PROVISION OF SENIORITY PAYMENTS, Prakas 443 of the Ministry of Labour and Vocational Training (“MLVT”) dated 21 September 2018.
After the amendments to the Labour Law (including the introduction of seniority payments), which came into effect on 26 June 2018 (as discussed here) the MLVT issued Prakas 443 on Seniority Payments (“Prakas 443”) on 21 September 2018. This Prakas will take effect from 1 January 2019 and clarifies the scope and enforcement of the relevant provisions on seniority payments for employees under unfixed duration contracts (“UDCs”).
Previously, ‘severance’ (or indemnity for dismissal) was payable only upon termination of a UDC by an employer, except for serious misconduct committed by an employee. From 2019, seniority payments (which replaces the ‘severance’) must now be paid to employees on UDCs every 6 months. This change is likely to increase an employer’s liability with respect to severance/seniority payments.
For employees under fixed duration contracts, severance pay of at least 5% of the total wages due throughout the term of the contract must continue to be paid.
The most significant implications of Prakas 443, which are applicable to all enterprises under the scope of the Labour Law (including non-governmental organizations, associations and private sector entities) are as follows:
(1) Seniority payments from 2019 onwards
Seniority payments equal to 15 days of wages and fringe benefits per year must be paid to employees two times per year according to the following schedule:
(a) 7.5 days of wages and fringe benefits to be paid in June each year; and
(b) 7.5 days of wages and fringe benefits to be paid in December each year.
Accordingly, from 1 January 2019, seniority pay will be payable every 6 months.
Once one month of employment has successfully been completed, new employees will be entitled to 7.5 days of wages and fringe benefits payable in June or December of that particular year, irrespective of whether they complete the entire 6 months of service. The law is unclear concerning employees under probation and, based on the current wording of Prakas 443, the initial employment period is likely to include any probationary period.
Upon termination for cause or without cause before the end of June or December in a particular year, seniority pay will be payable at the rate of 7 days of wages and fringe benefits (provided that the relevant period for which seniority pay is due is at least one month but less than six months), except in the event of termination for serious misconduct, in which case seniority pay for that period will not be payable. In the event of resignation, it is unclear from the Labour Law and Prakas 443 as to whether seniority pay is due to an employee.
(2) Back pay of seniority payments prior to 2019
In addition to the seniority payments from 1 January 2019, employees who were employed prior to 2019 are also entitled to back pay for all past seniority. The amount of the back pay is, however, capped at a maximum of 6 months of the average base wage in each relevant year of employment up to 31 December 2018.
With respect to the payment of back pay, given instances of certain manufacturers failing to meet their severance obligations, more onerous obligations have been imposed upon participants in the textile, garment and footwear manufacturing (“TGF”) sectors, as follows:
(a) employees in the TGF sectors who have worked prior to 1 January 2019 and remain working for an enterprise, will be entitled to 30 days of back pay per year (to a maximum of 6 months) paid as follows:
(i) 15 days of seniority payment to be paid in June each year; and
(ii) 15 days of seniority payment to be paid in December each year; and
(b) employees in all other sectors who have worked prior to 1 January 2019 and remain working for an enterprise, will be entitled to 15 days of back pay per year (to a maximum of 6 months) paid as follows:
(i) 7.5 days of seniority payment to be paid in June each year; and
(ii) 7.5 days of seniority payment to be paid in December each year.
In determining the entitlement to back pay for an employee’s initial calendar year of employment, an employer must pay:
(a) 7.5 days of back pay if the period of employment in the initial calendar year was between 1 month and 6 months; and
(b) 15 days of back pay if the period of employment in the initial calendar year was more than 6 months up to 12 months.
Upon termination for cause or without cause from 1 January 2019, outstanding back pay will be payable in full upon termination (to a maximum of 6 months of the average base wage in each relevant year of employment up to 31 December 2018), except in the event of termination for serious misconduct or resignation, in which case back pay will not be payable.
By way of example, a non-TGF employee who commenced employment on 1 March 2018 and remains in service as at 31 December 2019 will have a total of 9-months’ past seniority (for the period in 2018) and 12-months’ new seniority (for 2019). The employee will be entitled to 15 days of back pay and the following payments will be paid in 2019:
For 1 March 2018-30 June 2018: back pay of 7.5 days, payable on or before 30 June 2019;
For 1 July 2018-31 December 2018: back pay of 7.5 days, payable on or before 31 December 2019;
For 1 January 2019-30 June 2019: seniority pay of 7.5 days, payable on or before 30 June 2019; and
For 1 July 2019-31 December 2019: seniority pay of 7.5 days, payable on or before 31 December 2019.
By 31 December 2019, the back pay will have been paid off and, from 2020 onwards, the employee will only be paid seniority pay. If the employee resigned or was terminated for serious misconduct as at 1 December 2019, the employee should not be entitled to any back pay for the period from 1 July 2018 to 31 December 2018 or seniority pay for the period from 1 July 2019 to 1 December 2019.
Alternatively, a non-TGF employee who commenced employment on 1 September 2010 and remains in service as at 31 December 2019 will have a maximum of 8 years and 3 months’ past seniority (for the period prior to 2019) and 12-months new seniority (for 2019). The employee will be entitled to 127.5 days of back pay and the following payments will be paid in 2019:
For 1 September 2010-31 December 2010: back pay of 7.5 days, payable on or before 30 June 2019;
For 1 January 2011-30 June 2011: back pay of 7.5 days, payable on or before 31 December 2019;
For 1 January 2019-30 June 2019: seniority pay of 7.5 days, payable on or before 30 June 2019; and
For 1 July 2019-31 December 2019: seniority pay of 7.5 days, payable on or before 31 December 2019.
By June 2027, the back pay will be paid off and, from that point onwards, the employee will only be paid the new seniority pay.
If the employee was terminated with cause or without cause (other than serious misconduct) on 1 December 2019, the employee would be entitled to seniority pay of 7.5 days and payment of all outstanding back pay in full. While Prakas 443 is not explicit as to when such seniority pay and back pay must be paid in the event of termination, based on the Labour Law, termination payments must be made within 48 hours of the termination date.
PROVISION OF WAGE PAYMENTS, Prakas 442 of the MLVT, dated 21 September 2018
From January 2019 onwards, all enterprises governed under the Labour Law must pay wages to employees twice per month as follows:
(1) First Payment: 50% of base wages for that month in the second week of the month; and
(2) Second Payment: the remaining base wages, fringe benefits and other allowances for that month in the fourth week of the month.
This requirement would be a major change to payroll processes of the hiring entities, which are typically made monthly.
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This article is written by DFDL Lawyers.
This article was first published on the DFDL website.
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