Romania is experiencing another phase of emigration, so employers are considering how to best use perks to their advantage in a culture with a reliance on state-provided care, says Victoria Furness
It is estimated that two million workers have left Romania to live abroad over the last few years, and the country’s accession to the EU in January 2007 has only made their passage easier. Emigration is not a new problem for employers in the country – after the fall of the Romania Communist regime in 1989, there was a mass exodus of Germans, Hungarians and Israelis – but with unemployment low at 4.5%, recruiting and retaining staff has become a more pressing concern.
The immediate impact so far has been on salaries, which have risen across the board. In April, net nominal average earnings were up 22.4% on the previous year. Some employers are also looking at improving their employee benefits package to attract staff. This is particularly apparent among local employers in competitive industries, such as IT, and multi-national firms.†
Personal accident and life insurance are popular benefits with employers, but take-up of health insurance has been limited to date. Although contributions by employers and employees are tax-free up to a limit of €200 a year, many organisations aren’t offering the benefit to staff, claims Anca Dolete, manager of the corporate client department at Marsh in Romania, because “there aren’t many insurers with good packages and the medical infrastructure is a problem”.
Instead, many employers prefer to offer annual subscriptions to private medical centres. Such subscriptions typically include a free GP check-up and an appointment with a specialist, but not surgery or treatment. There are no tax benefits available for employers that offer this perk, but it’s a popular benefit with staff because, as Ana Maria Miron, head of the tax department at Romanian law firm Nestor Nestor Diculescu Kingston Petersen, points out, “our national health system does not function as well as it should”.
Another popular benefit is meal tickets. Karina Rosu, chief executive of Aon’s Romanian office, says: “This perk has a special tax regime and is tax deductible for employer and employee.”
Senior managers tend to receive a company car from their employer as well, which is again treated as a benefit in kind by the tax authorities.
One area of benefits where Romania lags behind, however, is in the provision of company pensions. Paul Kelly, a senior consultant at Towers Perrin, says: “These are not yet prevalent in Romania, with maybe only 20% of firms looking to put something in place.”
Until now, Romanian citizens have relied solely on the state pension to fund their retirement, paid for through their monthly salary. But in the future, employees will also have to contribute to a second private pension fund.†
Employees will be able to choose which private institution they want to run the fund. Employees can also pay into a voluntary private pension fund. These are optional pension schemes offered by companies to their employees and run by private institutions. However, only a few pension funds have been set up so far and some conditions may limit take-up. According to Ionel Cantaragiu, general manager for insurance broker MAI in Romania, there is a limit of 15% of gross salary that can be contributed to the fund and, as in the case of private medical insurance, any payments from employers and employees are only tax deductible up to a maximum of €200 a year.
This may well change over the next few years, especially as Romania’s private pension market is only in its infancy. Many benefits consultants also hope to see the introduction of flexible benefits schemes as well as a more comprehensive benefits package. Luminita Dima, head of the employment department at Nestor Nestor Diculescu Kingston Petersen, says: “Taking into account the migration of the labour force, employers will be forced to offer richer salary and benefits packages.”
At the same time, it is thought that many workers who have left Romania will return after a few years, so employers would be wise to consider now how they can use the benefits package to persuade existing employees to stay, while attracting erstwhile citizens to return home .
If you read nothing else read this…
- Emigration is rising faster than immigration in Romania, however, unemployment remains low at 4.5%.
- Private pension plans are a new concept in Romania and are expected to be a future area of growth.
- Subscriptions to private medical care that typically includes a free GP check-up are a more desirable perk than healthcare insurance.
- Meal tickets are a popular benefit that is tax deductible for both employers and staff.