Contribution exemption as an alternative to wage subsidies – initial National Social Security Institute (INPS) clarifications
With Circular 105/2020, INPS, has provided initial clarifications for the management of social security contribution exemption obligations for employers who do not need further wage subsidies due to the COVID-19 epidemiological emergency.
August Decree provisions
Article 3 of Decree Law no. 14 August 2020 no. 104 ( “August Decree”), converted, with amendments, by Law 13 October 2020 no. 126, outlines an economic incentive, in the form of social security contribution exemptions, for employers who (i) do not require further wage subsidy periods under the same decree and (ii) have already benefited from wage subsidies in May and June under Decree Law 17 March 2020, no. 18 ( “Cure Italy” Decree).
The contribution exemption can be used for up to four months, by 31 December 2020, and up to double the hours of wage subsidy already obtained in May and June 2020.
Employers who have benefited from this exemption are subject to the prohibitions against collective and individual dismissals for justified objective reasons, referred to in Article 14 of the August Decree. Violation of this provision shall result in the contribution exemption’s retroactive revocation and losing the right to apply for wage subsidies under the same Decree.
In its circular, INPS, made it clear that, other than the agricultural sector, private employers, including non-entrepreneurs, can benefit from the reduction in contributions, if they:
- have benefited from ordinary wage subsidies, ordinary allowances, and extraordinary wage subsidies, under the “Cure Italy” Decree in May-June 2020 due to the COVID-19 epidemiological emergency;
- have not requested, or will not request, new wage subsidy measures under article 1 of the August Decree.
INPS specified that employers who applied for social security benefits based on the “Cure Italy” Decree before 15 August (date of the August Decree’s entry into force), or alternatively after 14 August, may still benefit from this exemption. This is conditional on the subsidy periods starting before 13 July and ignoring wage subsidies that may partially accrue after 12 July.
Wage subsidy payments are based on individual production units belonging to the same employer (INPS number), and the employer can choose between the social shock absorber or contribution exemption for each production unit.
The incentive is equal to the employer’s unpaid contribution, excluding INAIL premiums and contributions and other minor contributions (such as, the 0.30% contribution for financing interprofessional funds. The contribution due to the “Fund for the payment of severance indemnities to private sector employees under Article 2120 of the Italian Civil Code”) – for double the hours benefited under social shock absorbers during May and June 2020 and regardless of the number of employees for whom wage subsidies have been paid.
The total incentive must be recalculated and applied on a monthly basis (within the maximum limit of the contribution theoretically due in the month by the beneficiary employer) for a maximum of four months and by 31 December 2020 which is the final deadline to use the benefit.
The Institute specified that the contribution exemption is subject to compliance with (i) the conditions to access contribution benefits and (ii) the ban on dismissals under Article 14 of the August Decree, with the approval of the European Commission.
Since it is addressed to a target group, it is considered as “State aid” for which prior authorisation by the European Commission is required, as underlined by the INL (National Labour Inspectorate) note of 16 September 2020, no. 713.
For the benefit’s effective application, we are waiting for the necessary authorisation from the European Commission and subsequent operating instructions from INPS.