The government has submitted the labor reform to Congress and in the second chapter, which includes articles 58 to 77, it will establish the Labor Assistance Fund (FAL). The aim is to allow companies to allocate resources to pay compensation in the form of a contribution of 3% of salary, while being offset by a corresponding reduction in contributions to the Argentine Integrated Pension System (SIPA). That means resources are being diverted from the National Social Security Administration (ANSES) pension system so that companies have the funding to fund layoffs without cause.
The text submitted for discussion in the Senate this week establishes the creation of these funds, stating that they are “designed exclusively to contribute to the fulfillment of the obligations and payments established” in accordance with the compensation regime of the Labor Contract Law. As well as “remedial compensation for dismissal, integration and dismissal provided for in the professional statutes by employers in the private sector,” including those provided for in the Agricultural Labor Regulations Act.
Article 60, in turn, regulates the contribution of companies to the new fund. “It will be created on a mandatory basis for the payment of compensation for workers in the private sector, with contributions equal to 3% of salaries paid. President Javier Milei’s project proposes that it be addressed entirely by the social security system, since it envisages a reduction of employers’ contributions by 3 percentage points across the board,” said Juan Graña, economist at the Paternal Group.
To measure the magnitude of the amount that this eventual transfer from pensioners (via Anses) to companies would represent, Graña estimates that it would be between $2.6 billion per year, using the SIPA basis, and almost $4.7 billion per year, taking into account the national accounts as a database.
“The labor support fund created will be fed with 3% of employers’ compulsory contribution, but in return employers’ contributions will be reduced by the same amount. It is unclear how the pension system will cover the approximately $330 billion per month (0.5% of annual GDP) that it no longer receives,” said consultancy Empiria.
The Work Support Fund is a reversal of the voluntary work termination funds already approved in the Basic Law, but which, being an “expensive” mechanism for employers, has not been adopted by any sector.
Savings for entrepreneurs
If passed, the labor reform could lead to a reduction in non-wage labor costs for companies. The text provides for a reduction in contributions to social insurance, social work and social insurance.
The consulting firm PxQ, led by economist and former Deputy Minister of Economy Emmanuel Álvarez Agis, conducted an impact analysis for a medium-sized industrial company with a monthly payroll of $100,000,000. “The monthly savings of $12,330,000 represents a 38% reduction in payroll costs,” the report states.
These savings have a direct impact on a company’s operating performance, that is, excluding interest, taxes, depreciation and amortization.
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