collective bargaining
- Relax limits on outsourcing and subcontracting
- Bar unions in different sectors from forming confederations
- Effectively abolish the minimum wage
ADAA final rule; Petition over cross-border class action rights
Responsible Investor, SHRM, HR.BLR
The Equal Employment Opportunity Commission (EEOC) announced publication of the final regulations under the Americans with Disabilities Act Amendments Act. Its refinement of the term “disability” reverses several high court rulings that had eroded its protections. Under the final regulations, the definition of major life activities is broadened and the use of devices or medications to reduce the effects of an impairment does not mean that a person is unimpaired. The final rule will take effect on May 24.
Also, concern has been steadily growing over the 2009 Supreme Court ruling in Morrison v. National Australia Bank that barred foreign institutional investors from joining a class action suit in the US against a non-US company for transnational securities fraud when they had bought its shares on a foreign exchange. Subsequent cases have used this precedent to prevent lawsuits by US-based investors who purchased foreign stock on a foreign exchange. Congress has already assigned the Securities and Exchange Commission (SEC) to write a report on the ramifications of this ruling. Nearly 100 of the world’s largest pension funds recently delivered a petition to the SEC, requesting regulations to overturn that ruling in order to spare institutional investors the risk of investing in companies with significant holdings in a jurisdiction where their shareholder rights could be compromised. The signatories hold over $2 trillion in US assets.
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