Changes entailing increased costs for employers when posting employees abroad remain a cause of tensions in Slovenia. The Finance Ministry has still not delivered on the promise to come up with solutions to mitigate the impact of the legislation, which kicks in in 2024. Criticism has also come from diplomatic circles, where salaries will be impacted too.

In late March, the National Assembly passed a new law on cross-border provision of services, which removed a provision in the law on pension and disability insurance that previously allowed employers to lower the tax base for paying contributions for certain posted workers to the legal minimum.

This meant lower pensions for posted workers compared to workers receiving the same gross wage in Slovenia, a reduced inflow to the state's pension fund, and unfair competition to neighbouring countries, triggering an EU procedure against Slovenia.

Waiting for mitigation measures

However, as the new solution raised costs for employers, the Economic and Social Council (ESS), the country's industrial relations forum, reached an agreement last year that this part of the law would only come into effect in 2024.

In the meantime, the Finance Ministry was supposed to examine possible solutions to make the burdens on companies and workers similar to those in comparable countries. The measures were initially due to be proposed by the end of March, the deadline was later extended to 1 May, but again to no avail.

Representatives of employers urged the government again in June to put forward the measures before the summer, but only got the promise of a new timeline, which has still not been delivered.

The ministry told the Slovenian Press Agency a response to the proposals of social partners and an analysis of the data at its disposal had been sent to the ESS expert council. It also pointed out that it continued to struggle how to legally access data that is needed for a more detailed analysis and that is in the hands of the public health fund ZZZS.

Mounting criticism is meanwhile coming from employer representatives, who are tired of the "data access issue argument" and claim that none of the ministries responsible - including the ministries of labour and economy - have approached the issue in a proper and responsible manner.

Companies threaten to relocate abroad

"These measures should be adopted as soon as possible, not at the end of the year, as it is essential for businesses to have a predictable business environment, and companies cannot wait until the last moment to make certain decisions," Mitja Gorenšček, executive director of the Chamber of Commerce and Industry (GZS), told the STA.

One solution proposed by the GZS would involve a different tax treatment of posted workers. The GZS is proposing reduced income tax burdens since a portion of wages received by posted workers is meant to cover the costs of living abroad. These should be exempt from taxes and contributions, as is the case with some other reimbursements.

Another solution could be a flat-rate allowance that should also be exempt from tax and contributions, similar to per diems and cost reimbursements for overnight stays for those on official business trips abroad.

If no solution is found, companies would be forced to seek other options, including moving their headquarters to neighbouring countries. "Croatia is most frequently mentioned, as it has significantly better legislation in this area for both workers and employers," Gorenšček said.

According to him, service exports are one of the vital interests of the Slovenian export-oriented economy, and adverse regulatory changes could have significant negative effects. In 2021, companies that provide services abroad with posted workers contributed 8.9% to Slovenia's GDP despite the Covid-19 pandemic, he said.

Diplomats to be affected too

The new law on cross-border services has also caused concerns among diplomats. Their gross salaries abroad are significantly higher than at home, and with the payment of contributions based on the actual salary, they would receive much lower net payments, which are allegedly already among the lowest in the EU.

Media reports say that disagreements over the issue have arising between the Foreign Ministry and the Labour Ministry. The former believes that employees assigned to diplomatic missions and consulates abroad should continue to receive salaries based on the regulation on salaries and other benefits of civil servants abroad. This regulation stipulates that the basis for calculating contributions, taxes, and other levies is the salary that the employee would receive if they were working in Slovenia.

However, the Labour Ministry disagrees, arguing the regulation cannot override the law. Contributions for pension and disability insurance will have to be calculated equally for all posted workers, including diplomats, based on their actual gross salaries, the ministry said.

Foreign Minister Tanja Fajon has promised she will do everything in her power to make sure diplomats will keep their salaries intact after the new law comes into force in January 2024.

Employees are also posted by other institutions, and the changes will for instance also affect the correspondents of the public broadcaster RTV Slovenija and the Slovenian Press Agency.