The National Executive Power (the "Executive") enacted through the Executive Order of Necessity and Urgency number 1043/18 (the "Order") the payment of a non -remunerative allowance of AR$ 5,000 (Argentine Pesos Five Thousand) for all employees within the private sector (the "Allowance") subject to a series of parameters which we describe below.
As set forth in the recitals, the purpose of the Order is to adopt such measures as required to maintain the purchasing power of salaries that were negotiated by the parties and that were affected by the inflation rate of the running year.
The Allowance will be paid to all employees within the private sector, regardless of whether they are bound or not by a collective bargaining agreement.
Employees under the Agrarian Work Regime or Domestic Households Regime, as well as employees of the public sector are specifically excluded from the applicability of the Order, notwithstanding whatever decisions may be adopted with regard to them in the future.
b) Date and manner of payment
The AR$ 5,000 (Argentine Pesos Five Thousand) Allowance is set forth as from 1 November 2018 and will be paid in two tranches of AR$ 2,500 (Argentine Pesos Two Thousand Five Hundred) each, as follows:
- The first tranche in December 2018, together with the monthly salaries of November 2018.
- The second tranche in February 2019, together with the monthly salaries of January 2019.
Employees whose working hours are less than those set forth under the law or applicable collective bargaining agreements are entitled to the Allowance on a pro-rata basis.
Parties to collective bargaining agreements and negotiations which find themselves in a situation of crisis or productive decline will have the possibility to amend the amount and manner of payment described above. While the Order does not specify what it means by "situation of crisis or productive decline", it appears that only those companies which are currently undergoing a Crisis Preventive Procedure shall be entitled to this alternative.
c) Nature and effects of the Allowance
As per the Order, the nature of the Allowance to be granted is non-remunerative. Therefore, the AR$ 5,000 (Argentine Pesos Five Thousand) to be paid by the companies to its employees shall neither be computed for salary or severance purposes, nor will be subject to social security contributions. If applicable, the Allowance will be subject to income tax withholdings.
The above notwithstanding, the nature of the Allowance is actually questionable in light of the Supreme Court of Justice's doctrine and of the decree number 633/18 dated July 6, 2018 (issued by the Executive). Indeed, through said decree the Executive tries to put an end to the payment of collective non-remunerative allowances by stating that it will not accept nor approve "collective bargaining agreements and/or agreements with similar effects that contain sums or items of a salary nature, with respect to which the parties agree to assign a non-remunerative nature".
Regardless of the potential remunerative nature of the Allowance, being it a one-time payment it will neither be subject to social security contributions nor be factored into the calculation base for severance purposes.
In such cases where re-adjustments of the original 2018 collective salary negotiations have already been agreed upon (whether by means of the "automatic trigger clause" or because they've been re-negotiated), employers will be able to offset the Allowance with such re-adjustments. This clause is expressly referred to employees bound by a collective bargaining agreement.
By way of example, the following are some of the Trade Unions that have already collectively re-negotiated the original 2018 alary increases: Commerce and Services; Banking; Union of Mechanics and Related Crafts of the Automotive Transport Industry ("SMATA"); Metalworking Union ("UOM").
Given that the rule is that the Allowance will be offset unless the parties agree on the contrary (and that there is no such obligation to agree to something in that regard), companies will possibly face demands from unions seeking to obtain actual payment of the Allowance, rather than allowing it to be offset.
Companies which have not yet agreed to a re-adjustment of the original 2018 collective salary negotiations will necessarily have to pay for the Allowance. However, the Allowance can be paid as an advance of the re-adjustment that is finally agreed upon with respect to the 2018 collective salary increase.
Companies that have unilaterally granted salary increases on top of those collectively agreed upon as of 1 January 2018 will be able to offset the Allowance with those increases.
On the contrary, the situation of the employees not bound by a collective bargaining agreements is not adequately addressed by the Order. While the Order requires the Allowance be paid to all employees within the private sector, it also includes a section which allows to interpret that the offsetting (evidently foreseen for employees bound by a collective bargaining agreement) can also apply to them: "Employers which have unilaterally granted other increases on the employees' income as from 1 January 2018, will be able to offset these with the total sum of the allowance established in article 1 herein".
The allowance will necessary acquire a remunerative nature if offset or absorbed.