21 noviembre 2018

The Year-End Bonus Will Be Collected by a Small Minority

The non-salary year-end bonus under Emergency Executive Order 1043/2018 will be collected by less than 30% of the economically active population at the private sector in Argentina.

Published in El Cronista on November 21, 2018
Again there is a sharp contrast between the proposed solution announced by the current Administration, and its clash with reality. The success of this measure is tied to inflation, and in fact gives proof of the inefficacy of the official actions taken to beat it.

Actually, inflation is a problem that shows the failure of an irrefutable process that leads to precarious work, job destruction, reduction of wages and deterioration of purchasing power giving evidence of the greatest social arbitrariness.

This bonus will not be collected by those who work “off the books”, without any registration, without rules and left to fend for themselves. These workers account for more than 35% of the economically active population, and even though surveys do not reveal it in full, this is a sector that grows in times of crisis, high inflation and economic recession.

Emergency Executive Order No. 1043 accepts absorption, offsetting or inclusion of this bonus through previous pay rises under collective bargaining agreements. In this regard, there are collective bargaining agreements containing revision clauses to keep up with inflation, thus replacing the escalator clause of 2017.

In turn, Emergency Executive Order 1043 establishes that this bonus may be offset, absorbed or included by those raises granted by Companies unilaterally, at their sole discretion, to exempt employees, executive or senior staff. There is a wide array of solutions in this regard.

The most relevant solutions are those that allow that the non-salary benefit be absorbed in whole or in large part, which immediately creates the difficulty of offsetting two benefits of different nature.

Emergency Executive Order No. 1043 provides that in this case, the non-salary benefit must be converted into a salary benefit for the purposes of offsetting it reasonably and consistently.

Then there is also the question whether the amount is absolute with no room for variation, or whether it should be grossed-up. Grossing up is very costly for companies, meaning that this bonus of ARS 5,000 with all withholdings and retentions is increased to ARS 6,200, at least.

Offsetting, absorbing or including the bonus through raises already granted or to be granted in 2018 may lead to its virtual disappearance, also considering the revision clause. It is said that more than 50% of collective bargaining agreements will offset this non-salary benefit in whole or in part, or include it in the raises agreed by the parties to keep pace with such inflation rate as revealed by INDEC CPI 2018, which may be enforced once the Index is published in the second fortnight of January 2019.

There is another question altogether: companies with less than 80 workers, accounting for 85% of employment in Argentina, are totally defenseless right now. The sharp fall in demand, high inflation and loans with 80% interest rates have led to widespread shutdowns or major adjustments for those who survive with partial or total suspensions, who cannot afford to pay workers’ wages in time, and in many cases do not have enough funding to pay social security taxes, VAT, gross income and income taxes.

This group by and large will not be able to pay this non-salary bonus, and therefore it is very hard to set rates.

In the case of leading companies, and those who can afford this bonus, less than a third of workers at the private sector will receive the benefit in full or in part, which far from creating a solution, again leads to risks and the inefficiency to meet the targets proposed, and now causes frustration once again.

By Julian A. de Diego
Director of the postgraduate course on Human Resources at the School of Business at UCA.


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