One of the main amendments of this Reform was to article 168 section II of the Social Security Law, establishing a progressive increase in the employer's contributions to the Retirement, Unemployment in Advanced Age and Old Age branch of insurance from 1 January 2023 until the year 2030.
This modification established wage ranges from the current General Minimum Wage (SMGV) to 4.01 or higher times the Unit of Measurement and Update (UMA) resulting in different contribution rates.
Using this method, some segments of the salary ranges are inconsistent when established in SMGVs and UMAs.
To illustrate the inconsistencies, see the following representation with the current amounts of SMGV and UMA, respectively:
|North Border Area
||Rest of the country
|1.01 SMGV to 1.50 UMA
|1.51 to 2.00
|2.01 to 2.50 UMA
|2.51 to 3.00 UMA
|3.01 to 3.50 UMA
|3.51 to 4.00 UMA
|4.01 UMA onwards
We recommend that employers consider taking the following steps with regard to the Reform:
- Identify workers who fall within affected/inconsistent wage ranges.
- Quantify the economic impact in the short term, as well as according to the progressive rates for the following years indicated in the Reform, which will forecast the increase in the employer's quota in the branch of Retirement, Unemployment in Advanced Age and Old Age.
- Identify possible courses of action to mitigate the inconsistencies indicated in the salary ranges from 1 SMGV to 3.00 UMAs.
The Reform of the Pension System published in the Official Gazette on 16 December 2020, will take effect 1 January 2023.
This Reform modified the fixed employer rate in the Retirement, Unemployment in Advanced Age and Old Age branch of insurance to a rate with a progressive increase from January 2023 until 2030, establishing salary ranges to be used in order to determine the applicable rate.
By establishing the minimum and maximum wage ranges in SMGVs and UMAs as well as the substantial increase that the SMGV has had in recent years, this Reform caused an inconsistency reflected in the applicable rates in various wage ranges of workers. In some of the cases the rate applicable to the SMGV is lower than the applicable rate for some salary blocks established in UMAs. In other words, the fixed rate applicable for workers with SMGV is lower than that which is applicable for higher wages but established in UMAs.
The foregoing gives rise to an inconsistency in the Reform. Affected employers should consult with counsel to determine whether such inconsistencies can be alleviated.
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