Supplemental Wage to Help Companies

On the brink of the abyss, widespread aid has finally arrived to help companies pay the wages of active or furloughed employees.

Article by Julián A. de Diego, published in El Cronista on May 14, 2020
The subsidy is directly deposited into each worker’s salary bank account via CBU (bank account identification code) and accounts for 50% of their net wage in February 2020, with a floor of one month’s minimum living wage (ARS 16,875) and capped at two months’ minimum living wage (ARS 33,750). It will be deemed to be payment on account of employee compensation or allowance in money under Section 223 bis of the Employment Contract Act.

Consequently, employers must cover the rest to complete full payment of employees’ usual and regular compensation, or the non-salary amount for furloughed workers under Section 223 bis (Employment Contract Act).

In other words, if an employee earned a net salary of ARS 50,000 in February 2020, he/she will collect ARS 25,000, with no floor or cap. However, if an employee earned ARS 80,000, he/she will collect the cap of ARS 33,750 because the 50% of his/her income exceeds the maximum amount. In turn, if the employee earned ARS 25,000, he/she will collect the minimum wage of ARS 16,875 because the 50% rate accounts for less than the floor.

This will all be funded by printing money because tax and social security collection, and companies’ turnover have fallen into the abyss, definitely causing a plunge in GDP and increasing fiscal deficit to unimaginable levels.

In other words, having greater awareness of the devastating effects of this Pandemic, the Government has approved a number of resources to help companies, who are the victims of the forced recession due to the Pandemic.

This fundamental tool for companies’ survival was established in Executive Order No. 376/2020 through the Emergency Aid Program for Employment and Production (ATP, for its acronym in Spanish) under Act No. 27541 declaring the public health emergency and Executive Order No. 260/2020 declaring the lockdown and Executive Order No. 297/20 establishing the social preventative mandatory quarantine as from March 20 and now extended through May 24, 2020.

The Emergency Aid Program for Employment and Production contains the following instruments:

  1. Extended deadlines or reduction of up to NINETY FIVE PER CENT (95%) for payment of employers’ social security contributions to SIPA (Argentine Integrated Pension System).
  2. Supplemental Wage paid by the National State to employees under employment relationship at the private sector without repayment;
  3. Zero-interest loans for those who have joined the Simplified Scheme for Small Taxpayers and the self-employed meeting the requirements set forth by the Chief of Staff Office and the Central Bank of Argentina, within the scope of their jurisdictions, subsidizing ONE HUNDRED PER CENT (100%) of the total financial cost;
  4. Integral system of unemployment benefits: those employees who meet the requirements under Acts No. 24013 and 25371 will get the unemployment benefit in accordance with Executive Order No. 376/2020.

As a matter of fact, nobody is indifferent to this crisis, and actually it has been proved that there are companies providing essential services whose turnover has dropped to zero, and therefore employers alike do not have enough earnings to meet their essential obligations. Take for example the closure or paralysis of small stores and SMEs. For instance, the food industry, in particular the sugar confectionary sector is inoperative. Transportation in the oil industry is also paralyzed. Trucks transporting food to the remotest parts of the country come back empty, and costs double. Airlines and those companies that provide services to them are also inactive, as well as tourism and all related services, hotel chains, cafés, restaurants or bars. Suffice is to say that Despegar.com value and business have also fallen to zero.

In addition, there is the heavy burden they have been already bearing due to stagflation and the almost total disruption in the payment chain.

Subsidies and other tools will continue in April and May, and should predict what is coming in June and July, where there will be greater difficulties because this is not about surviving anymore but rather about re-launching business under extreme conditions.

Time is running out for any comings and goings; there should be a broad array of medium-term tools to consolidate a launching platform. Zero-interest loans with grace periods, funding for buying capital goods with new technologies, and the reconstruction of the social fabric and middle class will be top priorities.

Based on recent experience, in the next couple of days the Executive should anticipate which will be the resources and means to face the end of the lockdown, how to businesses could be relaunched and how to support the reconstruction of those who create value, pay taxes and contribute to growth, meaning companies precisely.