Reduction of contributions: Plan for new scissors cut - How private sector wages change

Plan for further reduction in social security contributions is currently under consideration by the Ministry of Labor, along with the continuation beyond 2021 of the existing 3-percentage-point reduction, which currently applies only to this year.

The goal is By 2023, the reduction in non-wage labor costs for salaried employment is expected to reach a cumulative total of 5 percentage points. To assess this goal and the prospects for its achievement, a special economic study is already being conducted.

According to reports, the Ministry of Labor's plans regarding the reduction of insurance contributions It involves two basic steps:

• analysis of capabilities conservation efforts beyond 2021 the 3-percentage-point reduction that was enacted as an emergency measure for this year only
• assessment of the prospects for further reduction, so that the cumulative reduction reaches 5 percentage points.

Today, the total social security contributions for employees—both employer and employee shares—stand at 36.66%, following a reduction of 3 percentage points this year and 0.90 percentage points in the second half of 2020.

Specifically, 20% is the mandatory contribution for the main pension, 7.10% for health insurance, 6.5% for supplementary insurance, and 3.06% for unemployment and other co-funded branches in favor of OAED.

The proposal currently under consideration by the Ministry of Labor calls for a cumulative reduction of up to 5 percentage points, so that contributions are expected to reach 35.56% by 2023. This plan assumes that the 3-point reduction will remain in effect after 2021, as well as a further reduction in social security contributions by 1.1 percentage points, since the 0.90-point reduction in 2020 is a permanent measure (though it applies only to full-time employment contracts).

The new reduction of 1.1 percentage points corresponds to a reduction of 3% in non-wage costs. Cumulatively, the 5-point reduction translates to a reduction of 12.32%.

For example, an employee with a gross salary of 1,000 euros currently pays employer and employee social security contributions totaling 366.6 euros. Under the plan to gradually reduce contributions by up to 5 percentage points by 2023, they will pay a total of 355.6 euros in social security contributions. The benefit for both the employer and the employee is 11 euros.

Similarly, an employee with a gross salary of 1,500 euros currently pays 550 euros in social security contributions. Under the proposed reduction in contributions, they will pay 533 euros in contributions (total employer and employee contributions). The total benefit amounts to 17 euros per month.

It should be noted that A legislated reduction of half a percentage point—that is, 0.50 p.m.—for 2022 is already on the table from supplementary insurance contributions. This refers to the phased reduction of the increase in contributions imposed by the Katrougkalos Law in 2016. According to the provisions of Law 4387/2016, from June 2019 through May 2022, supplementary social security contributions—which are mandatory for private-sector employees—amount to 6.5%. Starting in June 2022, these contributions are already projected to drop to 6%.

If, therefore, this specific provision of the Katrougkalos Act is retained, the achievement of the objective of a cumulative reduction in non-wage costs of 5 percentage points by 2023 It would require only two steps:

1. Maintaining the 3 percentage point reduction in contributions beyond 2021
2. A further reduction in social security contributions by 0.60 percentage points.

In any case, everything will depend on fiscal leeway and the financial resilience of both the national budget and the EFKA budget. Managing the revenue shortfall caused by the pandemic complicates the effort to reduce the cost of labor.

Officials at the Ministry of Labor point out that reducing the non-wage costs of salaried employment will have a positive impact on employment, by increasing incentives to hire, correspondingly reducing incentives for undeclared employment, and boosting the disposable income of wage earners.

As a reminder, that the three-percentage-point reduction already in effect this year applies only to the contributory branches in favor of OAED and does not affect the contributory main and supplementary insurance, which finance current pensions. Such a move, moreover, would be rather risky, since, among other things, the 20% insurance contribution rate for the EFKA main pension branch has been used as a benchmark in studies on the future of main pensions.