Compensation funds: what has changed and how to redeem

[shukla7789]

The compensation funds were created in 2013 as a measure to address the economic difficulties at the time of the Troika's intervention. The obligation for companies to make contributions to these funds was in force until 2023, when their purpose was changed.

In this article we explain what compensation funds are, how they can be redeemed and under what circumstances.

What are compensation funds?
Workers' compensation funds were a monthly obligation for employers under employment legislation, introduced by Law No. 70/2013 of 30 August. They were applicable to employment contracts with a start date from October 2013.

In practice, the compensation funds translated into monthly savings hong kong whatsapp number database employers had to set up so that the State could guarantee that workers would not be left without receiving the full amount of their compensation for the termination of their employment contracts, if the employer was not willing to pay it.

For the same purpose, two types of autonomous funds were created: the Work Compensation Fund (FCT) and the Work Compensation Guarantee Fund (FGCT).

The value of the monthly contribution by employers corresponded to 1% of the base salary and daily allowances of each worker, at a rate of 0.925% as FCT and 0.075% as FGCT .


Work Compensation Fund (FCT)
The Employment Compensation Fund (FCT) consisted of an individual capitalization fund financed through monthly contributions by employers with a view to guaranteeing the worker payment of up to 50% of the value of compensation due upon termination of the employment contract.

In the event of termination of an employment contract, the entity could request reimbursement of the accumulated balance relating to the employee, with a maximum notice period of 20 days prior to the date of termination. If the employment contract terminated but no compensation was paid to the employee, the employer could also request reimbursement of this amount, keeping it for itself.

To protect workers in the event of dismissal, the obligation to adhere to the FCT could only be waived if the employer opted for an Equivalent Mechanism (ME) that offered the worker the same guarantees.


Labor Compensation Guarantee Fund (FGCT)
The Workers' Compensation Guarantee Fund (FGCT) is a mutual fund , which was also financed by employers through monthly contributions. This, in turn, is to be activated by workers and is not reimbursable to the employer.

This fund was created with the aim of completing half of the dismissal compensation determined under the Labor Code , in the event of the employer's unwillingness to pay and the FCT being insufficient to cover up to 50% of the amount due for compensation.


What has changed in compensation funds?
Employers are no longer required to join and contribute to compensation funds as of 1 January 2024 , with the entry into force of Decree-Law No. 115/2023 of 15 December. Contributions to these funds had already been suspended since May 2023.

The change to the compensation funds is a measure provided for in the Medium-Term Agreement on Improving Incomes, Wages and Competitiveness and in the Decent Work Agenda . The aforementioned Decree-Law thus reconverts the compensation funds, reformulates their objectives and extinguishes the Equivalent Mechanism.

Under the new legislation, the FCT was converted into a closed-end fund and new purposes were added to its original purpose. Currently, the FCT fulfils the following purposes :

pay up to 50% of the compensation due for the termination of employment contracts of workers included in the FCT;

support workers’ housing costs and investments;

support other investments made by mutual agreement between employers and structures representing workers, namely daycare centers and canteens;

finance the qualification and certified training of workers.
Due to these changes, the individual registration accounts of workers are merged into a single global account of the respective employer and the FCT is now made up of the employers' global accounts , net of the amounts owed to the FGCT and operating costs.

The FGCT maintains its nature and purposes, but the obligation to make contributions to it is suspended while the aforementioned Agreement is in force.


Who are the compensation funds currently intended for?
The FCT is intended to be mobilized by employers who have contributed to it , within what is considered their share of the capital, as long as it is to be applied to one of the purposes mentioned above.

Unless the mobilization is intended to pay up to half of the compensation due to a worker for the termination of his/her employment contract, the portion of capital reimbursed may be used for the benefit of any of his/her workers .

Although this is not currently being reinforced by contributions from employers, the FGCT continues to be available to its employees to ensure that they actually receive half of the compensation due for the termination of employment contracts.