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Government Determines All Salary Increases Need to be Remunerative

By | [email protected] | July 11, 2018 4:02pm

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In a decree published in the Official Gazette (Boletín Oficial) yesterday, the Labor Ministry announced that, starting in a month’s time, it will not approve salary agreements where employers pay a part of the increase as a so-called “non-remunerative” sum: these are parts of the increases described as bonuses or extraordinary compensations and therefore not taxed by the government.

Oftentimes employees – including the public administration on many occasions – resort to this method to avoid paying the taxes they would have to if they officially incorporated the sum to the employee’s salary. Pension and health insurance payments are some of the taxes, for example.

The other side of the coin, nonetheless, is the fact that this sometimes allows employers to give higher raises, as they don’t have to allocate funds to pay the state. At the time of issuing the decree, the government mostly emphasized on this aspect of the measure, arguing it aims at “safeguarding the genuine resources destined to the social security fund.”

Moreover, the decree indicates that “it is observed that in different salary agreements, determined concepts were labeled as ‘non-remunerative,’ when they do have that quality, given their nature.” Some social benefits employers also grant, such as travel expenses and compensations for suspensions that come as a result of lack of work, will continue to not be taxed.