29.09.2023

WHICH EMPLOYERS SHOULD PAY WAGES BY TRANSFER OR PAYMENT ACCOUNT ONLY?

The Law on the State Budget of the Republic of Bulgaria for 2023 was published in Issue 66 of the State Gazette of 01.08.2023, which also provides for some changes in the Law on the Limitation of Cash Payments and the Labor Code. With these changes, a new obligation was introduced for employers with 100 or more employees to pay their wages only by transfer or deposit to a payment account in a bank in the country specified by the employee. The changes are in effect from 01.09.2023 and are aimed at increasing transparency in the payment of remuneration and preventing the evasion and non-payment of due taxes and social security contributions through cash payments.

What do the changes in the Law on the Limitation of Cash Payments provide?

Until now, the law did not apply to labor remuneration. After the changes, an exception to this principle was introduced, provided for in Art. 3, para. 1, item 3 of the Law on Limiting Cash Payments, binding only employers who have 100 or more employees. It follows that small enterprises and micro-enterprises are excluded from the scope of the law.

The new obligation will not apply to labor remuneration received under contracts for short-term seasonal agricultural work in accordance with Art. 114a of the Labor Code. It is justified and logical, since the duration of the contract under Art. 114a of the Labor Code, is at least one day and no more than 90 days in a calendar year.

Payments within the scope of the analyzed provision refer only to labor remuneration within the meaning of the Labor Code (chapter twelve of the Labor Code), but not to other types of payments that the employer pays in connection with and on the occasion of labor relations. An example of such payments would be travel allowances, compensation amounts for housing rent, relocation benefits for the worker or employee, etc. similar.

Next, the obligation applies to payments that are made only on the territory of the country. This is because the territorial scope of the Law on the Limitation of Cash Payments is limited to the territory of the country.

Regarding the requirement that payments be made by transfer or deposit to a payment account, the instructions of the Ministry of Finance (Ex. No. UK-3 of 04.04.2011) should be taken into account, which state that these payments can be not only through banks, but also through other providers of payment services on a payment account (electronic money companies and payment institutions within the meaning of the Act on Payment Services and Payment Systems, the European Central Bank and national central banks).

What are the changes in other regulations?

In connection with the amendment of the Law on Limitation of Cash Payments and for the purpose of synchronizing the legislation, a change was introduced in the Labor Code. The new paragraph 4 of Art. 270 of the Labor Code, stipulates that employers with 100 or more employees must pay the labor remuneration only by transfer or deposit to a payment account in a bank specified by the worker or employee in the country. The previous order stipulated that the remuneration should be paid by bank transfer only with the consent of the worker or employee.

In addition to this and with the aim of providing easier access to banking services for users of payment services - with the new Art. 120a of the Law on Payment Services and Payment Systems, natural persons are given the opportunity to open a payment account for basic operations, which will be serviced free of charge when funds from labor remuneration are received and stored on it.

What are the penalties for failure to comply with the new legal obligation?

In case of violations of the restrictive regime introduced by law for cash payments, the authorities of the National Revenue Agency are authorized to draw up acts for establishing administrative violations of a person who committed or allowed the commission of a violation (the payer of the amount or another person who allowed the payment to be made Cash). A person who has allowed the offense to be committed would be any person who, by action or omission, has allowed the payment of an amount in cash to be made. The penalty is a fine in the amount of 25 percent of the total amount of the payment made - if it is a natural person, or with a property sanction in the amount of 50 percent of the total amount of the payment made - if it is a legal entity (Article 5 of the Law on Limitation of Cash Payments). Increased penalties are provided for repeated violations.

With the changes made, the legislator has set goals related to increasing the collection of revenues in the state budget and transparency in relations between employers and employees. Whether these objectives will be achieved is subject to subsequent analysis and practice after the implementation of the new regulations. Consultancy Center - Berkovitsa recommends that employers from the region, who are obliged to comply with the mentioned legislative changes, comply with the new requirements and introduce changes in their internal policies and rules for the payment of labor remunerations.