EMPLOYER ACTION CODE: MONITOR
President Duterte recently signed into law Republic Act (RA) No. 11199 (on rationalizing and expanding the powers and duties of the Social Security Commission to ensure the long-term viability of the social security system (SSS). The new law, otherwise known as the Social Security Act of 2018, took effect March 5, 2019 (15 days after its publication in the Official Gazette). RA No. 11199 repeals the 21-year old prior SSS law with an aim to, among other things, enhance both state-provided benefits and the long-term sustainability of the SSS, and for the first time, provide an SSS unemployment benefit.
Significant provisions of the law include:
- The total employer and employee contribution rate for retirement, death and disability benefits increased from 11% to 12% from January 1, 2019. The increase is divided between employer and employee contributions in the same two-thirds/one-thirds ratio as applied previously, resulting in contribution rates of 8% and 4%, respectively. The combined contribution rate will further increase by 1% every other year until it reaching 15% in 2025.
- The minimum and maximum monthly salary credits (MSCs) for retirement, death and disability benefits increased from 1,000 to 2,000 Philippine pesos (PHP) and PHP 16,000 to PHP 20,000, respectively, from January 1, 2019. The minimum and maximum MSCs will further increase by PHP 1,000 and PHP 5,000, respectively, every other year until reaching PHP 5,000 and PHP 35,000, respectively, in 2025. Social security contributions are not calculated directly on the employee's actual earnings, but on the employee’s MSC based on the corresponding salary bracket (there are 37 brackets).
- Implementation of the promised additional monthly benefit of PHP 1,000 for retirement, death or disability pensions in payment on or after January 2017, and retroactive to that date. The law does not otherwise change the benefit formulas for these programs.
- The introduction of an SSS unemployment insurance program which requires claimants to be involuntarily unemployed, and under age 60 with at least 36 months' contributions — 12 in the prior 18-month period. Benefits are equal to 50% of the employee’s average MSC, payable for up to two months, and can be claimed once in a three-year period. The law does not stipulate a dedicated unemployment insurance contribution, though these may be addressed in expected implementing regulations.
- Compulsory SSS coverage for Overseas Filipino Workers (OFWs) under age 60 (some exceptions apply), that begins at the start of employment, to be arranged by the agencies responsible for such employment and subject to bilateral labor and social security agreements and oversight by the relevant government agencies. Previously, OFW coverage was purely voluntary. Once OFWs’ employment ends, they may continue to contribute into the SSS system on a voluntary basis to maintain their rights to full benefits. The total number of OFWs is estimated at 2.3 million (Philippine Statistics Authority data).
These measures, intended to enhance the SSS’ long-term sustainability, largely reflect changes previously proposed by the government that were postponed in 2017 pending legislative approval of recent tax reforms that lowered personal and corporate income taxes in 2018. Increased social security contributions under RA No. 11199, albeit gradual, represent an immediate increase in both employer and employee costs. Full implementation of the new system is pending, awaiting publication of the implementing rules and regulations which are expected to address funding for the unemployment benefit and settlement of the additional PHP 1,000 supplements for pension recipients back-dated to January 2017.