Understanding Salary: Types, Structure, and Legal Protections

Posted on Jan 8, 2025 in Economy

Definition of Salary

Salary is the compensation for services rendered and represents one of the main features of the employment relationship.

Salary Types

  • Depending on the type of perception: In-kind, in cash.
  • Based on the calculation method used: Per work unit, per unit time, or a combination of both.

Wage Payment

Employers must meet the following criteria:

  • Salary must be received on the agreed date and in the agreed place.
  • A receipt must be provided to justify the payment of wages.
  • Payment of wages must be regular.
  • Employees can request advances on account of work already done.
  • Employees are entitled to 10% annual interest for the amount of wage arrears in case of delay in payment.
  • The right to receive wages is established by the Workers’ Statute as an employment law.

Structure of Wages

  • Base Salary
  • Wage Supplements: Personal, workplace, quality, and quantity.
  • Overtime
  • Extraordinary Bonuses
  • Wages In-Kind

Extra Payments

There is an imperative right to at least two extra payments annually.

Features:

  • The collective agreement indicates the amount to be received as a bonus payment; if it does not, there will be an internal agreement.
  • Collective bargaining can determine if extra pay is prorated over twelve months.

Non-Wage Benefits

  • Compensation and Expenses: Arising from the activity itself.
  • Benefits and Allowances Granted by Social Security: These are not compensation for servicing the company.
  • Severance, Transfers, Suspensions, or Dismissals: These are not considered wages but rather compensation.

Structure of Wages and Salaries

Wage Components

  • Base salary
  • Wage supplements
  • Overtime
  • Wages in-kind

Non-Wage Components

  • Compensation and expenses
  • Benefits and allowances for Social Security
  • Compensation for removal, suspension, or dismissal
  • Other non-wage benefits

Wage Guarantees

The law establishes mechanisms to ensure or protect wages; this protection is achieved through wage guarantees.

It is possible to find higher salaries in collective agreements or amounts less than the minimum wage. This is known as the absorption of compensation or wages.

Minimum Wage (SMI)

The government sets an annual minimum wage.

Elements that determine the minimum wage:

  • Consumer Price Index
  • National Average Productivity
  • Increased participation of labor in national income

Prohibition of Wage and Pension Seizure

  1. Wages, salaries, pensions, compensation, or their equivalent, not exceeding the amount indicated by the minimum wage, are not subject to seizure.
  2. Wages, salaries, or pensions that are higher than the minimum wage will be seized according to this scale:
    • For the first additional amount up to the amount that would double the minimum wage, 30%.
    • For the additional amount up to the amount equivalent to a third minimum wage, 50%.
    • For the additional amount up to the amount equivalent to a quarter of the minimum wage, 60%.
    • For the additional amount equivalent to a fifth of the minimum wage, 75%.
    • For any amount exceeding the above amount, 90%.
  3. FOGASA (Wage Guarantee Fund)

Wage Privileges

Guarantees to creditors of companies:

Salary Preferences

  • The salaries of the last month, not exceeding twice the SMI, have absolute preference over any other debt.
  • The rest of the unpaid wages have priority and full respect for unlimited items produced by the workers.
  • Wages not protected in the above rules and redundancy payments are considered privileged and, therefore, enjoy absolute preference.

Privilege to Run Separately

In bankruptcy or insolvency, such situations do not prevent an employee from initiating legal action to recover wages owed by the company.

The Wage Guarantee Fund (FOGASA)

FOGASA is an autonomous body that deals with the debts that the company might have with its employees in payment of their salaries, including extra payments and processing fees, outstanding due to a declaration of insolvency or bankruptcy procedure.

FOGASA:

  • Agency funded by contributions from the company.
  • Pays wages and allowances up to a maximum of 150 days.
  • Maximum daily amount: Triple the current SMI.

Deductions on Wages

  • Contributions to Social Security
  • Withholding of income tax
  • Advances
  • Value of goods in-kind
  • Other deductions

Income Tax

Income tax is calculated on the total amount earned. Then, the percentage is applied according to the tax bracket, income level, and number of children.