Help for local businesses: what is an ERTE

ERTEs are likely to affect millions of employees in Spain during a prolonged coronavirus crisis

As it becomes ever clearer that the coronavirus crisis in Spain will create significant issues for businesses long-term, many companies are taking advantage of the “ERTE” Temporary Employment Regulation scheme to cut their own costs while protecting the earnings of their employers.

The “ERTE” is a financial instrument which until now may be unfamiliar to most of us but is likely to become part of the everyday vocabulary of Spain in the very near future. In essence it allows businesses and companies facing a temporary financial crisis to unburden themselves of staff costs by making the workforce redundant until conditions change and it is feasible to take them on again, while at the same time providing benefits to the workers so that they are not deprived of their income, receiving a significant part of their normal earnings from the State Social Security funds.

HOW THE ERTE WORKS

During an ERTE workers continue to be contracted to their employer but lose the right to be paid their wage or salary (as well as extra payments and holidays) directly by the employer.

As they are still employed, staff have no right to a redundancy payment. This is one of the main features which differentiate the ERTE from the ERE – a permanent redundancy scheme which is entered into when companies face insurmountable difficulties which oblige them to lay off the workforce.

However, when the temporary situation which has caused the ERTE is overcome, they are automatically taken on again under the same conditions as before the ERTE was filed.

The employer must justify the application of an ERTE by reference to “economic, technical, organizational or production reasons, or to situations of force majeure”, and in the case of the coronavirus crisis it is the latter which is making the instrument such a necessary one for employers and employees alike.

Any company may file an ERTE, irrespective of its size, so although major companies such as SEAT will inevitably grab the headlines it is also available to small businesses such as bars or hairdressing salons.

Duration of the ERTE

The ERTE is, by definition, temporary, and no minimum or maximum period is established by law.

For as long as it lasts the time elapsed counts towards the calculations of length of employment and, if they become relevant, any eventual redundancy payment.

In addition, the application of an ERTE is retrospective: in other words, if a business files an application on Tuesday 17^th March it will be backdated to the date on which the cause of the temporary lack of business occurred – in this case, the declaration of a national state of emergency at the weekend.

Payment of the workforce

Workers affected by an ERTE are entitled to claim unemployment benefit for the duration of the scheme if they have made Social Security contributions for at least 360 days in the last 6 years.

The amount received is 70 per cent of their basic salary for the first six months and 50 per cent from then on. The percentages are applied to the average of the last six months’ salary.

For those who continue to work under the terms of an ERTE but on a reduced timetable, the benefit will be applied to the part of a full salary of which they are being deprived. So, if an employer reduces working hours and salary by 50 per cent, the employee will continue to receive half of his or her salary, and then 70 per cent of the other half in unemployment benefit.

Those who have contributed less may also claim unemployment benefit if their income is lower than 75 per cent of the established minimum wage.

Other complicated clauses govern the situation of those who do not automatically have the right to unemployment benefit.

How long does the unemployment benefit last?

In normal conditions unemployment benefit payments last for two years.

In the case of workers whose hours and pay are reduced rather than being scrapped, that period can be longer: if an employer reduces working hours and salary by 50 per cent, the employee will continue to receive benefit for four years.

For this reason, a few workers may choose not to take advantage of the unemployment benefit offered: adherence to the scheme is not obligatory, and in this way they protect their right to prolonged future benefits if their redundancy is eventually made permanent.

When can I claim?

Employees may claim their benefits the day after their suspension partial suspension from work begins. In order to do so they must first officially register as being unemployed and searching for employment.

Claims must be registered within 15 days.

Holidays and bonus payments

The right to holidays is not affected, although the amount of holiday pay due is adjusted in the case of those whose hours have been reduced.

Similar terms apply to the “pagas extras” of those who regularly receive an extra payment at Christmas or during the summer.

Social security contributions

During the ERTE employers are normally obliged to maintain full social security contributions in respect of their employees but due to the severity of the coronavirus situation this has been waived.

Can workers be made permanently redundant during an ERTE?

In theory, yes, but employers are required to demonstrate that circumstances have changed still further in order to make this possible.

The above applies to redundancy on economic, financial or technical grounds: the termination of employment for disciplinary reasons can still be implemented by employers.

Additional information

If your business is likely to be affected by the Coronavirus crisis, the first step is to sit down and compile a detailed list of all costs and revenue to obtain a clear picture of the current situation.It is surprising how many small costs can be eliminated to reduce your outgoings and start to make savings immediately.

The next step is to talk to your asesor in order to obtain advice about the possible options for reducing costs. Making staff temporarily redundant using the ERTE mechanism is a very practical way of maintaining a skilled workforce but limiting the exposure of the business.

The Spanish Government has also agreed a wide-ranging package of support measures for businesses, offering loans to facilitate cashflow, and delaying fiscal payments to help small businesses; your asesor will be able to advise of the best course of action.

What to do if you are in the Region of Murcia and believe you may have contracted the virus

The regional government has set up a special helpline to supply information to members of the public (900 121212) if they suspect that they may have contracted the virus. Do NOT go to a hospital or medical centre.

Sensible precautions

- Wash hands frequently with either soap and water or a sanitiser gel

- Catch coughs and sneezes with disposable tissues – and throw the tissues away immediately after use before immediately washing your hands!

- If you don’t have a tissue, use your sleeve – and wash the item of clothing used at the next opportunity

- AVOID touching your eyes, nose and mouth with unwashed hands

- AVOID close contact with people who are unwell