As reported on several occasions, in November 2017, the government took several urgent measures on which all Romanian employers needed to take action by January 2018 at the latest. This and new developments are described in the following overview.
The Emergency Ordinance (EO) of 10 November governed the transfer of almost all employer social security contributions to the employee's liability with effect from 1. January 2018. Although income tax has been reduced to 10%, in the gross pay remains unchanged, the net income of each employee will be considerably reduced.
To keep net remuneration unchanged in 2018, all gross salaries must be increased from January. However, there is no legal obligation on private employers to do so (such an obligation would have hardly been compliant with the constitution).
Six days later, in order to stimulate the salary increases, another EO was issued. Temporarily suspending several basic principles of Romanian collective labour law, this EO made it obligatory for all employers to initiate collective bargaining between 20 November and 20 December 2017 in order to implement the first EO – regardless of the size of the employer's workforce.
Finally, on 29 November, by government resolution, the statutory minimum wage was raised from 1,450 to 1,900 RON (by more than 30%) as of 1 January 2018.
Shortly after the measures were published, most employers have signalized their readiness to raise the payments in order to maintain the net level. Given the tax reduction, in most cases, these increases are possible without a significant financial burden for the employer.
1. The measures were enforced by EO and are therefore outside the normal legislative procedure.
For each of the two EOs
- the urgency (hence the legality) is questionable
- there still has to be a law that can change, cancel or approve the EO
This results in considerable legal uncertainty for the employer.
Implementing usual “standard” salary raises is not a recommendable option in these cases, as, should the first EO be modified or cancelled (which would change the net income again), the raise could not be reversed without the employee’s consent.
2. There are cases in which the indicated salary increase is not exactly cost-neutral. This concerns employees
- from the IT sector
- from research and development
- with disabilities.
Most part of these employees are income tax-exempt, so that the payroll tax reduction does not have any positive effect on the total costs of the employer in the case of a salary increase. On the contrary, based on our calculations, the salary raise means a 7% rise in the overall costs.
3. Employers who work with casual labourers (zilieri) are especially, in particular agricultural and forestry businesses that carry out seasonal work, affected. Casual labourers must also receive the new minimum wage, but the employer is not compelled to withhold any social security contributions and pay them in. Hence, the transfer of social security contributions does not reduce the expenditure for the employer.
4. As a result of the statutory increase in the minimum wage, from 2018, employees who have previously earned RON 1.450 or slightly more automatically benefitted from the wage increase. However,
- This increase affects the gross minimum wage. Following the social contribution shift, it will have little or no positive effect on their net wages; they will have at most a small surplus.
- For those who have so far earned only slightly less than RON 1,900, the statutory increase will not even be enough to maintain their net wages from 2018 onwards. For them, the aforementioned voluntary increase is required additionally.
What happened in practice
As promised, most employers have voluntarily increased salaries to offset the burden on their employees. This happened in different ways, in most cases by granting bonuses or solidarity supplements. As a rule, the increase was made dependent on the existence of the current legal situation.
There are, however, complications related to
- dealing with salary components that depend on the basic salary (for example, salary bonuses) – the question is whether these shall be raised as well (i.e. if a voluntary supplement shall also become part of their calculation basis);
- the drafting of new employment contracts: in principle, the legal uncertainty must also be regulated here, as otherwise (in case of changes related to social security) there is the threat of unequal remuneration of new and old employees.
For both EOs, as stated, laws are required for approval.
For the EO 79 (changing inter alia the social security system), the Senate has passed such law without relevant modifications for the social security on 04.12.2017. With regard to the EO 82 (collective bargaining obligation), the Senate passed the law on 13.12, introducing an exemption for companies with fewer than 21 employees. This complies with the usual collective labour law (again), but unfortunately comes too late, since the obligation only existed until 20 December.
The Chamber of Deputies now has to decide on the final version of both laws.
In addition, a new governmental decision on the Register of Employees (Registrul General de Evidenta a Salariatilor) has been published. Among other things:
- all possible salary components, (special payments, solidarity surcharges, etc) have to be entered in the register
- entries for salary increases in the period January – March have to be entered before 31 March 2018.
It should be noted that, according to press reports, the government is considering introducing state aid to support salary increases in IT, R&D, and for disabled and seasonal workers, to make the necessary reduction in the burden on these workers. Official information is not yet available.
The aforementioned modifications will be accompanied by further important legal acts, which will become relevant in 2018. Inter alia, we refer to
Law passed on 23.10. by the Senate, requires adoption by Chamber of Deputies
Law passed on 23.10. by the Senate, also requires adoption by Chamber of Deputies
Furthermore, long- lasting discussions regarding a new version of the law on the Social Dialogue (collective labour law) have been taking place. We expect the new law in 2018. Last but not least, a draft of a considerably modified Labour Code, initiated by unions, may still be finalized. The developments are still unknown.
2017 ended turbulently. Many have questioned the scope of the controversial changes to the social security. Remarkably enough, there seem to be state aid plans meant to correct the effects on sectors like IT and R&D. We hope they will soon become specific and that the usual bureaucracy will be avoided.
Apart from that, the regulations from the end of 2017 continue to cause legal uncertainty, which we hope will be ended in the coming months. But they could still cause headaches for a long time.
With more important laws in the pipeline for 2018, labour law will remain challenging this year.