ISSUE 2, 2015:
60 seconds around the globe
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Previous issue: White & Case ECB News – Issue 1, 2015
Changes to Employee contribution rates for work related injury insurance and maternity insurance
As of 1 October 2015, employer contribution rates for injury-at-work insurance and maternity insurance have been reduced in accordance with two notices issued by the Ministry of Human Resources and Social Security of the People's Republic of China.
For injury-at-work insurance, employer contribution rates were adjusted from 0.5 percent – 2.0 percent to 0.2 percent – 1.9 percent (based on the salaries of the employees at risk).
For maternity insurance, employer contribution rates were decreased from not less than 1 percent to not less than 0.5 percent. The Chinese government hopes that such changes will make the social security contribution system more reasonable for employers and improve administration of social insurance funds in China.
China and Taiwan sign a double tax agreement
On 25 August 2015, mainland China and Taiwan signed a double tax agreement ("the Agreement") which will enter into force after the completion of the ratification procedures by both contracting parties and will apply to income derived on or after 1 January of the year following its entry into force.
The key changes introduced by the Agreement include a reduction in withholding tax for dividends if a corporate shareholder holds 25 percent or more voting rights; a reduction in withholding tax for interest and royalties; a capital gains tax exemption; a definition of permanent establishment with exceptions; and personal income tax relief for individuals who are present in the other jurisdiction for less than 183 days.
According to China's State Administration of Taxes, the Agreement is intended to "prevent and eliminate the double taxation of cross-strait business and trade exchange, reduce the tax burden of companies and individuals and prompt mutual cross-strait direct investment."
"Kurzarbeit" system implemented into Czech Law
On 1 October 2015, a so-called "kurzarbeit" (short-time work) system was implemented as a tool designed to help employers retain their employees during periods of financial difficulty. Where an employer is unable to assign a minimum of 20 percent of sufficient work per week to an employee, such employer is entitled to receive financial aid from the state equal to 20 percent of the employee's average earnings, provided this does not exceed 12.5 percent of the average salary in the Czech Republic. Such financial aid will generally be provided for a maximum period of twelve months. Further details regarding the conditions under which an application for this type of financial aid may be made is subject to government regulation which has yet to be enacted.
New rules on complementary health insurance
As from 1 January 2016, complementary health insurance must be offered by private employers to their employees.
Private employers will be required to negotiate with employee representatives or impose the complementary health insurance unilaterally if negotiations are unsuccessful (or where there are less than 50 employees).
The complementary health insurance must meet certain minimum coverage requirements and other conditions as required under the regulation. The financing of this health insurance should be shared between the employer and the employee with the employer premium at a minimum of 50 percent.
New restrictions on exporting personal data
A new amendment will come into force before 9 September 2017 which places new restrictions on exporting personal data from Japan. If a data controller inside Japan wishes to transfer personal data (including data that personally identifies an employee) to a separate legal entity outside Japan (including a group company), the data controller must (1) obtain the data subject's consent; or (2) fulfil the requirements under the pre-amendment Act and then, either (i) the foreign jurisdiction receiving the data must have a data protection regime that meets the standards set by the Japanese government; or (ii) the specific transferee upholds data protection standards set by the Japanese government.
The Russian data localization law
The Russian data localization law came into effect on 1 September 2015. The key effect of this law is that personal data collected within Russia (including online collection) must be stored and/or processed using databases or servers that are physically located within Russia. This raises concerns for foreign parent companies operating share plans for employees of a Russian subsidiary in contemplating where their data processing will need to take place.
The Russian Ministry of Communications issued some guidance on this in September. In its guidance it stated that data may be transferred and processed outside of Russia provided that the primary database storing the personal data is within Russia – a secondary back-up database in a foreign jurisdiction would be permissible.
Increased protection for employees in civil proceedings
The National Council of the Slovak Republic has passed the civil procedure code. Coming into effect on 1 July 2016, the amendment introduces new provisions regulating disputes between parties with an unequal bargaining position, with certain measures being introduced which are intended to provide greater protection for the weaker party (employees) in individual labour disputes. The amendments include greater representation of employees by trade unions, a broader duty of the courts to instruct employees about their procedural rights and obligations and a discretionary right for courts to consider evidence not put forward by the parties if the court deems it necessary for the adjudication of the dispute. Moreover, the amendment provides that only one court in each region will have jurisdiction to hear individual labour disputes.
Taxation of stock option plans
In its tax reforms at the beginning of the year, Spain introduced a number of changes.
In particular, the 40 percent tax relief available to irregular income (that is, income that is generated over more than two years, not incurred on a regular or recurring basis) has been replaced by a 30 percent reduction. This 30 percent reduction is available if income is received in the same tax year and the individual has not applied for the reduction in the last five years.
Although in its draft tax reform package Spain proposed to completely remove the exemption for the first €12,000 of income realised from share settled compensation, its final package does not remove the exemption, but does modify the eligibility conditions required to qualify for the exemption.
Now, for the exemption to apply, all employees in the company must be offered participation in the plan (previously, it was not necessary for the plan to be available to all employees, but rather to all individuals within the same category/grade of the company).
New agreement on non-compete clauses
The Confederation of Swedish Enterprise and the Negotiation Cartel for Salaried Employees in the Private Business Sector have, on 2 July 2015, entered into a new agreement regarding non-compete clauses in employment agreements. The new agreement replaces the previous 1969 collective bargaining agreement on non-compete clauses that was terminated on 31 May 2015. Under Swedish law, non-compete clauses are governed by Section 38 of the Contracts Act that stipulates that too far reaching non-compete commitments may be deemed unreasonable and thus unenforceable. The new agreement includes provisions on reasonableness, duration, scope and compensation. The new agreement will apply to agreements entered into on or after 1 December 2015.
Anticipated increase in employee's minimum wage
Recently, business markets have been preoccupied with the ongoing discussion regarding the anticipated increase in employee minimum wages in Turkey (to take effect as of 1 January 2016). The Turkish government has indicated that the national minimum wage will be increased by 30 percent. There is growing concern that such an increase will result in increased personnel costs for employers. Under current legislation, the 30 percent increase corresponds to an approximately 48 percent increase in personnel costs for employers when taking into account applicable taxes and employer's social security contributions.
Employment intermediaries and personal service companies
On 25 November 2015, the UK Government announced that legislation will be introduced with effect from 6 April 2016 to restrict tax relief for travel and subsistence expenses for workers engaged via an employment intermediary, such as an agency. The UK Government also announced that such relief will be restricted for individuals "working through personal service companies where the intermediaries legislation applies". It is currently unclear exactly how these changes will be implemented but further detail is expected when draft Finance Bill 2016 is published later in December 2015.
More broadly, the UK Government has been running a consultation with regard to reforming the taxation of individuals working via intermediaries. The consultation is considering whether the effective tax treatment of such arrangements should be brought more into line with the effective tax treatment of direct employment. There is currently no indication as to when any changes resulting from this consultation will be implemented.
European Banking Authority ("EBA") updates on remuneration policies and the use of allowances
The EBA published a report on 12 November 2015 as a follow up to its Opinion issued in October 2014 on the use of allowances as a form of fixed remuneration.
The EU declared that lump sum allowances that are not predetermined, transparent or permanent and that provide incentives to take risk are variable remuneration and count as bonuses for the purposes of the cap. Role-based allowances can still be paid as fixed remuneration and so fall outside the scope of the cap.
The EBA report considered whether Competent Authorities had been monitoring banks to make sure that they had made the requisite changes to their remuneration policies following the publication of the Opinion.
The EBA report noted that the Guidelines on sound remuneration are expected to be finalised by the end of 2015. It is evident that many Competent Authorities are awaiting the publication of these Guidelines before they take steps to draft any laws in this area.
The EBA is also working with the European Commission to review the provisions on remuneration, including identifying whether the legislation requires further reinforcement in this area.
In the meantime, those effected are looking for other means to circumvent the cap, including bumping up holiday allowances to create an entitlement to payment in lieu of untaken leave. Others have considered the payment of loans on a non-redeemable basis.
NLRB adopts broad joint-employer standard
(See client alert October 2015.)
The federal National Labor Relations Board has recently adopted a broad standard for assessing joint-employer status under the federal National Labor Relations Act ("NLRA").
The broad view taken by General Counsel in the Browning decision has raised concerns about what kind of relationships will now be considered to be a joint-employment relationship for the purposes of the NRLA.
Companies should be wary about not only exercising control but reserving the right to exercise control either directly or indirectly over the terms and conditions of employment of another entity's employees.
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