Managing Preretired Employees

Preretired employees are employees who have partially or completely ended their labor relations with a company but voluntarily maintain a special contractual relation with the company until legal retirement termination.

This topic discusses preretirement and gradual and flexible retirement.

Page Name

Definition Name

Usage

Work Location Page

JOB_DATA1

Update position and location information for a person's job.

Compensation Page

JOB_DATA3

Update a person's compensation information.

Element Assignment by Payee Page

GP_ED_PYE

By payee, assign specific earning and deduction elements.

Contract Type/Clauses Page

CONTRACT2

Add or update any special contract clause information to the standard contract language for this worker.

Contract Status/Content Page

CONTRACT1

Add or update basic information about the contract between your organization and a worker, including the contract duration, type, and content.

You must have previously set up contract template IDs on the Contract Template Table page.

You can also enter the reduction information for the employee.

Preretirement is when employees who have not fulfilled the requirements for normal or anticipated retirement make an agreement with the company. Because preretired employees are not active in the company, the company does not have to pay social security for them.

An employee and a company can agree to a preretirement plan. These agreements are specific to each particular employee. PeopleSoft Global Payroll for Spain includes functionality to manage the following preretirement plan scenarios:

  • The company terminates the employee but pays the employee the agreed-upon amount until the employee reaches the retirement age of 65.

  • The company agrees to pay a supplemental amount to the employee as a supplemental unemployment benefit or subsidy.

  • The employee continues to contribute to social security to maintain privileges, and the company reimburses the employee for this amount.

Companies can classify these amounts as regular or nonregular income depending on each particular situation. PeopleSoft Global Payroll for Spain provides payroll elements for each of these three scenarios for both regular pay and nonregular pay. These elements store the agreed amount to pay to the preretired employee, taking the agreed upon amount from the Compensation page. As regular income, employees pay IRPF taxes as they normally do. As nonregular income, the payroll system applies a reduction to the IRPF tax base.

Gradual and flexible retirement offers employees a way to make the transition from working life to retirement by reducing the employee labor contract from full-time to part-time. As employees fulfill all conditions for retirement or preretirement, these employees continue working with a part-time contract and reduced salary as long as they still receive a pension subsidy. This reduction in hours can be between 25% and 85%, thus reducing the employee's salary by the same percentage. This enables the employee to continue receiving a partial retirement pension for the remaining working years until retirement age. Gradual and flexible retirement is regulated by law and promoted by government with special treatment of contributions to social security for employer and employee (reductions, exoneration of quotas, and so on) depending on the age of employee.

Employees have two options:

  • Partial Retirement: The employee can initiate partial retirement simultaneously with a part-time contract after the employee is 60 years old.

    For partial retirement before an employee reaches 65 years of age, the company establishes a relief contract with another employee to cover the percentage of work affected by the partial retirement.

  • Flexible retirement: When the employee starts receiving his or her retirement pension, the employee can work on a part-time contract basis with the retirement pension reduced according to the percentage of hours worked.

In cases in which an extension of working life exists, companies can benefit from some social security contribution reductions that they must assign to eligible employees. These extensions of working life pertain to

  • Employees over 65 with a minimum number of contributing years or

  • Employees over 60 with at least 5 seniority years.

Employees Over 65 with Required Minimum Contributed Years

Employees older than 65 and has completed the required minimum number of contributing years are exempt from contributing to social security except for the temporary disability part within the common contingencies. As of 2015, the social security agency defines this part to be 0.25% for the employee and 1.25% for the employer over the common contingencies base.

Companies must report this situation to the social security agency using the FAN file. Specifically, the company must report the employee and employer contributions as if no reductions applied and also report the employee and employer reductions.

PeopleSoft Global Payroll for Spain provides the necessary contribution ID as part of the social security scheme to account for active employees age 65 or older. The scheme ID is 0111 and the social security contribution ID is 007. The contribution is maintained on the Contribution page of the Social Security Scheme Table component.

In addition to the social security contribution ID for employees who are age 65 or older, you need to define a reduction ID that defines the correct reduction amount on the Reduction Data page of the Reductions ESP component.

For example, the current temporary disability percentage (as of January 2015) is 0.25% for the employee and 1.25% for the employer. To implement this calculation , you need to set up reductions based on the following criteria:

Total Employer Contribution = 28.05%
Exempt Employer Contribution = (28.05 - 1.25)% = 26.8%
Percentage to Reduce = (26.8 / 28.05)% = 0.95543672%

Thus, using the values stated previously from the social security agency, the current Percentage to Reduce value for common contingency is 95.543672%.

The payroll process and FAN file generation process take into account the new contribution data and reduction data for active employees with part-time status who are age 65 or older. The FAN file generation process also accounts for the reductions in social security contributions.

Employees Over 60 with 5 Seniority Years

For employees over age 60 with 5 seniority years in the company, the employer can reduce the quota to pay to social security. Employers can apply this reduction to common contingencies contributions except in the case of temporary disability. The current percentage reduction is 50% for the first 12-month period and increases by 10% at the beginning of each subsequent 12-month period until reaching 100%.

You need to define a reduction ID to manage this type of reduction to social security contributions through the Reduction Data page of the Reductions ESP component.

To determine the Percentage to Reduce value for the each period of common contingencies without including temporary disability, you must use the following equations:

(Common Contingencies Percentage – Temporary Disability Percentage) * Reduction Percentage = Reduced Common Contingencies Percentage
Reduced Common Contingencies Percentage / Common Contingencies Percentage = Percentage to Reduce
For example in 2015 (for the first year)
Common Contingencies = 23.6%
Temporary Disability = 1.25%
Reduction Percentage = 50%
(23.6% - 1.25%) * 50% = 11.18%
11.18 % / 23.6% = 47.3729%

You need to calculate the reduction for each year using a different percentage (increasing 10% each year) as per the table shown above.

You must perform these calculations for each common contingency period within the reduction ID. The payroll process and FAN file generation process take into account the contribution data and reduction data. These processes also account for the reductions in social security contributions.

Partial Retirement - Contribution Base Calculation

In case of a partial retirement effective after 01 April 2013, Social Security establishes that the pre-retired employee continues contributing (both employer and employee) using the same Social Security base (same as what he had been contributing while working full time).

Government establishes a gradual implementation of this rule by providing a percentage being applied to the full time Social Security base in the coming years. The social security contribution base percentage for the coming years are as shown in the table below. The system automatically computes the employee and employer contributions based on the legal specifications.

Year

Contribution Base Percentage

2013

50

2014

55

2015

60

2016

65

2017

70

2018

75

2019

80

2020

85

2021

90

2022

95

2023

100

However, the percentage range as per the above table is applied only if it is higher than the employee’s FTE. If the employee’s FTE is higher than the percentage specified for any year, system calculates the contribution bases based on the real income corresponding to the part-time schedule.

For example, in the year 2013, the contribution base is 50% of the full time contribution base. If an employee’s FTE is lesser than 50%, then the contribution base is 50% of the full-time work. On the other hand, if the employee’s FTE is greater than 50%, system directly uses the calculated base based on the employee’s current income.

Note: PeopleSoft delivers a setup variable SS VR F EF RDL5/13 with value equal to April 1st 2013. This variable specifies the effectiveness of this legal change, as it is applied just to those employees subscribing to partial retirement contract after April 1st 2013.

System applies the specified percentage to increase the Social Security base, only to the basic earnings and extra payment proration. System does not apply the percentage to non-basic earnings like salary complements, insurances, non-regular income etc, as these earnings need not necessarily depend on the employee’s schedule.

Flexible Retirement - Special Contribution (Cotización Especial de Solidaridad)

PeopleSoft Global Payroll for Spain introduced a special contribution for Flexible Retirement based on a legislative change published on 25 April 2013, that has to be reported in the FAN file. System calculates the special contribution by multiplying the common contingencies base by 6% for employer and 2% for employee.

You can identify the employees affected by this special contribution by using the setup variable SS VR IND CNTB ESP. This variable indicates if we need to calculate the special contribution during payroll process. If you enter the value ‘S’ for this variable, then system calculates special contribution by multiplying the common contingencies base by a percent: 6% for employer and 2% for employee. System stores the amount to be paid for this type of contribution in the Social Security record (new row CA13).

To manage preretirement:

  1. Terminate the employee with pay by assigning the Termination With Pay value in the Action/Reason field on the Work Location page of the Job Data component.

  2. Assign the agreed-upon compensation amount to the employee in the Pay Components group box on the Compensation page. Select the rate code, compensation rate, currency, and frequency of the compensation. For preretired regular income, select the PREJUB, PJCOSS, and PJDSEM rate codes. For preretired nonregular income, select the PJJUBI, PJCSSI, and PJDSMI rate codes.

    Or, assign the employee the required payroll elements for preretired regular income or nonregular income using the Element Assignment By Payee page. For preretired regular income, assign the employee the following payroll elements: PREJUBILACN earning (equivalent to rate code PREJUB), DEV SS PREJ earning (equivalent to rate code PJCOSS), and BNF DESEMP deduction (equivalent to rate code PJDESM). For preretired nonregular income, assign the employee the following payroll elements: PREJUBILACN I earning (equivalent to rate code PJJUBI), DEV SS PREJ I earning (equivalent to rate code PJCSSI), and BNF DESEMP deduction (equivalent to rate code PJDSMI).

  3. Calculate payroll.

    The payroll process calculates the regular income payment as PREJUBILACN + DEV SS PREJ - BNF DESEMP. The process pays this amount as regular income and pays taxes normally. Contributions to social security are zero.

    The payroll process calculates the nonregular income payment as PREJUBILACN I + DEV SS PREJ I - BNF DESEMP I. The process pays this amount as nonregular income and applies a reduction due irregular income. Contributions to social security are zero.

  4. Generate the affected reports monthly, quarterly, or yearly as required.

To assign an employee gradual or flexible retirement:

  1. Access the Job Data component (Workforce Administration > Job Information > Job Data > Job Information).

  2. Reduce the employee's contract from full-time to part-time by setting the Full/Part field value to Part Time.

    This effectively reduces the employee's salary by the same percentage.

  3. Reduce the contribution to social security by assigning the employee to the necessary Social Security Contribution and Reduction IDs on the Contract Status/Content page (Workforce Administration, Job Information, Contract Administration, Update Contracts).

    Your selections for these fields depend on whether the employ is over 65 with a required number of contributing years or the employee is over 60 with at least 5 seniority years.

  4. Calculate payroll.

    If the employee is over 65 with a required number of contributing years and you assign the corresponding reduction, the payroll process reduces the social security contributions for both the employee and the employer, paying only for temporary disability. The percentage for the employee is 0.25% and the percentage for the employer is 1.25%, as defined by currently applicable laws as of 2015.

    If the employee is over 60 with at least 5 years seniority, the payroll process reduces the social security contribution percentage for the employer according to the period in which the employee falls within the reduction ID definition.

  5. Generate the affected reports monthly, quarterly, or yearly as required.

This topic describes the earning elements and deduction elements that are delivered as part of the preretirement functionality.

Note: The PeopleSoft system delivers a query that you can run to view the names of all delivered elements designed for Spain. Instructions for running the query are provided in the PeopleSoft Global Payroll product documentation.

Earning Elements

This table describes the delivered earning elements associated with preretirement:

Earning Element

Description

DEV SS PREJ

Reimbursement of the amount paid as regular income by employee to the social security administration to maintain his or her privileges.

This element is automatically segmented and prorated when it is assigned to a payee on the Element Assignment by Payee or Payee Assignment by Element page. The assignment period must cover only a portion of the pay period and you must have created the corresponding segmentation trigger.

See Segmentation Triggers with Earning and Deduction Assignments.

PREJBILACN I

Gross amount for nonregular income that the company and employee agree upon as a preretirement benefit.

PREJUBILACN

Gross amount for regular income that the company and employee agree upon as a preretirement benefit.

This element is automatically segmented and prorated when it is assigned to a payee on the Element Assignment by Payee or Payee Assignment by Element page. The assignment period must cover only a portion of the pay period and you must have created the corresponding segmentation trigger.

See Segmentation Triggers with Earning and Deduction Assignments.

DEV SS PRJ I

Reimbursement of the amount paid as nonregular income by employee to the social security administration to maintain his or her privileges.

Deduction Elements

This table describes the delivered deduction elements associated with preretirement:

Deduction Element

Description

BNF DESEMP

Amount deducted as regular income from employee payroll for unemployment benefits or subsidy.

BNF DESEMP I

Amount deducted as nonregular income from employee payroll for unemployment benefits or subsidy.