As part of the wider economic stimulus packages to respond to the second wave of COVID-19, governments continue to temporarily defer the collection of social security contributions (SSC), or to exempt from or reduce the contribution payments of some population groups. To date, 68 countries have introduced at least one of these measures (ISSA Coronavirus Country Measures Monitor). An April 2020 communication from the European Commission supported these as a “valuable tool to reduce the liquidity constraints of undertakings and preserve employment” during the COVID-19 crisis (EC 2020a).
While these measures provide temporary relief for employers and employees, they are at the same time putting pressure on the operations and financial sustainability of social security institutions. In March 2020, an ISSA report (ISSA, 2020a) cited specific country examples on the implementation of these measures, which were accompanied by job retention programmes throughout Europe (ISSA, 2020b).
This article presents the evolution of these measures since they began early in 2020, including various adjustments as lockdowns were re-introduced and economies virtually ground to a halt for a second time. Figure 1 below shows a stylized timeline of the selected temporary measures as regards the collection of social security contributions for a number of countries in Europe. The timeline shown is until year-end 2021 but it is anticipated that the deferred or reduced payment of social security contributions may continue well into 2022.
Figure 1. COVID-19 selected temporary measures regarding social security contributions
Source: ISSA Coronavirus Country Measures Monitor (2021).
Adjustments after the second wave of lockdowns in Europe
The three main measures regarding social security contributions since the beginning of the crisis consist of a combination of the following:
- reduction of contributions;
- deferral in the payment of contributions; and
- exemption from contribution obligations.
These measures were adjusted and refined, and evolved once again after the second wave began in late 2020 in Europe:
- reduction and recalculation of social security contributions:
- different reduction levels of contributions for businesses according to the degree of exposure to the crisis (or economic sector), and/or by number of employees;
- reduction of contributions, including exemptions (through later reimbursements) when combined with short-time work policies;
- lowering of contributions for specific social security branches; and,
- re-calculation of contributions in cases of reductions in salaries.
- gradual reduction of exemption levels as part of de-confinement measures after the first wave; and,
- Reintroducing and/or extending more generous exemption measures (in tandem with the lockdowns during the second wave).
- Deferrals and debt freeze:
- No interest (or reduced interest rates) for deferrals of contribution payments;
- Scheduling of instalment payments, including partial payments; and,
- Temporary freeze of penalties on outstanding social security contributions.
The case of Spain: Differentiated deferral levels and gradual reduction
From the onset of the crisis, the Spanish government granted employers different exemption levels for the payment of social security contributions according to economic sector (especially those directly affected by lockdowns) and number of employees (either less or more than 50 employees). Variations over time included the introduction, and temporary implementation, of a new “transitory” temporary employment regulation expedient (Expediente de regulación temporal de empleo - ERTE), for businesses with all its employees on temporary furlough.
Gradual phasing-out of the exemptions
In late June 2020, this transitory ERTE was introduced for the period July to September 2020. For the eligible group of employers, the measure followed the same logic of the regular ERTEs, that is, one of a gradual reduction of the exemption: for July, a 70 per cent exemption (50 per cent with over 50 employees); 60 per cent in August (40 per cent with over 50 employees); and 35 per cent in September (25 per cent with over 50 employees).
Return to higher exemptions during the second wave
As the second COVID-19 wave reached Europe in late September 2020, Spain announced that directly affected businesses with up to 50 employees were exempt from paying social security contributions until 31 January 2021. The employer’s share for businesses with over 50 employees was reduced by 90 per cent. Partially affected businesses were supported by a short-term work scheme known as ERTE “due to limitation” (ERTE por limitaciones), which included temporary exemptions in the employer’s social security contribution payments. The ERTE applied to businesses that could still operate but at less than normal capacity due to lockdown restrictions. The exemptions decreased by 10 per cent after the first month, and further by 5 per cent in the subsequent two months.
In January 2021, the measure was extended until May 2021 due to the reintroduction of a lockdown, with a higher exemption rate of up to 100 per cent for directly affected businesses with less than 50 employees. Table 1 below summarizes these changes. The return to high levels of exemption since beginning of 2021 reflect not only the severity of the economic disruption but the generous policies to mitigate the rising unemployment rates.
|Type of business and circumstance||Oct 2020||Nov 2020||Dec 2020||Jan 2021||Feb-May 2021|
|Directly affected businesses can request a reduction in hours for their employees||With less than 50 employees, including the self-employed||100%||100%||100%||100%||100%|
|With 50 employees or more||90%||90%||90%||90%||90%|
|Indirectly affected businesses can request a reduction in hours for their employees||With less than 50 employees||100%||90%||85%||80%||100% (Feb);
|With 50 employees or more||90%||80%||75%||70%||90% (Feb);
|Source: Adapted from Spain’s social security press releases from October 2020 to February 2021.|
Implementation in other countries
Reduction and deferral of contributions for a specific social security contingency
In Finland, the employer share of social security contributions for private-sector pensions was lowered by 2.6 per cent for the period 1 May to 31 December 2020. Simultaneously, the Finnish government approved the deferral of employers’ SSC payments to old-age pensions for three months. Due to concerns regarding the sustainability of the scheme, the government authorized Finnvera, a state-owned financing company, to increase its total capital lending to companies and provide guarantees to provide them with the means to pay deferred and future contributions, among others. Contributions to the private-sector pension scheme will be raised gradually from 2022 to 2025 to replenish its financial position. In addition, the government will cover from 50 per cent and up to 80 per cent of any loss incurred by Finnvera for these temporary measures.
Full and partial exemption of contribution payments in the form of reimbursement
In Germany, full reimbursement of employer contributions in the case of short-term work was extended until 30 June 2021. From 1 July to 31 December 2021, 50 per cent of social security contributions will be reimbursed if short-time work was to commence by 30 June 2021. As in Spain and in France, the contribution refund is a component of the short-time work scheme.
The recently introduced statutory long-term partial activity allowance in France consisting of 70 per cent of the previous remuneration of an employee (which cannot exceed 4.5 times the minimum wage, to be reduced to 60 per cent beginning February 2021) is not subject to social security contributions either.
Differentiated deferral levels by degree of profit loss
As in the case of Spain and other countries, France is supporting the hardest hit businesses with higher SSC exemption rates during the second wave. Since October 2020, a total or partial exemption was again made available to businesses that had been prohibited from welcoming the public due to the lockdown, such as tourist operators, hotels, catering services, sports’ facilities, cultural sector, air transport and events services, with a profit loss of at least 50 per cent relative to the same period last year. Businesses not affected include those that allow for delivery, pick-up or take-out options. For 2021, the total or partial exemption is provided in the following manner:
|Exemption rate||Turnover rate decrease in 2021 compared to 2020 levels|
|100%||More than 60%|
|25%||At least 20%|
|Discount||May be granted for businesses in other economic sectors that have faced reduced economic activity due to the lockdowns and the overall economic and health crisis.|
|Source: Urssaf, 2021.|
In December 2020, France approved access to emergency exemption from social security contributions for small and medium enterprises and independent workers in the worst hit sectors (e.g. tourism, hotels, cafés and restaurants, events and culture sectors). As part of the second wave of the health crisis, the 2021 Social Security financing law provides measures to support companies and associations directly impacted by the crisis. These measures are specified by decree and according to sector. Under certain conditions, companies and associations can receive financial aid to pay contributions as well as be partially exempted from the payment of the employer’s contribution share. Distinctions are made by company size (e.g. companies with less than 250 employees, and companies with less than 50 employees) and severity of the crisis’ impact on the sector.
Payments in instalments for deferred contribution payments
In most cases, employers who opt for deferral can repay in interest-free instalments. Such is the case of Switzerland, where a deferral of contribution payments of up to 6 months is interest-free. These reductions apply to payment obligations for old-age, disability and survivors and family allowances. An initial freeze of debts to the national social security scheme was in place for one month (19 March to 19 April 2020). In cases where total wage payments decreased (e.g. because of dismissals), the employer’s contributions were adjusted by informing the social security administration.
Many countries in Europe have been implementing diverse temporary measures regarding social security contributions to support businesses and workers during the COVID-19 crisis. These measures evolved during the year 2020, and due to the longer-term nature of the crisis, continue to be adapted on an ongoing basis during 2021. Efforts to meet the challenge to balance the short-term needs of employers and workers for economic relief with their longer-term needs for a adequate and sustainably financed social security scheme are guiding these measures and adjustments.
The disruption to economic activity caused by the long duration of the pandemic poses serious challenges to social security institutions. For most of these is the impact on the financial health of the institution, both in the short- and long-term. There are also practical issues regarding the sustainability of the temporary measures, and their key parameters such as the levels and duration of exemptions, the feasibility and affordability of repayment and instalment plans, and the penalty rates for late contribution payments.
Ensuring proper compliance with the measures is also essential to maintain formal employment coverage levels, which in turn translates to maintaining social security coverage levels. Achieving the former requires good governance practices in social security administration with a focus of proper enforcement of the compliance mechanisms of contribution collection standards (ISSA, 2011).
Assemblée nationale. 2020. Projet de loi de financement de la sécurité sociale pour 2021 (Texte définitif). Paris.
Deloitte. 2020. “Swiss employers welcome COVID-19 measures related to payment of Swiss social security contributions and pension contributions”, in Tax and Legal Blog, 8 April.
EC. 2020a. Policy measures taken against the spread and impact of the coronavirus. Brussels, European Commission.
EC. 2020b. Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak. Brussels, European Commission.
EC. 2020c. Amendment to the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak. Brussels, European Commission.
Enoff, L.; Ruggia-Frick, R. 2013. Innovations in contribution collection and compliance. Geneva, International Social Security Association.
Federal Employment Agency. Corona-Virus: Informationen für Unternehmen zum Kurzarbeitgeld. Nürnberg.
Federal Government. 2020. “Regulations to facilitate access to short-term work to be extended“, in Coronavirus in Deutschland. Berlin, Press and Information Office of the Federal Government.
Gómez, M. V.; Gutiérrez, H.; Pérez, G. R. 2020. “Spain extends ERTE furlough scheme until January 31”, in El País, 30 September.
ISSA. 2011. Success factors in contribution collection and compliance (Social Policy Highlight, No. 20). Geneva, International Social Security Association.
ISSA. 2019. ISSA Guidelines on Contribution Collection and Compliance (Revised edition). Geneva, International Social Security Association.
ISSA. 2020a. Temporary flexibility and exemptions for social security contributions (COVID-19 Monitor – News and analysis). Geneva, International Social Security Association.
ISSA. 2020b. Meeting the employment challenges of the second wave of COVID-19: The case of Europe. (COVID-19 Monitor – News and analysis). Geneva, International Social Security Association.
ISSA. 2021. Coronavirus country measures (COVID-19 Monitor). Geneva, International Social Security Association.
Secretaría de Estado de la Seguriad Social. 2020. “El Gobierno aprueba la extensión de los beneficios de los ERTE hasta el 31 de enero, tras el acuerdo con los agentes sociales” in Seguridad Social, 29 September.
Urssaf. 2020a. Activité partielle: nouveau dispositif suite au Covid-19. France, Unions de recouvrement des cotisations de sécurité sociale et d'allocations familiales.
Urssaf. 2020b. Mesures exceptionnelles: reconduction de l’exonération de cotisations patronales et de l’aide au paiement des cotisations. France, unions de recouvrement des cotisations de sécurité sociale et d'allocations familiales.