Coronavirus Update no. 4/2020 – Employment contract suspension and allowances reimbursement from the state budget

In the Official Gazette no. 231 of March 21^st, 2020 was published Government Emergency Ordinance 30/2020 that contains social protection measures meant to reduce the negative effect of COVID19 pandemic on the economy and for the employees working in the impacted industries. We present below the main provisions of this Ordinance, explaining its content, which mainly was announced by press releases and other formats. 

 

The allowance received while the employment contract is suspended: general aspects

Labor code – art. 52 line (1) letter c) allows the company, during a discontinuance or temporary decrease in activity due to economical, technological, structural or similar reasons, to unilaterally suspend the employment contract. During this period, the employees will receive an allowance, no lower than 75% of the salary for the respective position. This allowance represents a cost for the company. 

In order to help the companies to overcome this period caused by COVID19, the GEO 30/2020 provides that the such an allowance will be paid by the state budget under certain conditions, while the emergency state is in place, as decided by the Presidential Decree no. 195/2020 (presently, for 30 days starting with 16 march, but an extension is expected). Specifically, the allowances will be paid from the unemployment found, but it cannot exceed 75% of the national average gross salary, as mentioned by Law 6/2020 for the social security budget in 2020 (RON 5,429).

This means the gross allowance is paid by the state, up to a limit of RON 4,071. 

This allowance is subject to income tax and social security contributions, as per the Tax Code.

According to the law the company has the obligation for computing and paying the income tax and social security contributions, but only after it will receive the allowance from the Unemployment Agency. Certain aspects regarding the procedure for receiving the allowance remain unclear, as we will be presenting below. 

The company labor contribution of 2.25% as mentioned by the Fiscal Code, will not be due for this allowance.

 

Allowance beneficiaries

There are two categories of companies that may receive the allowance, as mentioned by GEO no. 30/2020:

The first category it is very well defined, as being the companies that are stopping their activity, totally or partially, following the decisions taken by the relevant authorities.  These are, mainly all the shops and restaurants that must be closed.  They will need to obtain a State of Emergency Certificate, issued by Ministry of Economy, Energy and Business Environment, as a mandatory document necessary to benefit from the allowance. The procedure for obtaining this certificate mentioned in The Decree 195/2020 is not yet available and is yet to be published.

The second category is rather more vaguely defined; therefore it gives rise to uncertainty and interpretation. In this category are the companies that are reducing their activity as a direct effect of COVID19 pandemic and do not have the financial capabilities to pay all their employees. These companies may receive the allowance for up to 75% of their employees with active employment contacts. 

A decrease of activity due to the effects of the coronavirus is considered if there is a decrease of the collected income (i.e. the actual cash received) by at least 25% in the month for which the allowance is requested, as compared to the average collections from January and February 2020.

An uncertain element is regarding the company’s capabilities to pay all the salaries, which is difficult to assess if it should be considered a static or dynamic condition for saving the company. 

We are expecting additional regarding this second category of beneficiaries, since an affidavit should be presented in this respect, that might have significant consequences for those how will sign it. 

 

Procedural aspects  

 

In order to receive the allowance, the companies compliant with the above conditions will send an electronic request (Cerere) and a set of documents, to local Unemployment Agencies, depending on the registered headquarters of the company. The request should be prepared in accordance with the models presented in the appendixes to GEO 30/2020, should include the list of employees that may benefit from the allowance and should be signed by the legal representative of the company.

The allowance request (Cerere) and all the necessary documents will be sent in the current month for the allowances to be paid for the previous month. The payment from the state budget will be received no more than 30 days since the submission of the documents.

The law lacks sufficient clarity also in determining the correct timing for the actions to follow, between receiving the allowance, submitting the request and the tax returns and payments obligations for the income tax and social security contributions.

 

Uncertain aspects

The new law provides certain aspects that are not sufficiently clear and give rise to interpretation.

For example, the employees with salaries that exceed the national average gross salary should receive the difference between 75% of their actual salary and 75% of the average national gross salary? 

For the second category of companies it is unclear if the allowances granted are computed as a maximum of 75% of the total work force or 75% of the total amount paid as salaries by the company

It is unclear how can the financial capacity of the company to pay all its employees will be determined;

It is unclear if the company should pay in advance the allowance to the employees, or it should wait to receive the amounts from the Unemployment Agency.

 

Example

A company suspends the employment contracts starting April 1^st. Until May 31^st it has to send the request for the allowance to the Unemployment Agency (as per the necessary documentation). Until June 30 the Unemployment Agency will reimburse the company 75% of the base salaries (but no more that 75% of average national gross salary). Until July 25^{th t}he company will pay the income tax and social security contributions due for the allowance. 

 

 

In order to have an efficient communication, we established a direct link with the related department. For the subject of the current Update, the requests for tax consultancy may be sent to [email protected] with a brief description of the query. One of our consultants will answer or contact you shortly.

 

 

 

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Boscolo & Partners