Greek Firms Have Found a Way to Dodge Payroll Charges

  • Creditors want labor reform as Greece sees more exploitation
  • Labor market reform among sticking points in bailout review

When Maria’s employer, a large communications company in Athens, gave her additional tasks at one of its new units, it told her she wouldn’t be paid for the work in euros.

“I was informed that this extra payment of 150 euros per month would be in coupons that I can use in supermarkets,” said the 45-year-old, declining to provide her last name for fear of losing her job.

Payments in kind are among practices companies are using in Greece as they seek to cap payroll costs, undermining efforts to balance the books of the country’s cash-strapped social security system. As creditors push the government to boost its budget surplus, companies avoiding payroll charges and effectively expanding the shadow economy are making the task harder. By some estimates, the so-called black market already accounts for as much as a quarter of Greece’s economy.

“Such practices help companies to avoid social contributions, but the burden for the economy is huge,” said Panos Tsakloglou, a professor at the Athens University of Economics and Business. “Less contributions for pensions means more budget transfers to them which then leads to more austerity measures to meet fiscal targets, measures that will probably hit pensioners.”

Greek officials have been meeting in Athens with representatives of the euro area and International Monetary Fund to set out the policies the country must undertake to unlock more bailout loans. The government foresees an accord in March or early April, but the scale of pending issues raises concerns they may be politically hard to sell at home. Greece has agreed to target for a budget surplus before interest payments equal to 3.5 percent of gross domestic product for 2018, which could mean more belt-tightening.

Greek bailout talks are progressing, though an agreement before the next meeting of euro-area finance ministers on March 20 is unlikely, a European official familiar with the negotiations said. The main impediments to a staff-level agreement include pension cuts, labor market reform and offsetting measures, said the official who asked not to be named as the talks are private.

Labor Differences

Prime Minister Alexis Tsipras’s government finds itself between a rock and a hard place as it tries to appease creditors while avoiding mass protests. After an anemic recovery, the Greek economy shrank again in the fourth quarter, raising the specter of growing tensions at home even as European creditors and the IMF push for more austerity.

With an economy that has shrunk by more than a quarter in the last seven years, Greece has an unemployment rate of 23 percent, close to a historic high. Creditors, meanwhile, are demanding greater labor-market flexibility that would make it easier for companies to hire and fire people. They want the threshold of collective dismissals to be doubled to 10 percent and demand that Athens not revoke any of the measures legislated during the crisis. 

Rising Complaints

The government is pushing back, concerned about a rise in exploitative employer methods, like payments in kind and unilateral firings. It is seeking to reintroduce collective bargaining, asking that the issue be addressed during the second bailout review, which is slated to be concluded within the next two months.

“Reality proves the necessity of reinstating the collective bargaining framework and having strong collective agreements that will protect employees from such arbitrary phenomena,”  Labor Minister Efi Achtsioglou said, conceding that employers are increasingly cutting corners. “When collective and sectoral agreements exist, there is less delinquency and the workforce has more tools to fight for their rights.”

Thanos Vasilopoulos, the vice president of the Private Workers’ Federation, says employee complaints have been mounting.

“There are complaints from employees that they’re made to sign individual contracts under which they agree to reduced payments and for a part of their salary to be paid in coupons,” Vasilopoulos said in an interview. “There have been complaints for five companies. Among them is a big shipping company. On the same list you can see a company in the services sector, one in logistics and insurance companies.” He declined to provide names.

No Choice

For overtaxed Greek companies, dodging social security contributions through payments in kind has become a way to make ends meet. According to the latest available data from the Organization for Economic Co-operation and Development, the average single worker in Greece faced a tax wedge of 39.3 percent compared with an average of 35.9 percent among developed economies. About half of the burden falls upon employers.

“We do not have the exact picture,” said Nasos Iliopoulos, an official in Greece’s Labor Ministry. “But it is clear that it is not legal to replace payments with coupons. It is only permitted to give coupons as an extra bonus. Companies are seeking to gain from lower social contributions and also from not paying for extra working hours.”

For many employees, battling such methods in the face of the country’s high unemployment seems impossible. Take Ino, for example. The 50-year-old who works for a large conglomerate was told when she was hired that only a part of her compensation would be made through official channels.

“So, out of a monthly salary of 1,000 euros, only 300 euros is legal,” she said, declining to reveal her last name for fear of being fired. After Greece put capital controls in place in the summer of 2015, the company stopped paying her for two months. When payments resumed, she was forced to take a 20 percent cut and offered 100 euros in coupons as a “good-will” gesture.

For Professor Tsakloglou, who was Greece’s representative at the euro area’s Eurogroup Working Group between 2012 and 2014, such practices don’t bode well, trapping the country in a vicious cycle of bailouts and austerity it desperately needs to break out of.

“Greece needs new investments to create new jobs and address these issues,” he said, adding that the only way to do that “is to put an end to the uncertainty that exists due to the endless bailout review talks. Otherwise, a number of competitive advantages such as low asset prices and substantially reduced labor cost, will be wasted.”

— With assistance by Nikos Chrysoloras

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