El Salvador: Protection of salvadoran employment act

Written by:

Carlos RodriguezMillie MirandaDiego Rivera

 

LEGISLATIVE DECREE Number 641: On May 5th, 2020, the Salvadoran Congress issued a new Decree which has as an objective to establish measures to mitigate the economic impact and its effects on Salvadoran employment due to COVID-19 pandemic; all in virtue of the sanitary measures imposed to fight it. Such Decree was enforced on the same date and published on the Official Gazette number 89, Book 427 dated May 5th, 2020. It highlights that its effects will finalize once the funds destined to serve the national emergency run out.

 

The Protection of Salvadoran Employment Act describes exceptional and temporary measures to safeguard labor security of the workers in the private Salvadoran sector, guaranteeing the workers a dignified wage, without undermining the economic activity of each business, without distinction of any economic sector. However, this Act establishes special regulations to micro, small and medium-sized businesses on a few specific points.    

 

Below we have included a summary of the main aspects included in the Protection of Salvadoran Employment Act:

 

I. PRINCIPLES

 

  1. Job favorability
  2. Non-formalism
  3. Expeditiousness and Authority Proactivity
  4. Procedural Economy and simplicity
  5. Equality and non-discrimination

II. OBLIGED SUBJECTS

 

  1. Employers
  2. Banco de Desarrollo de El Salvador (“BANDESAL”) in its capacity as administrator of public funds

I. MEASURES FOR THE PROTECTION OF EMPLOYMENT

 

1) Labor safeguards: Duly authorized companies to operate during the national state of emergency must comply with their labor obligations, in accordance to the current law and the labor contracts. It is important to establish that to identify businesses authorized to operate, the requirements established in other Executive Decrees must be verified, as well as compliance to the Lockdown regulation, Quarantine, Observance and Vigilance Act due to COVID-19 

 

2)  Authorized leave (vacation): Employers and their employees, through a mutual agreement can establish individual authorized leave in an anticipated fashion either in a single period or fractionated, without a thirty-day prior. In case that the mutual agreement is not possible, the employee can opt to have his/her leave scheduled during the last trimester of the year. This vacation should be paid on time and accordance to the Salvadoran Labor Code. Employees who are infected with COVID-19 or have clinical symptoms cannot have its vacation with anticipation.

 

DISCLAIMER: Although article 6 of this Act allows for the possibility to enjoy authorized leave in an anticipated fashion either in a single period or fractionated, through a mutual agreement in relation to the payment it considers that it will be done on time and in accordance to the Salvadoran labor Code. In that sense, article 185 of the mentioned Code establishes that payment during an authorized leave du to vacation should be done immediately before the employee starts his/her leave and should cover all the days of the leave. Therefore, if the employee only receives its wage and the off days without the duly 30% of additional wage and the employees accepts it, the employer could have the documentary backing but could still be observed by a government inspection. Therefore, the safest way to proceed, would be to mutually agree to the leave with payment plus the 30%. Clearly, the economic benefit would not be observed in a short term, but there can be a guarantee that the employee will work on future dates where he/she originally will enjoy its vacation period, in order to help with the company’s productivity.        

 

3) Surveillance by the Ministry of Labor and Social Welfare: The authorities of the Ministry of Labor and Social Welfare (“the Ministry”) should strictly comply with the provisions established in this Act and labor norms, having to file a report every six months about the application of this Decree. The employers who have been sanctioned by the Ministry in the wake of COVID-19 pandemic and once they have remedied should notify the authorities and the Ministry will proceed in the following 72 hours to verify the compliance and to revoke the imposed sanction.   

 

4) About the subsidy: This Act orders the creation of the Subsidy Program for Employees of micro, small and medium businesses registered as patrons before the Salvadoran Institute of Social Welfare (“ISSS”) and that are affected by the COVID-19 crisis. The fund will be managed by BANDESAL and will apply to patrons who fulfill the following requirements:

 

a) Who are registered before ISSS with less than 100 employees, pursuant the payroll filed during the months of December 2019 to February 2020, as it applies; and,

 

b) Who have annual gross sales revenue less than seven million Dollars during 2019, that have been declared by March 31st, 2020 or during 2018.

 

In the case of micro, small and medium-sized businesses registered as patrons before ISSS, who initiated operations by 2019 and that have not yet declared their rent tax, the gross revenue reflected in their financial audits by December 31st 2019, will be considered as the basis. For those companies who initiated operations during 2020, the amount listed in their last monthly tax declaration, will be taken into consideration. 

 

The entity in charged of granting the subsidy is BANDESAL, who will also have to request the database of the micro, small and medium-sized companies who are registered at ISSS and this Institution will provide the information.

 

The subsidy program for employees will be equivalent to 50% of the patron’s monthly payroll of the micro, small and medium-sized businesses. It will also encompass a two-month period maximum and up to a monthly amount of US$22,500.00, for a total per business of US$45,000.00. The benefit per employee will be at a maximum of US$500.00.

 

The subsidy for employees will be given monthly to the employer and the patron must transfer it to its employees no longer than three workdays after the date the subsidy has been received. The employer shall keep and show the payment receipt when they are required by an authority.         

The payment of the subsidy to the employees is tax and social welfare discount free. It must be transferred in full.

 

The subsidy program should be executed in a period of four months, starting on the date that BANDESAL publishes the beginning of the delivery of funds. At the end of this period, the remaining funds of the subsidy program shall be transferred entirely to the Program for Credit Grants.

 

5) Program for Credit Grants: This Act orders the creation of the Program for Credit Grants for working capital for Salvadoran companies or entrepreneurs registered as patrons at ISSS affected by COVID-19 crisis. The loans will have a maximum annual rate of interest of 3%, for a period of ten years and a grace period of twelve months, which will be administered by BANDESAL.  

 

To determine the maximum amount of the loan, the following criteria will be used:

 

a) The amount shown on the ISSS payroll at any month between December 2019 and February 2020, and/or

 

b) The monthly tax declaration during the years 2018 and/or 2019, this last one filed before June 30th, 2020.

 

For those who initiated operations by 2019 and that have not yet declared their rent tax, the gross revenue reflected in their financial audits by December 31st 2019, will be considered as the basis. For those companies who initiated operations during 2020, the amount listed in their last monthly tax declaration, will be taken into consideration. 

 

6) Resource allocation priority by BANDESAL: BANDESAL will prioritize the allocation of resources in the order established by the Law, to guarantee the progressiveness and efficiency of the measures in favor micro, small and medium-sized businesses registered as patrons before ISSS and affected by the COVID-19 crisis.

 

7) Productive Financing Program: This Act orders the creation of the Productive Financing Program for Salvadoran for entrepreneurs in the informal sector, mainly for working capital that allows economic recovery. The entrepreneurs that can apply are those who have at least one current credit line in the national financial system and/or the cooperative financial system with a credit rating of A or B category by February 29th, 2020 and that have been affected by COVID-19. The loans shall be granted at a maximum annual rate of interest of 3%, for a period of ten years and a grace period of twelve months, which will be administered by BANDESAL

 

*Please note that these measures are currently in force and are subject to change at any time, if further decrees are issued by the President and the Legislative Assembly.

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