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Overall Developments<br />

deadweight effects, this is ruled out in various different<br />

circumstances. <strong>The</strong> last possible date for the request of support is<br />

31.12.2005; the latest date on which payments can be obtained is<br />

31.8.2008.<br />

On the “demand side”, incentives are being given to employers to<br />

recruit older employees. Employers who take on older employees<br />

aged 55 and over will be exempt from having to pay their share in<br />

contributions to employment development (3.25 %).<br />

In the field of labour law, too, measures aimed at increasing<br />

flexibility are to be extended when older employees are taken on.<br />

<strong>The</strong> age limit imposed for part-time work and fixed-term<br />

employment, beyond which fixed-term contracts of employment<br />

can be concluded with employees without any deadline being fixed<br />

or without a maximum time limit, is being reduced from 58 to 52,<br />

limited to 4 years. This ruling should mark a clear improvement in<br />

the opportunities of older employees to integrate back into the<br />

labour market.<br />

<strong>The</strong> Second Act for Modern Services in the<br />

Labour Market<br />

Setting up of Job Centres<br />

<strong>The</strong> job centres proposed by the Commission for Modern Services<br />

in the Labour Market, to be run by the employment service are, in<br />

the medium term, also to encompass joint points of contact for<br />

both the employment service and social welfare offices. As a first<br />

step, the second Act provides for employment offices to collect,<br />

process and use social data on welfare recipients in so far as this is<br />

necessary to operate the joint office or to implement tasks that the<br />

social welfare body has assigned to the employment office. In the<br />

medium term, the job centres are to provide access to all the<br />

advisory, job-placement and integration services necessary, as well<br />

as financial maintenance payments.<br />

Introduction of the “Ich-AG” (“Me plc”) and<br />

“Familien-AG” (“Family plc”), in particular support<br />

through business start-up grants<br />

<strong>The</strong> Hartz Commission has proposed the promotion of “Me plcs”<br />

(one-man companies) and “Family plcs” (by incorporation of<br />

fellow employed family members) during the transition period from<br />

unemployment to full self-employment.<br />

This form of employment support introduces the entitlement to a<br />

business start-up grant when setting up “Me companies” or<br />

“Family companies”. This payment is an alternative form of<br />

support that still exists – in the form of bridging aid – for those<br />

wanting to start up on their own. This ruling, set to be in force until<br />

2005, means that a grant will be given if former recipients of<br />

unemployment benefit or unemployment assistance or those in<br />

employment creation schemes and structural-adjustment measures<br />

take up self-employment. Further stipulations connected with this<br />

support include: in the case of the Ich-AG and Familien-AG, that<br />

annual income does not exceed 25,000 euro in the first year of<br />

starting up the business. <strong>The</strong> founder of the business must not<br />

employ workers, i.e. not be an employer himself. On the other hand,<br />

it is possible to take on family members.<br />

Support will be continued for one year in each case, and for a<br />

maximum of three, provided income does not exceed 25,000 euro.<br />

To make things simpler, any grants paid will not be requested back.<br />

<strong>The</strong> grant which is not subject to tax or other charges is degressive<br />

and in the first year is 600 euro, amounting to 360 euro in year two<br />

and 240 in year three. <strong>The</strong> grant is not to be used for living expenses,<br />

but should be used to support the business founder to maintain<br />

their social security. <strong>The</strong> founders of a “Me plc” are covered by<br />

statutory retirement pension insurance. <strong>The</strong>y can also become a<br />

voluntary member of the statutory health-insurance fund, into<br />

which they pay contributions at a lower rate than other selfemployed<br />

people.<br />

In addition, further rulings in 2003 should lead to flat-rate income<br />

tax, higher VAT tax allowances, simplified accounting procedures<br />

and easier access to artisan occupations. On this point, a “small<br />

business act” is being prepared by the Federal Government that is<br />

supposed to favour all forms of business start-ups.<br />

New ruling in the area of “mini-jobs”<br />

To further boost employment at lower income levels, various<br />

measures are being implemented. <strong>The</strong>se are aimed at giving<br />

incentives to take up employment in this income segment, and to<br />

combat moonlighting.<br />

<strong>The</strong> limit for mini-jobs is generally being raised from 325 euro to<br />

400 euro. <strong>The</strong> ruling of 15 hours which used to apply is no longer in<br />

force. With a level of pay of 400 euro, the employer pays flat-rate<br />

levies of 25% (12% pension insurance, 11% health insurance fund,<br />

2% lump-sum tax), whilst the pay is not liable for employee social<br />

insurance contributions.<br />

For mini-jobs in private households, a lower tax rate of 12% is in<br />

force (5% each to pension and health insurance and, again, 2 %<br />

taxes).<br />

For the employee, the pay from one mini-job continues to be free of<br />

taxes if, at the same time, he/she is doing a job that is subject to<br />

national insurance contributions.<br />

Tax incentives are also being given to employers. In the case of<br />

employment in home-related services, the employer can deduct 10%<br />

of his expenses, or a maximum of 510 euro, per annum from his tax<br />

liability. If the job in a private household is subject to social<br />

insurance contributions, the thresholds mentioned above rise to<br />

12% or 2400 euro. <strong>The</strong>re are even incentives available when an<br />

agency places personnel in work, it being possible to deduct 20% of<br />

expenses, or a maximum of 600 euro, from the tax burden.<br />

Beyond a level of pay of 400.01 to 800 euro, the national insurance<br />

contributions of the employee are graded. In this way, the “lowwage<br />

threshold” is overcome because rates no longer rise abruptly<br />

but progressively once the low-pay limit is exceeded. <strong>The</strong> employee<br />

contribution to national insurance rises from 4% in the case of<br />

400.01 euro to the full employee contribution of approx. 21% for<br />

800 euro. Otherwise, the rate of contribution remains constant.<br />

Because of the adjustments in the social security system and the<br />

implementation of these reforms, all rulings relating to mini jobs will<br />

enter into force on 1 April 2003.<br />

Outlook<br />

<strong>The</strong> Acts for Modern Services in the Labour Market are the first<br />

legislative step towards implementing the proposals of the “Modern<br />

Services in the Labour Market“ Commission. As a second step, the<br />

structures of the Federal Employment Service are to be revamped<br />

and optimised in order to meet the needs of a modern service<br />

provider in the labour market. This includes, in particular,<br />

simplification of wage compensation payments and the instruments<br />

14 Spring 2003 | European Employment Observatory Review

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