Pension Contributions

Pension Contributions:

A pain or a promise of a secure future?

Just before the Parliament adjourned for recess, its members approved amendments to laws that govern the collection of pensions for public and private employees. The controversial measures were met with mixed reviews. Some were happy that the government is taking measures to ensure that workers get social security in a more equitable manner. Others, however, say that the payments are burdensome on workers and employers– and that it takes too long for workers to receive their pension payments. EBR’s Ashenafi Endale explores the issue further to learn more about the intricacies of the debate.On July 6, 2015, just two days before the Parliament adjourned for recess, its members approved the amendment of two contentious proclamations that govern private and government organisations’ employee pension funds. The controversies surrounding the amendments first started to emerge not on the content of the amended proclamations, unlike the trend in the past.
What baffled many, however, was the way the laws became binding before they were signed by the President of the country, as stipulated by the Constitution. Members of the Parliament, who gathered to discuss and vote during the day, allowed these amendments to become effective on July 10, 2015.
The dissatisfaction of the public, especially among employers who hire a relatively large amount of workers on a contractual basis, has continued even after the amendments were approved. According to the amended proclamation that governs private organisations’ employee pension funds, an employee who works for 45 days should be covered by the pension scheme. This is unlike the previous proclamation that set three months (90 days) for an employee to be covered by pension.
This means every organization that hires workers for more than 45 days, as well as the employee, have to contribute 11Pct and 7Pct, respectively, of the worker’s salary, gross except those that are engaged in seasonal labour like cotton and sugar cane harvesting.
Similarly, the Parliament also passed an amended government employee pension proclamation, which states employees that are employed for at least for 45 days on short-term government projects should be covered by the pension scheme. The draft of this proclamation even states close to ETB340 million could be collected annually from the estimated 157,375 employees who work on such government projects.
“This is done to benefit employees that work for a few months in different companies,” says Girma Sisay, director of the Legal Directorate at the Private Organizations’ Employees Social Security Agency. “In the end, the government came up with a law that guarantees social security.”
For companies that hire many contract workers, however, the new pension scheme is problematic, according to business managers. “The new requirement creates an extra cost and workload on the construction sector,” says Birhan Kassa, general manager of Birhan Kassa Building Contractor, which has a grade-four license and employs 50 to 100 temporary workers on any given project. “It is impossible to comply with it.”
This is because, according to Birhan, 80Pct of the work is done by labourers and 30Pct of the total operating cost goes to labour, which means anything that affects the labour force directly has an impact on the profitablility and performance of any construction company. “Let alone adhering to the new requirement, it is even becoming difficult to finalise projects because of the rising prices of machinery, labour and construction inputs,” he adds.
Zelealem Tilahun, an authorized auditor who is an independent consultant, agrees with Birhan: “The workload will be enormous for companies,” he says. “This is because the government failed to create awareness before the law became binding, which may have given companies time to adjust themselves.”
However, the proclamation punishes companies that fail to collect the required contribution 30 days after an employee worked for 46 days by requiring them to pay an additional 5Pct of the total pension contribution for each month delayed.
For the officials of the Agency, however, fair income distribution should be the focus of the nation. “Companies should be concerned about the social aspects [of employment] rather than focusing on profit maximization alone,” says Tesfaye Gashaw, director of Public Relation Directorate at the Agency.
But Birhan says that is impossible to imagine how his company will function under the new amendments. Instead, he says he has only one option. “The only way out is outsourcing projects to small sub-contractors like micro and small enterprises,” he explains. “I have no interest to hire more employees afterwards.”
It is not only business owners like Birhan that are dissatisfied with the new pension scheme. Rather, employees who work on a contractual basis have also voiced their concerns.
“Being a beneficiary of a pension scheme might be good in the future but it is unfair to cut it from the small amount I get. My salary is not even enough to cover my daily expenses,” says Wassihun Abebe, a labourer at the construction site of a building project around Wabi Shebelle Hotel, who gets ETB850 for two weeks of work.
Hanna Mengesha, who has been a waitress at six cafes in the past two years and is currently looking for job after giving birth, also shares Wasihun’s concerns. “In my profession, the salary is low and deducting from this will worsen my current poor living standard,” she says.
Zelalem also feels that the amendment should look to lowering the time an employee will be eligible to claim his or her pension payments. “Waiting for 10 years to benefit from the pension scheme might be difficult for contract workers,” he argues.
It was in 2011 that the government drafted a policy that aims to extend the coverage of the pension scheme to the private sector in hopes of broadening access to social security in the country. Since then, every private organisation is obligated to deduct contributions of its employees’ salaries and pay the amount together with its own contributions. According to the law, an employee in the private sector has to contribute for at least 10 years to be entitled to benefit from the pension scheme.
Until the end of the just-ended fiscal year, 111,289 private companies and 850,713 employees were registered under the pension scheme, according to data from the Agency, although there were close to 177,000 private enterprises with 1.7 million employees in Ethiopia, according to a report published by the Central Statistics Agency in 2013/14.
The Agency also collected ETB7.4 billion since then, and made a profit of ETB173.11 million by investing the money in Treasury bills. Over the last four years, 6,795 employees have become beneficiaries of their contribution, according to Banchialem Ayele, director of Change and Planning Directorate at the Agency.
Unlike Birhan, however, Akalu Tadesse, human resource manager of Romina Café, in the Arat Kilo area, feels that it is the responsibility of companies to contribute to the well-being of their employees. “We have been paying the contribution for the last four years, since the former proclamation was introduced. Although in our business employees come and leave every time the new proclamation might make our job tough. But it is the price we have to pay for the betterment of the society.” EBR

3rd Year • August 16 – September 15 2015 • No. 30

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