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LESSON 3: RETRIBUTIONS
1. SALARY / NON-SALARY COMPENSATION
2. SALARY STRUCTURE
3. SALARY DETERMINATION
4. N E U T R A L I S AT I O N O F S A L A R Y I N C R E A S E ( A B S O R C I Ó N A N D
COMPENSACIÓN )
5. PAYMENT
6. SALARY PROTECTION
a. Against creditors of the employee b. Against creditors of the employer c. Against company insolvency
1. SALARY / NON-SALARY COMPENSATION Not all retribution paid to employees is considered salary. The first question to consider is therefore whether the remuneration is salary or non-salary. This difference is important because when fixing employment rules ET often refers only to salary remunerations, e.g. art. 42 ET on outsourcing; art. 33 ET on the Fondo de Garantía Salarial (FOGASA); and when calculating compensation for terminating a contract. According to art. 26.1 ET, salary refers to all economic payments made to employees, in money or in kind, for the professional provision of employment services. Salary remunerates effective work, regardless of the form of remuneration, as well as rest periods considered work time (annual holidays, weekends, etc). However, the article ends with a legal limitation: in no event may in-kind salary exceed 30% of the employee’s salary payments Non-salary compensation is not defined in the ET. This form of compensation refers to any other retribution that cannot be considered salary since it does not recompense effective work or rest periods that are considered work time. We can conclude that non-salary retributions recompense non-ordinary costs incurred by the employee when performing his or her job. For instance (art. 26.2 ET): ● All economic compensations perceived by the employee as a consequence of non-ordinary expenses arising from the exercise of his or her job (e.g. if he or she is transferred to a different city for one week). ● The so-called Seguridad Social Complementaria , i.e. the benefit the employer incurs for their employees to increase the protection afforded by the welfare system.
● Compensations to which employees are entitled in cases of transfer, suspension or dismissal. The disciplines that refer to salary are Employment Law, Social Security Law, and Tax Law.
- Tax Law began to define salary more strictly, widening the concept to include retributions that were not previously included or, at least, Courts were not following always the same criterion about them (benefits offered by companies to their employees, including free tickets in the case of transport companies or water or energy supply in the case of electric, water or gas companies). This meant that taxable income was increasing.
- The same tendency is observed in Social Security, where more and more retributions are taken into account to calculate how much must be paid as social contributions to the social security scheme.
- Employment Law shows no clear tendency: in Employment Law, a wider concept of salary compensation would benefit the employee, e.g. FOGASA responsibility (art. 33); responsibility in outsourcing (art. 42); or when calculating compensations in cases of dismissal. Many court decisions have been taken on this subject, which shows that this matter is rather controversial. See STS 5-7-2016 appeal 2294/ on plus transporte y vestuario. The question, then, is what type of remuneration (salary or non-salary) is:
- (^) expenditure by employers on retirement programmes,
- (^) expenditure by employers on health care or health insurance,
- (^) free or subsidised housing,
- (^) the use of a company vehicle or mobile phone, etc., and
- (^) meal vouchers/restaurant tickets, etc. 2. SALARY STRUCTURE Salary structure refers to the various concepts that are included in salary retribution. All concepts included in this salary structure are therefore salary remunerations. According to art. 26.3 ET, salary structure is determined by collective agreement or by the employment contract. A. Elements of salary structure
- Basic Salary (26.3 ET): The salary structure must include basic salary. This is the amount paid to an employee before any extras are added or subtracted. Art. 26.
not hold any right of seniority (i.e. the proportionality rule does not apply).
- Until 1994 this was a compulsory supplementary payment. Since then, however, it has no longer been compulsory (it depends on the collective agreement or employment contract). In fact, this supplementary payment goes against the modern philosophy of supporting the company’s productivity and flexibility (performance- related salary) since it does not recompense any effort or productivity on the part of the employee. ● Consolidation (26.3 ET). Consolidation is important for determining the retribution of an employee whose working conditions are modified. For example, what retribution is paid to a night-worker who is transferred to a day job? Does he or she have the right to still be paid as a night-worker? Rules on the consolidation of supplementary payments make it important to differentiate between these kinds of payments, since art. 26.3 says that the consolidation of supplementary payments will only occur for payments related to an employee’s personal characteristic and skills unless otherwise stated in the collective agreement or employment contract. For example: ● A night worker who is transferred to a morning shift will lose his or her supplementary payment for night work. ● Employees whose language skills are not required for their position but may be useful for it will continue to receive their supplementary payments even if they get moved to another position in which they will never use those skills.
- Extraordinary payments (31 ET): Employees are entitled to two extraordinary payments per year. ● Receipt depends on the stipulations of the collective or individual agreement. However, one payment must be paid at Christmas, while the other is normally paid at the end of June. Extraordinary payments can also be distributed proportionally across the twelve months of the year if the collective agreement permits. ● The amount received depends on the collective agreement. 3. SALARY DETERMINATION
The specific retribution to be paid to an employee is established in his or her employment contract. However, as the relationship between an employer and an employee is typically a relationship between a bearer of power and one who is not a bearer of power, the ET envisages limitations that must be considered when establishing the retributions (and other working conditions). a) Interprofessional Minimum Wag e. Art. 27 ET stipulates that the Inter-professional Minimum Wage (IMW), i.e. the minimum wage any full-time employee is entitled to receive as his or her basic salary, is to be regulated annually. The establishment of an IMW is the recognition of an employee’s constitutional right to receive sufficient remuneration in order to satisfy their needs or those of their family (art. 35 CE). Whether the IWM achieves that aim or not is open to discussion. The Government is in charge of determining the IMW annually after consultations with the most representative employers’ associations and trade unions. The IMW is fixed in accordance with several criteria: ● The CPI (Consumer Price Index) ● The general economic situation in the country ● The average national productivity achieved ● The increase in the contribution of work to the national income As the actual CPI may be different to the estimated CPI, the minimum wage may be reconsidered after 6 months. Because salary does not increase automatically when the CPI increases, many collective agreements used to include an automatic salary revision to adapt to the cost of living as expressed by the IPC. However, the 2008 financial crisis and a political aim to avoid this indexation have reduced the number of collective agreements that still link salary to the IPC. As the IMW refers only to salary paid in money, salary paid in kind cannot be taken into account to determine whether this minimum amount has been reached. There is no European minimum wage and some European Union countries do not have a national minimum wage. This is an important aspect for the European Union to take into account since there are huge differences between the minimum wages among European countries (the highest is roughly ten times as much as the lowest), which could increase social dumping (the different costs of living and freedom to provide services, which
reality throughout the European Union, where women still earn on average 16.2 % less than men for each hour worked (Eurostat 2011) despite their significant progress in terms of educational achievements and work experience. This gender pay gap has so far been reduced only very slowly. For this reason, the principle of equal remuneration for both sexes is referred to in art. 28 ET. This does not imply, of course, that discrimination in remuneration for any other reason is acceptable either. Art. 28 ET affirms the prohibition of discrimination in retribution on the grounds of sex. This is a consequence of European Directive 2006/54/CE, which states that, for work to which equal value is attributed, the employer must pay the same retribution, whatever its nature, and eliminate any discrimination on the grounds of sex in all aspects and conditions of remuneration. Today one rarely finds direct pay discrimination for the same work because pressure in the system combats this form of discrimination. However, the legal framework has been less effective in ensuring the implementation of the principle of equal pay for work of equal value. This discrimination is much more difficult to combat for several reasons, including a lack of awareness on the part of the victim, the difficulty in proving discrimination since the burden of proof has shifted to the employer, obscure pay structures, and a lack of available information about the pay levels of employees who perform the same work or work of equal value. To fight sex discrimination, therefore, it is essential to determine what must be considered work of equal value. Clearly, this concept is wider than the statement same retribution for the same work , as it can apply to different work provided that the value of the work is the same. Royal decree 6/2019 introduced an amendment to art. 28 ET in an attempt to make the prohibition of discrimination on the grounds of sex more effective. The first measure was to introduce a concept of work of equal value , in accordance with the Commission Recommendation of 7 March 2014, on strengthening the principle of equal pay between men and women through transparency, which recommends member states to clarify the concept of ‘work of equal value’ in their legislation. This Recommendation provides several clues for determining when two different works are of equal value: The value of work should be assessed and compared based on objective criteria, such as educational, professional and training requirements, skills, effort and responsibility, work undertaken and the nature of tasks involved.
Accordingly, art. 28 ET states that a work will be of the same value when the nature of the functions or tasks effectively entrusted, the educational, professional or training conditions required for its exercise, the factors strictly related to its performance, and the working conditions in which these activities are carried out are equivalent. What must be considered, therefore, is whether any circumstance (responsibility, effort, ability, knowledge, etc.) renders the value of one work higher than that of the other. For information about gender-neutral job evaluation and classification systems, please read Commission staff working document (SWD/2013/0512 final). We should also stress that, on many occasions, employers refer to physical effort to justify a different value. The Court of Justice of the European Union and the Spanish Constitutional Court admit that physical effort can be used to give a different value to work but they claim that this criterion is liable to be discriminatory and must be analysed strictly. The recommendation to provide a definition for work of equal value is not the only proposal that has been echoed by Spanish legislation. The Commission Recommendation of 7 March 2014 also refers to different measures of wage transparency, which have been introduced into art. 28 ET: − (^) The first measure is the employer’s obligation to keep a register of the average values of wages, salary supplements and extra-salary payments paid to its workforce, disaggregated by sex and distributed by professional groups, professional categories or similar jobs. − (^) The second measure is the right of employees to access their company’s salary register (through the legal workers’ representatives in the company). − (^) The third measure is to justify the differences in wages between male and female employees and to give reasons that show that the differences are for aspects that are not related to gender. This obligation applies to companies with at least fifty workers when the average remuneration for employees of one gender exceeds that of the other by at least twenty-five percent (taking the whole of the salary mass, or the average of payments done). Since the majority of companies in Spain have fewer than 50 employees and many of these do not have workers’ representatives, supervision of the gender pay gap in such companies should be done by employment inspectors.
4. NEUTRALIZATION OF SALARY INCREASE ( ABSORCIÓN AND COMPENSACIÓN )
ILO Convention 117/1969 recalls this prohibition and asserts that payment of wages shall not be made in taverns or stores except to workers who are employed there (Art. 11). This limitation, which is understandable considering the age in which it was agreed, represents an example of paternalism in the regulation of labour relations, since it attempts to protect employees from vices, improve employees’ quality of life, and ensure that the workforce is present at the company the day after pay day (read more about paternalism in industrial relations in Spanish on pages 11-26 below: http://www.cervantesvirtual.com/s3/BVMC_OBRAS/003/dc8/b68/2b2/11d/fac/ c70/021/85c/e60/64/mimes/003dc8b6-82b2-11df-acc7-002185ce6064.pdf) b) Time (arts. 4.2.f and 29.1 ET). As employees need their salary to live, they need to receive their retribution promptly (and with a degree of certainty about when they will receive it) and regularly (at intervals that will reduce the likelihood that wage earners will become indebted). Although the employer becomes a debtor as soon as the employee starts working, the law establishes certain limitations in order to guarantee the rights of the employee. Article 12 of ILO Convention 95/1949 states that wages are to be paid regularly, while art. 29 ET states that the period of time for payment of periodic and regular remuneration may not exceed one month. The maximum period of time the employee can legally work without receiving his or her salary is therefore one month. However, specific rules apply for salary on commission (art. 29.2 ET), which should be paid at the end of the year unless otherwise agreed. ● Do employees have the right to payments in advance? We need to differentiate between two possibilities: ○ Advanced payment for work already done. In this case, the rule is clear since art. 29.1 says that the worker (or his or her legal representatives, if so authorised) are entitled to receive advanced payments on account of work already done before the payment deadline. ○ Advanced payment for work to be done. Article 12 of ILO Convention 117/1962 obliges States to set maximum amounts, arrange the manner in which the advanced payment of wages will be repaid, and limit the number of advanced payments that can be made to a worker in consideration of his or her taking up employment. Those provisions are developed in Decree 3084/1974 (the 117 ILO Convention was ratified by Spain in 1973). This Decree, which is still in force, establishes two rules:
■ Advanced payment for work to be done cannot exceed three months of basic salary. Any advance in excess of this amount is legally irrecoverable. ■ Reimbursement for such advanced payments cannot exceed one sixth of the employee’s monthly basic salary. ● There are two main effects of a delay in the payment of salaries: ○ An employer must agree to a 10% interest rate for the delay. This interest must be calculated proportionally, i.e. 10% will be applied only when the delay reaches one year. ○ If the delay in payment is considered a grave infringement of an employer’s obligation (art. 50 ET), the employee is entitled to terminate the employment contract and be awarded the same compensation as for unfair dismissal (33 days per year of service). This issue will be discussed in lesson seven. c) Form. Salary can be paid in money or in kind (art. 26.1). However, there is a limit on salary in kind (in the form of goods and/or services provided by the employer), since art. 26.1 stipulates that salary in kind cannot exceed 30% of the total salary. Remember that salary in kind is not considered when determining whether the Interprofessional Minimum Wage is respected. ● Salary in money. Since employers are obliged to pay a certain amount of money rather than a certain value, an increase in CPI (the Consumer Price Index) affects the employees’ purchasing power. To make up for this loss, collective agreements used to establish automatic re-evaluation of salaries if the predicted change in CPI reached a certain level. However, since the 2008 financial crisis this protection has been attacked by international and European political and financial institutions, especially in countries hardest hit by the crisis, in order to gain economic competitiveness by devaluating the price of work. ILO Convention 95/1949 states (art. 3) that wages payable in money are to be paid only in legal tender and accepts the payment of wages by bank cheque, postal cheque or money order in certain cases (e.g. where payment in this manner is customary, or necessary due to special circumstances, where a collective agreement or arbitration award provides for it, or where it is not provided for but the worker concerned has consented to it). However, according to art. 29.4 ET, the salary may be paid in legal currency or by cheque or similar form of payment through a credit entity (any other form of payment, such as promissory notes, vouchers or coupons are
With regard to taxes and employee social security payments, note that art. 26.4 ET states that employees have to pay all their own tax and social security obligations and that any agreement to the contrary will be declared null and void.
6. SALARY PROTECTION As salary is the employee’s main – if not only – source of income, it must be protected from circumstances that could affect payment of it and, therefore, the employee’s livelihood.
This threat to payment of the employee’s salary could come from:
- creditors of the employee,
- creditors of the employer, or
- company insolvency. a) Salary protection against creditors of the employee: protection from attachment. Attachment of wages obliges the employer to pay part of the employee’s wages not to him or her but to the employee’s creditor. National and international rules restrict the liability of wages to attachment: ● Art. 10 of ILO Convention 95/1949 states that wages may be attached or assigned only in a manner and within limits prescribed by national laws or regulations. The same article establishes that wages are to be protected against attachment or assignment to the extent deemed necessary to maintain the worker and his or her family. ● In Spanish legislation, this protection is regulated in art. 27.2 of the ET and articles 607 and 608 of the Ley Enjuiciamiento Civil , which provide certain protected wage rates up to which the wage is exempt from attachment: - The IMW is exempt from attachment. - If remuneration exceeds the IMW, the amount in excess is also exempt from attachment to certain degree. - For the first additional income above the IMW and up to 2 times the IMW, only 30% is liable to attachment. - For the second additional income above the IMW and up to 3 times the IMW, only 50% is liable to attachment. - For the third additional income above the IMW and up to 4 times the IMW, 60% is liable to attachment. - For the fourth additional income above the IMW and up to 5 times the IMW, 60% is liable to attachment. - For the fifth additional income above the IMW and up to 6 times the IMW, 75% is liable to attachment. - For any additional income, 90% is liable to attachment. In some cases, these percentages can be lowered depending on the employee’s situation (art. 106.4 LEC) and are not applicable when the employee has been sentenced to pay alimony (art. 608 LEC). In such cases, the Court will decide the amount that is liable to attachment. The amount to be considered to determine the wage liable to attachment must include extraordinary payments. When the extraordinary payments are paid, the amount liable to attachment that month will be determined by applying the above
○ It only affects the amount that results from multiplying the IMW three times by the number of days in which the salary is not paid. c) Salary protection against insolvency of the company (FOGASA). This protection is also regulated at the European level since DIRECTIVE 2008/94/EC establishes the protection of employees against the insolvency of their employer. In Spain, this protection is regulated in art. 33 ET on the Fondo de Garantía Salarial (FOGASA). ● What is FOGASA?. FOGASA is an autonomous body belonging to the Ministerio de Trabajo. Its funds derive from the contribution all employers have to make for each employee they employ (art. 33.5 ET). FOGASA socializes the employer’s risk of becoming insolvent. The relationship between FOGASA, the employer and the employee is therefore similar to that created by an insurance policy, i.e. FOGASA is the insurer; the employer is the insured, and the employee is the beneficiary. ● When does FOGASA guarantee employees’ retributions? There are two cases when FOGASA is responsible for paying (at least some of) the retributions owed to an employee: ○ In cases of insolvency. Insolvency occurs whenever, further to enforcement proceedings regulated in the Labour Procedure Act ( Ley Reguladora de la Jurisdicción Social ), employment credits are not satisfied (art. 33.6 ET). In such cases, FOGASA guarantees: ■ Salaries. For the purpose of this article, salary is considered to be:
- the retributions that have the nature of a salary according to art. 26.1 and are recognised to the employee in the conciliation act or court decision.
- the so-called salarios de tramitación ( lucrum cessans as a result of an unfair dismissal; see lesson 7) when they are legally payable. Art. 33.1 limits the amount of money FOGASA must guarantee for those concepts. ■ Certain compensations due to the employee as recognized by court resolution ( sentencia or auto ), in-court conciliation act, or administrative resolution. Note that not all compensations regulated in ET are protected (only those specified in art. 33. are):
- Compensations as a result of disciplinary dismissal.
- Compensations as a result of contractual termination by the employee as a consequence of a severe infringement of an employer’s obligations (art. 50 ET).
- Compensations as a result of objective circumstances expressed in articles 51 and 52 ET.
- Compensations as a result of contractual termination according to article 64 Law 22/2003.
- Compensations in cases of termination of temporary and fixed-term contracts of employment. However, JCJ in Case C-57/17 ( Checa Honrado ) affected this regulation since it considered that the protection offered by FOGASA must include compensation in the case of termination of the contract on objective grounds (in the above case, termination was decided by the employee after the employer ordered his transfer to another workplace). Finally, note that art. 33.2 limits the amount of money FOGASA must guarantee for these concepts. ○ In cases of termination of the employment contract due to force majeure. Force majeure are unforeseeable (unpredictable or unavoidable circumstances) that prevent someone from fulfilling a contract. In such cases, the compensation to which the employee is entitled to perceive due to the termination of his or her contract of employment is guarantee by FOGASA. In these cases, the labour authority that verifies the force majeure may agree that all or part of the compensation should be paid by FOGASA, notwithstanding the right of FOGASA to be reimbursed by the employer.
