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26 noviembre 2020

Pragmatism to help companies transition to the new normal. Nota El Cronista

Versión en español

A new phase of transition to the New Normal has begun with the Mandatory Preventative Social Distancing (DISPO, for its acronym in Spanish) and a gradual process of economic reactivation, which is confronted with a very heterogeneous reality.

Article by Julián A. de Diego published in El Cronista on November 24, 2020

This is a crucial phase for the economic recovery of our country, whose indicators for this year are quite alarming, immersed in stagflation for many years, at least ten, to which we must add, the pandemic crisis.

The application of the Emergency Aid Program for Employment and Production (ATP) until September, together with the reduction or extended deadline for employers’ contributions plus zero-interest rate or subsidized interest rate for loans have been crucial to undergo a period where companies have invoiced very little or nothing at all, their production has been paralyzed and had to implement paid suspensions for their staff under Section 223 bis (Employment Contract Act), while they still had to pay wages for inactive employees and protected groups.

Please remember that these mechanisms were used to deal with double severance pay for employment termination under Executive Order 34/2019 (effecting thru mid-December 2020) and the ban on layoffs or suspension (effective until mid-January 2021) for lack of work or reduction in operations beyond employers’ control or due to acts of God or force majeure duly proven.

It is said that double severance pay will be extended until mid-2021 and the ban on layoff or suspension will be subsequently extended every two months for a similar period.

Now there are two crucial phases ahead: one that we are already going through where activities are gradually reactivated in a complex and dramatic scenario with the aim of safeguarding jobs, promoting a quick reactivation to start invoicing and trying to strike a balance.

The other phase would mean to rescue the activities that cannot be reactivated despite the return to a New Normal during Social Distancing. There we have endogenous and also exogenous causes.

First, the endogenous causes have to do with how quickly changes were introduced, changes in customers’ habits and behaviors, and how new priorities, new values, new objectives needed to be managed to ensure that any art, craft, trade, profession or activity can keep up with these changing and unpredictable circumstances caused by the uncertainty that the end of the Pandemic brings.

To have the whole picture, we should know that we will be living with Covid-19 for another twelve months, because the political promises of a vaccine bear no relation to the effective prevention and actual vaccination for everyone that will take at least the entire year 2021.

The ongoing phase is a period that goes from the resumption of activities to a level of revenue with which companies can achieve a balanced budget.

In this regard, the Chief of Staff Office issued Administrative Decision No. 2086/2020, providing support for companies in the process of reactivation.

To this end, it lists and gives instructions about the application of a wide variety of tools, namely:

1. The Production Recovery Program (REPRO for its acronym in Spanish) for Supplemental Wages and a reduction or extended deadline for employers’ contributions in November for any type of companies, whichever their size, provided they meet the eligibility requirements;

2. Supplemental Wages will continue to be applied to adversely affected companies, which have been identified by the Standard Industrial Classification;

3. Supplementary Wages will amount to 50% of net salary after all deductions and withholdings, cannot be below 1 month’s Minimum Living Wage or above 1.5, and by no means shall it exceed the net value in October 2020;

4. Professionals at the Health Care Sector will continue to receive the Supplementary Wage at companies with year-to-year negative revenue, zero sales or proceeds up to 35%;

5. In cases of multiple jobs, the Supplementary Wage will be equal to 50% of all the net salaries in October 2020;

6. Act No. 27563 about Tourism Support and Promotion contains a series of specific benefits, similar to those we are discussing;

7. Critical activities will enjoy the benefit of the 95% reduction in SIPA (Integrated Pension System), provided they meet the eligibility requirements for the Supplementary Wage;

8. Critical companies with fewer than 800 workers with a nominal year-to-year revenue equal to zero or less than 35%, or companies with more than 800 workers with a nominal year-to-year revenue equal to zero will have access to subsidized interest rates for loans that will be calculated with a cap of 120% of the Minimum Living Wage for each worker, with a three-month grace period, and a nominal annual interest rate of 27%. This loan is compatible with the payment of the Supplementary Wage;

9. The Production Recovery Program II (REPRO II) and the Subsidized Interest Rate for Loans and the Emergency Aid Program are mutually exclusive options, and companies will benefit from a plan of extended deadline for SIPA contributions.

Monitoring this process closely is the key to survive this crisis and do everything in our power to rebuild the social and productive fabric of society with as little damage as possible.

The continuity of the abovementioned tools and other new mechanisms that may be introduced in the future should be coupled with the integral post- Pandemic reform in taxation, social security and employment that Argentina needs so desperately. This is an opportunity for exponential change to face a prosperous future of sustainable growth.

Por Julián A. de Diego
Por Julián A. de Diego

Fundador y Titular del estudio “de Diego & Asociados”.  Abogado, Doctor en Ciencias Jurídicas.

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