Regardless of their size or location, businesses throughout Ireland are affected by the cost of employment. According to the National Competitiveness Council (June 2011), labour is the highest cost for all sectors of the economy. This ranges from 52% of location sensitive costs for the manufacturing sector to between 83% for the service sector.
With this in mind, it is essential that labour costs are kept to a minimum if Ireland is to emerge from its current economic situation.
The Government frequently points out that its hands are tied when it comes to certain decisions. Conditions imposed by the Troika and commitments made in the Programme for Government have tied it to a particular set of priorities. However, within this context, there are still important choices to be made.
The single greatest challenge facing the Government is reducing the deficit and getting Ireland’s finances back onto a sustainable footing. In order to do this the Government must choose between raising taxes and identifying and implementing cost containments. It is the firm view of Thurles Chamber that the reduction in the budget deficit must come primarily from cost containments, rather than increases in taxes and levies.
In particular, there should be no increases in the tax burden on the already struggling business sector. Many of these do little more than increase the cost of employment.
In the run up to Budget 2013, which will be announced on the 5th December, Thurles Chamber and Chambers Ireland is calling on the wider Chamber Network to lobby Government and their elected representatives to ensure that there are no further increases in the cost of employment. In particular we are calling for:
No increase in the share of PRSI paid by employers;
No transfer of the responsibility for sick pay on to employers; and
A reduction in statutory redundancy payments from two weeks wages per year of service to one week.
If the Government chooses to raise taxes and increase the costs of employment there will be a range of negative consequences:
businesses will have less confidence;
their profitability will be reduced;
they will be less likely to employ new staff; and
it will lead to job losses.
The Issues in brief
All employers are responsible for Pay Related Social Insurance (PRSI); however, the total amount collected by the Revenue Commissioners is split between an employer’s share and an employee’s share. Currently, the employer’s share is 4.25% of income for those earning less than €356 p/w and 10.75% for those earning over that amount.
Despite a commitment against any increase in the standard employer’s contribution in the Programme for Government, Minister for Social Protection, Joan Burton, has indicated that contributions from workers and employers could rise.
Sick pay is a statutory entitlement of all workers in Ireland. With the exception of the first three days of absence, the responsibility for sick pay lies with the State. In recent months, the Minister for Social Protection (again) has indicated that she would favour this responsibility being transferred to employers. It has been suggested that employers could be responsible for between the first two and four weeks of sick pay.
The Minister has claimed that this could save her department up to €89 million; however, this amount can also be interpreted as an increased cost to business.
Until 2003, redundancy pay in Ireland was calculated as a half week’s pay for each year of employment between the ages of 16 and 41 years and one week’s pay for every year of employment over the age of 41 plus one week’s normal remuneration.
Currently, redundancy is calculated as two week’s pay for every year of service over the age of 16 plus one further week, up to a maximum of €600 p/w.
The burden on business for redundancy increased dramatically in January 2012 when the rebate was reduced from 60% to 15%.
Thurles Chambers position
Minister Burton has justified the proposals to increase the rates of PRSI for employers and transfer the responsibility for sick pay to employers by suggesting that it would merely bring Ireland into line with international norms.
We dispute this position. There is ample evidence that the current regime in Ireland is not out of line with a number of OECD countries. Furthermore, we believe this view fails to appreciate a number of other factors that increase the cost of doing business in Ireland such as a generous National Minimum Wage, the cost of business and professional services and an excessive VAT rate.
Thurles Chamber believe these measures would have a considerable impact on Ireland’s economic recovery. John Moran, Secretary General at the Department of Finance, has recently heighted the importance of flexibility in the labour market as a contributing factor to economic recovery. Any extra costs for employers would reduce the competitiveness of Irish companies. This could subsequently lead to a pause in our economic recovery, lower job creation and retention and, ironically, an increased social protection bill.
Businesses in Ireland have been hit twice in the area of redundancy: the increase in amount paid and the reduction in the rebate received. Together these amount to a significant burden on the job creating sector of society.
Thurles Chamber strongly believes that if the redundancy rebate remains at 15% then the amounts paid in redundancy must return to their pre-2003 levels. Without such an adjustment, businesses will not have the security and confidence to create new jobs and employ new staff.
Lobbying interactions to date
Thurles Chamber has identified lowering the cost of employment as a major lobbying priority. Activation strategies have included:
The Budget 2012 Early Indications survey, carried out in November 2011, which illustrated the concerns of the business community;
A white paper on the Croke Park Agreement, which contrasted the potential savings to be made in the public sector with the damage to the economy that would be done through increasing the costs of employment;
Meetings with Paul Reid, the Programme Director and the Reform and Delivery Office and PJ Fitzpatrick, Chair of the Croke Park Implementation Body, to further this agenda;
The Chambers Ireland Pre-Budget Submission, which reiterated our determination in this area;
Critiques of the Action Plan for Jobs, issued at the end of Quarters 1 and 2; and
A submission to Forfás in advance of the Action Plan for Jobs, 2013.
Cost of employment – Survey results
In October 2012, Chambers Ireland distributed a survey to businesses throughout Ireland in an attempt to identify the impact of any increase in the cost of employment. Responses were received from 513 business representatives. Many sectors of the economy were represented: agriculture; business services; construction; financial services; hotels and restaurants; manufacturing; transport, storage and communication; and wholesale, retail and catering.
Above all the survey shows that businesses in Ireland are gravely concerned about the potential impact of any increase in the cost of employment.
Questions were asked about:
The proposed increase in the employer’s share of PRSI;
The proposed transfer of responsibility for Statutory Sick Pay to employers; and
The impact of redundancy payment.
89.5% of respondents said an increase in employer’s share of PRSI would have a negative impact on their business. When asked to identify specific issues:
46.1% said it would prevent job creation;
26.7% said it would lead to job losses; and
40.1% said it would make their business less competitive.
87.2% of respondents said the transfer of responsibility for sick pay to employers would have a negative impact on their business. When asked to identify specific issues:
42.2% said it would prevent job creation;
37.9% said it would lead to job losses; and
39.1% said it would make their business less competitive.
60.7% of respondents said the cut in redundancy rebate has had a negative impact on their business. When asked to identify specific issues:
40.7% said it had made them less likely to employ new staff;
18.1% said it had limited their business’s ability to survive; and
14.6% said it had made their business less competitive.
Actions that will be taken
To help ensure the best outcomes for the business community from Budget 2013, Thurles Chamber will be carrying out a number of actions for its members:
We will be requesting a meeting with our local TDs to put forward the arguments presented in this document. Which will make sure they know the damage that such changes could do to the business community;
We will write to key Ministers in Government. These would include the Minister for Finance, the Minister for Public Expenditure and Reform and the Minister for Social Protection;
We will include these points in our own pre-budget submission.