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Workforce Flexibility and Government Incentives in times of Covid-19 - Paraguay

Short-Term Work State Aid

Covid-19 Questionnaire

Are there any regulations in place providing an employer with possibility for flexible workforce planning such as part-time work/temporary leave which are triggered in a situation similar to a pandemic outbreak as Covid-19?

Yes. Telework was specifically regulated by Law N° 6524/2020. There is no established procedure for the formalization of telework contracts, more than the agreement between the employees and the employer. The Ministry of Labor established a mechanism for recording and reporting these contracts through the digital platform of the Ministry of Labor.

If YES on question 1, please describe which type of regulation. Please confirm if and to what extent such leave can be supported by state aid and/or other extra-ordinary governmental support.

All the following options are regulated in the current Labor Code (Labor Law). The Ministry of Labor has issued advisories stating that, as part of business continuity plans, employers are encouraged to:

Allow employees to work from home where feasible or allow for split team arrangements.

Employees can make use of time credits or outstanding holiday entitlements.Subscribe short-term contract labor. Suspension of the labor contract (unpaid by the employer)

The Paraguayan Government has enacted a new Law N° 6524/2020 that establishes new administrative, finance and fiscal measures for both private and public sector in the framework of the pandemic. This law regulates, among others, the legal regime of “telework” in dependency relationship for both private and public sectors.

if YES on question 1, please describe which contacts that may need to be initiated with trade unions and/or works councils. Must a special process be followed?

All employee has the right to organize and manage the work in their commercial establishments.

Allowing employees to work from home where feasible or allow for split team arrangements.

Employees can make use of time credits or outstanding holiday entitlements. This measure ensures the payment of wages to the employees.

Subscribe short-term contract labor: The Labor Code allows to subscribe contracts labor for 16 or 32 hours of work per week. The employee has all benefits (social security, familiar assignation, holiday, etc.).

Collective contract: The employer may request the revision of the collective contract before the expiration of the duration or revision period. When there are economic circumstances that endanger the activity or existence of the company, in this case it will propose to the workers to accept certain modifications in the working conditions.

Suspension of the labor contract (unpaid): According to the Resolution SG 90 of the Ministry of Health enacted on 10 March 2020; all schools, public shows, and other activities of mass attendance were suspended. Regarding offices and work centers, the resolution established that they must implement hygiene, safety and health measures to mitigate the circulation of the Covid-19. In other words, they are not obliged to close if they can comply with health and safety measures.

However, if a company decides to close and suspend its normal activities, they must give notice of their decision to the employees and the Administrative Authority. The Company must justify the "force majeure" and explain the circumstances that force them to close.

For example:

lack of infrastructure that meets sanitary measures -space less than the mandatory distance between people;the lack of commercial movement that makes it impossible to face the payment of workers' wages.

Labor Code, Art. 71: “The causes of suspension of employment contracts are: f) The fortuitous case or force majeure, when it has as a necessary, immediate and direct consequence the interruption of the tasks; the lack of commercial movement that makes it impossible to face the payment of workers' wages duly justified by Employer...”

During the suspension of employee’s contract, the Employer is exonerating to pay, but everything related to seniority remains in force and once the cause that prevents compliance with the contract has been finished, labor contract relations are normalized.

Paid leave: Companies with the possibility to close their office or industries and can pay wages to their employees, would not have to carry out any suspension of the contract, only communicate the license to the Ministry of Labor. In this case the Company would be required to make Social Security (IPS) payments normally.

By Decree N° 3490/2020 enacted on 28 March 2020, the government extended the social, preventive and compulsory social isolation throughout Paraguay until 12 April 2020. Until that date, only some companies are authorized to open, especially supermarkets, pharmacies, transport, health services companies, financial services companies, among others.

While the health emergency lasts, the Ministry of Labor has established an accelerated method for the suspension of labor contracts in MSMEs.

Telework: According to the Law N° 6524/2020, there is no established procedure for the formalization of telework contracts, more than the agreement between employees and employer.

Paraguay is currently carrying out the gradual lifting plan of the general preventive isolation which means the reactivation of the economic sector in Phases.

The last Decree issued by the government related with Phase 2 is in force from 25 May to 14 June. The Decree is allowing the reactivation of some industries, economic sectors and corporate offices with only 50% of the employee, under strict health protocols.

Are there any governmental programs if a company needs to close totally or partially for a certain time period?

Public Sector

Central Bank of Paraguay (BCP) issued a set of regulations aimed to face the effects of Covid-19 on Paraguayan families and companies that carry out commercial, productive, industrial, service and other activities.

The legal resolutions modify and extend the current regulatory regime, favoring - in the first instance - the formalization of the renewals, refinancing and restructuring of the credits granted.

Likewise, to avoid inadequate pressure on the price of real estate assets, facilities are granted to financial intermediaries by extending terms for the sale of real estate that is awarded in payment of credits

Likewise, efforts have been made to allow the appropriate use of funds deposited as legal reserve in foreign currency

The interest rate of the Permanent Liquidity Facility (FPL) has been reduced by 100 basis points (from 4.50% to 3.50%).

Among others.

National Development Bank (BNF): The Bank grants Short-Term Operating Capital to individuals and companies that carry out productive activity in the agricultural, industrial, commercial and service sectors.

Financing and Guarantee: For credit amounts up to G. 5,000,000,000. The Bank will determine the guarantees in each case (securities, joint debtor).

National Institute of Cooperativisem (INCOOP): Exceptionally, until 31 December 2020, cooperative entities may consider the special situation of its members in default, whose income has been affected by the risk of spreading Covid-19.

It is established that the request of a modification of terms and conditions established in a credit agreement, interrupts the computation of the term in default until the new transaction is formalized.

For operations in instalments, the obligation to cancel the entire obligation will not govern, and the application of any modification of terms and conditions and a grace period of one year for the amortization of capital and interest, may be agreed.

Possibility of deferring the charges generated by the provisions to be established from the current month, which may be recognized within a period not exceeding 30 days.

Exceptionally, it is established that movable and immovable property, awarded or received in payment by cooperatives in the period between 01 January 2019 and 31 December 2020 inclusive, may be disposed of up to 36 months.

According to the Law N° 6524/2020:

The Paraguayan government may establish a trust to support MSMEs, which will be administered by the Development Finance Agency (AFD for its acronym in Spanish).

Will be granted an economic compensation to active Social Security workers, when their labor contracts have been suspended or their companies are closure due to the sanitary emergency. The economic compensation also covers part-time and fulltime domestic workers, part-time workers and subject to the moonlighting regimen.

Will be granted a government subsidy of 25% of the current legal minimum wage to independent workers in MSMEs, who are over 18 years old, do not have Social Security and are not obligated to the payment of the personal income tax.Possibility to refinancing the Social Security Contributions: The Social Security Administration (IPS for its acronym in Spanish) must continue assisting the employees during the emergency, beyond the payments received from the employer's labor contributions. The payments may be refinanced up to 18 months.

Among others.

Private Sector

Banks Association of Paraguay: The Association decided that for individual clients or small and medium size enterprises whom have credits proceed the extension of their quotas corresponding to the months of March, April and May 2020. This extension will be offered with refinancing of up to 24 months and 36 months. The interest rate will be 9% per year, for operations in national currency and 7% per year for operations in foreign currency, among others.

If state aid and/or other extra-ordinary governmental support is available, please describe the necessary prerequisites to qualify for such state aid.

Related to query 2, mainly natural person (s) or legal entity (s) carrying out productive activity in the agricultural, industrial, commercial and service sectors, which, because of the preventive measures ordered by the National Government, have had a negative impact on their productive activity.

Prerequisites include do not have unfinished lawsuits, inhibition, summons of creditors, bankruptcy, among others.

According to Law N° 6524/2020:

  • Until July 1, 2020, banks will not apply or communicate to the Superintendence of Banks (BCP department) sanctions for disabling bank current accounts, which derive from checks rejected due to insufficient funds.
  • The non-payment of rentals will not be grounds for eviction until June 2020, provided the payment of at least 40% of the monthly rental value.
  • New deadlines regarding with the schedule for the mandatory shareholders meeting or Ordinary Meeting in companies, which must been celebrate until April, but now could be calling until June 30, 2020.
  • In tax matters, exceptional extensions have been established in relation to the presentation of certain documents and the payment of taxes before the Tax Authority.

If state aid and/or other extra-ordinary governmental support is available, please describe the application procedure for such state aid (e.g. how and when is the application filed with the government etcetera; what shall such application include).

Please find our answers in 1. and 2. But please be aware that it is expected that new rules and measure surrounding the COVID-19 be implemented soon.

Please note that the COVID-19 scenario is constantly changing and that this information is current as of 04 June 2020. This publication should not be regarded as offering a complete explanation of the legal matters referred to and is subject to changes in the law and other applicable rules.