The government has included in the draft Labor reform two mechanisms that aim to change the way companies deal with the costs associated with a layoff. The proposal will be submitted to Congress for consideration in extraordinary sessions and is part of a broader package of changes in industrial relations.
The instruments used are the provident fund and the Working Aid Fund (FAL), Both aimed to finance compensation in whole or in part.
The severance payments had already been advanced during the year, but according to the wording contained in the project His operation would have limitations. In parallel, the FAL involves the creation of a financing system with resources derived from contributions currently allocated to the Argentine Integrated Pension System (SIPA).
Work termination fund as part of the reform
The severance pay fund system is based on the construction industry model. In this regulation the employer states monthly contributions into an account in the employee’s name, which can then be used in the event of dismissal. The project involves a similar scheme, but with some peculiarities related to its scope and applicability.
According to the proposal These funds would not only be activated in the event of a dismissal. They could also be used if the employee resigns from their position or needs to use the money to supplement their retirement. The range of potential uses would make the instrument a labor saving mechanism managed by insurers and invested in authorized pools.
During the year, regulators granted the necessary approvals for the product to be marketed. The National Securities Commission (CNV) defined the rules for the common investment funds that manage the resources, while the insurance regulator set the operational requirements. One of the central features of the system is that the funds cannot be seized.
However, companies and unions showed no interest in implementing this modality. According to the project text, joining the provident fund system should be made dependent on agreements in collective agreements. Article 51, which replaces Article 245 employment contract law, points out that the parties can “replace” the traditional compensation system with a fund managed by the relevant companies. The wording does not provide for the worker to choose between the traditional and the new mechanism, which limits the scope outside the agreements.
Labor reform: How the Labor Assistance Fund (FAL) works
The second tool proposed is this Employment Assistance Fund (FAL). In contrast to the severance pay fund, the FAL is designed as a one-sided employer fund that is used exclusively to cover dismissal costs. The name is intended to avoid direct references to the term “compensation”, although this is the operational aim.
The employer will allocate the equivalent of three percentage points of the currently allocated employer contributions to the FAL on a monthly basis ANSES to finance retirement. The funds are deposited in an individual account of the company and can be invested in special investment funds under state supervision.
The accumulated money is used for full or partial coverage Severance pay. In this way, part of the costs are pre-financed through monthly contributions, which replace part of the usual SIPA contribution.
According to the specialist site Blog del Contador, the administration of the FAL is monitored by the Federal Administration of Public Revenues (ARCA), the CNV, ANSES and the Ministry of Human Capital. The regulations impose sanctions on employers who misuse resources or select companies in which they have an equity stake. In addition, FAL members receive a three-point reduction in employer contributions to SIPA, provided required monthly payments are met.
The regulation implies that part of the financing of the Compensation It is covered by funds that the state no longer receives through employer contributions. This leads to a change in the labor financing structure as part of the pension contribution is redirected to a special fund for private sector redundancies.
Impact on employers and employees
The labor reform provides for a structural change in the financing mechanisms related to the completion of the employment relationship. For employers, the system provides a monthly forecast of expenses for layoffs that no longer represent a concentrated cost upon termination of the contractual relationship. For employees, the changes will change both the way compensation is calculated and the source of funding, depending on whether the collective agreement provides for the use of the severance pay fund or whether the company integrates the FAL.
The use of severance pay requires an agreement between unions and chambers of commerce. The FAL, On the other hand, it is used as an option for companies that meet the requirements and are willing to allocate part of the employer’s contributions to the creation of their own fund.
The legislative treatment of the reform will determine the final scope of application of these instruments. Their implementation will then depend on the specific regulations and the consistency that they can achieve in the different production sectors. So far there have been no public demonstrations by unions or employers who expect significant involvement of severance funds. On the other hand, the FAL is developing into the central instrument in the discharge chapter labor reform, due to its one-sided nature and financing structure.
Planned changes to the compensation system
The project aims to establish an alternative remuneration system to the system based on the employee’s seniority. In the case of the cessation fund, the replacement of the traditional regime is subject to the collective agreement. In the case of the FAL, the fund set up by the employers acts as a source of financing, which can cover part of the amount corresponding to the compensation provided for in the FAL Employment contract law.
The official goal is to reduce the financial burden of layoffs and reduce associated litigation Determination of the amounts. The proposed mechanisms introduce a pre-financing system aimed at spreading costs over time while partially changing the nature of the pension contribution in its composition.
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