Terms and Conditions for State Funding for Business During the State of Emergency

The state of emergency declared in the country has already seriously affected businesses. Some sectors of the economy are facing an unprecedented loss of customers and revenues which calls into question the fate of thousands of employees and the survival of particular businesses.

One of the business aid measures concerns all employers affected by the crisis, divided into two categories:

  1. All employers whose activities fall directly into the economic sectors for which a prohibition or restriction of activity has been imposed during the state of emergency.
  2. All companies which have completely or partially suspended their business activity or have introduced part-time work and have at least 20% reduction of revenue.

As of 31.03.2020, the affected employers will be able to apply for compensation for the duration of state of emergency, but not more than 3 months and to the amount of 60% of the social insurance income of their employees. The specific criteria which employers must meet in order to benefit from the aid, as well as a number of procedural issues, are set out in Council of Ministers Decree No. 55/30.03.2020 (shortly, Decree No. 55). The following are brief answers to some of the key questions that employers may have in connection with the compensation. The information is up to date as of March 31, 2020.

What is the amount of the financial aid?

The financial aid to be granted by the state to certain employers is 60% of the amount of the social insurance income for January 2020 for the employees for whom the respective employer claims funding. In the case of introduced part-time work, the compensation shall be paid in proportion to the time not worked, but for no more than 4 hours per day.

An important remark is that the employer owes the full amount of the remuneration to the employees concerned, for whom compensation is granted by the state, as well as the payment of the social insurance contributions due. This means covering the remainder of the wages, but it must be taken into account that social security income and gross pay are not equal. Hence, if the employee’s wage is higher than the social security maximum taxable income, employers will have to bear the whole difference between the NSSI benefits paid, calculated on the basis of the social security maximum taxable income and the full amount of the wage.

Who is eligible for compensation?

In order to be granted state aid, the employer must meet certain requirements set out in Decree No 55:

1. The employer must be a local natural or legal person or a foreign legal entity performing business activity in the Republic of Bulgaria, including the branches of foreign traders and commercial representative offices registered in the country.

2. The employer must have:

  • suspended work by an internal order issued on the grounds of an order by a state body; or
  • suspended the work of all or part of the enterprise by its internal order issued in accordance with Art. 120c of the Labor Code for the whole or part of the duration of the state of emergency; or
  • introduced part-time work for the duration of the state of emergency.

State aid is available only to those employers who have issued any of the orders specified and targeting the respective employees for whom compensation is claimed.

3. The employer must meet one of the following criteria

  • The employer shall claim compensation for employees insured in economic activities referred to in Decree No. 55. The following activities are included in the list:
    • retail trade with some exceptions, such as pharmacies, specialised and non-specialised stores for groceries, cigarettes, outdoor trade;
    • air transport;
    • hotel and tour agency and operator activity;
    • activity of restaurants, fast food and drinking facilities;
    • cultural activities, such as film screening;
    • maintaining good physical condition.
  • The employer shall claim compensation for employees employed in each NACE.BG-2008 sector, except for sectors A, K, O, P, Q, T and U, provided that such employer declares a decrease in sales revenue:
    • For employers established before March 1, 2019. – a decrease of not less than 20% in the month preceding the month of the submission of the application for compensation, compared to the same month in 2019;
    • For employers established after March 1, 2019 – a decrease of not less than 20% in the month preceding the month of application for compensation, compared to the aggregated income for January and February 2020.

This circumstance will be verified by a declaration from the employer and documents proving the decrease in revenue. Currently, the documents that can be provided as evidence of a decrease in sales have not been specified, but this is likely to be through accounting documents (balance sheet, statement of income and expenses).

4. The employer cannot be granted compensation for certain employees. No compensation is granted for employees:

  • who have been employed after declaring the state of emergency;
  • who are currently taking sick leave, pregnancy and childbirth, adopting a child up to 5 years of age or raising a child up to 2 years of age leave;
  • for whom the employer receives financing for wages and social security contributions from the state budget, with funds from the European Structural and Investment Funds or other public funds.

5. The employer shall:

  • have no unpaid tax or social security contributions;
  • not been declared bankrupt and is not in bankruptcy or liquidation proceedings;
  • have no serious violations of the labor legislation established with a penal decree or court decision in force for a period of 6 months prior to the issuance of the suspension of work order.

The employer should be a regular contributor to the state and have no outstanding tax and social security obligations and should not have committed any significant violations of the labor legislation. The above circumstances will be established ex officio. Submission of certificates from the NRA or the Commercial Register will not be required.

6. The employer is obliged to keep the employment of the persons for whom a compensation is granted for an additional period equal to the period for which the compensations have been paid.

7. For the period during which compensation is granted, the employer shall not terminate employment contracts on the grounds of the closure of part of the enterprise, redundancies, reduction or suspension of work for more than 15 working days.

What is the application procedure?

Payment of compensation to approved applicants will start after the EC has approved the granting of state aid. The employer should submit an application along with the relevant attachments at the local Labor Office Directorate. The application is in a form approved by the Executive Director of the Employment Agency and may also be submitted electronically.

Applications shall be considered within 7 working days of the submission of the application. Companies will be able to receive financial aid within 5 days after being approved. A public register of the companies which were granted compensation will be kept.

Author: Rositsa Vasileva, Associate at Dimitrov, Petrov & Co. Law Firm.

This article has been prepared for informational purposes only and does not constitute legal advice.