Article by Irene Zouli, Attorney at Law at Greek Law Digest
What Law governs social security?
Social Security in Greece is mainly regulated by Law 4387/2016 regarding the Unified Social Security System – Reform of the social security and pension system as amended and currently in force. Given the complexity of the applicable legislation, its provisions have been further clarified by Ministerial Decisions and/or Circulars by the competent ministries.
What are the main provisions of the law?
As of its establishment, the Greek social security system has been a highly fragmented system comprising of different social security funds and different pension schemes/rules depending on various factors (workforce specialization, type of occupation (i.e. dependent or independent) date of entry in the employment market etc.) resulting in inequalities in terms of social security treatment and benefit entitlements.
To overcome the above deficiencies, Law 4387/2016, which was voted under the framework of the Third Memorandum of Understanding (signed in August 2015), sets uniform social security and pension rules for adoption by all the workforce subject to social security in Greece. For this purpose, the provisions of the law provide, among other issues, for the integration of all public main pension funds into one fund (the so-called “Unified Social Security Institution” – Eνιαίος Φορέας Κοινωνικής Ασφάλισης (Ε.Φ.Κ.Α.)) and of all auxiliary pension and lump sum benefits funds into one fund (the so-called “Unified Auxiliary Social Security and Lump Sum Benefits Fund” – Ενιαίο Ταμείο Επικουρικής Ασφάλισης και Εφάπαξ Παροχών (Ε.Τ.Ε.Α.Ε.Π.)). Further, Law 4387/2016: (a) replaces main pension by a national pension and a contributory pension, (b) expands the types of income subject to social security and (c) also provides for new rules to apply to pensioners continuing to work following their retirement.
What does the law provide for national pension?
A state-funded guaranteed national pension is introduced payable under conditions. In general, full national pension (currently at € 384) is paid to persons who (a) are eligible to full contributory pension in accordance with pension rules as applicable from time to time, (b) have accumulated at least 20 years of insurance, (c) have completed 40 years of lawful residence in Greece between their 15th year of age and the year during which they meet retirement age criteria or apply for pension.
Reduced national pension is also provided for persons not meeting full national pension conditions. Full pension amount is reduced by (a) 2% for each year of insurance less than 20 years provided however that 15 years of insurance have been accumulated, (b) by 1/40 for each year of stay in Greece less than 40 years required as stated above and (c) in case of reduced contributory pension, by 1/200 for each month less than the full pension age (and up to 60/200).
What does the law provide for contributory pension?
In accordance with Law 4387/2016, contributory pension is determined on the basis of the pensionable income (income subject to social security contributions), the insurable period and the replacement rates as provided by the law. Insurable period includes the period of both actual insurance (i.e. the period of insured employment/self-employment) and fictitious insurance (i.e. periods which are recognized as periods of insurance without actual employment/self-employment either for free or following the payment of the corresponding social security contributions).
Based on Law 4336/2015 as of 1 January 2022:
a) The general conditions for full contributory pension are:
- The completion of 12,000 days of insurance (40 years of insurance) and of the 62nd year of age or
- The completion of 4,500 days of insurance (15 years of insurance) and of the 67th year of age.
b) The general conditions for reduced contributory pension are the completion of 4,500 days of insurance (15 years of insurance) and of the 62nd year of age.
Transitional provisions apply until 1 January 2022 providing in general for less days/years of insurance and younger age of the applicant.
What are the categories of workforce subject to social security under the law?
Law 4387/2016 divides workforce subject to social security into the following categories:
- Dependent employees (including managers, general managers, Managing Directors employed by virtue of dependent employment agreements, salaried lawyers, Members of Board of Directors of S.A. companies etc.)
- Professionals providing services to up to two employers under freelance agreements paid by virtue of payment receipts;
- Certain categories of professionals/entrepreneurs, for instance:
- the sole partner of Sole Partner Private Companies,
- the administrator(s) of Private Companies,
- Shareholders of commercial/professional/craft S.A. companies who hold at least 3% of their share capital and at the same time are members of their Board of Directors,
- Partners of any type of commercial/professional/craft companies other than the above under items (a) and (c), irrespective of the percentage of their participation in their capital.
Based on a recent amendment to social security legislation, fees received by non-professionals (i.e. persons occasionally providing services and non registered for social security purposes) are also subject to social security. However, the coming into force of the provisions in question depends on the issuance of a Ministerial Decision to provide for the withholding and attribution procedure which has not yet been issued (and therefore the rules in question do not apply yet).
Out of the above categories of workforce, remuneration of persons falling under items (1) and (2) above are subject to both employer’s/company’s and employee’s social security contributions. The remaining workforce categories are burdened personally with the corresponding social security contributions.
The method of attribution of social security contributions depends on the workforce category but the general rule is that social security contributions are attributed to the Greek State on a monthly basis.
What are the social security sectors?
Greek social security system covers the following sectors:
- Main pension;
- Auxiliary (supplementary) pension;
- Health insurance;
- Welfare benefits; and
- Certain explicitly defined benefits (for instance, unemployment).
Out of the above sectors, main pension and health insurance sectors apply to all workforce categories, whereas the remaining ones depend on the specialization of the workforce.
What are the main pension rates?
Main pension rate is uniformly set to 20% in total.
For dependent employees (and workforce qualifying as dependent employees for social security purposes), social security contributions are divided to 13.33% burdening the employer and 6.67% burdening the employee/salaried lawyer/professional with up to two employers.
What are the auxiliary pension rates?
The auxiliary pension rate is set to:
- 7% for dependent employees and other workforce categories qualifying as dependent employees for social security purposes (3.5% burdening the employer and 3.5% burdening the employee). The above rate is provided to be reduced to 6.5% for the period from 1 June 2019 to 31 May 2022 and to 6% as of 1 June 2022 (to continue to be equally divided between the employer and the employee).
- 7% for freelancers/self-employed and other categories of professionals qualifying as freelancers/self-employed for social security purposes (to be reduced as above), if subject to auxiliary social security (either optionally or obligatorily). These contributions burden the freelances personally in their entirety.
What are the health insurance rates?
Health insurance rate is set to:
- 7.10% for dependent employees and other workforce categories qualifying as dependent employees for social security purposes (4.55% burdening the employer and 2.55% burdening the employee).
- 6.95% for freelancers/self-employed and other categories of professionals qualifying as freelancers/self-employed for social security purposes, burdening the freelancers in their entirety.
Are there any deviations to the above contributions’ rates?
Law 4387/2016 provides for certain deviations to the above rates in the form of reductions applying to certain workforce categories.
Are there any other contributions?
Depending on the workforce category, other contributions are also payable. For instance:
- Dependent employees’ remuneration is also subject to social security contributions at the rate of 6.96% for unemployment and other similar benefits (3.68% burdening the employer and 3.28% burdening the employee);
- Salaried lawyers are personally subject to welfare social security contributions at the rate of 4%;
- An annual contribution of € 120 in favor of the Unemployment Office (Ο.Α.Ε.Δ.) is also payable by certain insured persons (for instance, freelance lawyers and salaried lawyers).
Finally, the social security contributions can increase under certain conditions (for instance, in case of dangerous and hazardous employment).
What is the basis of calculation of the social security contributions?
Dependent employees’ (including other workforce qualifying as dependent employees for social security purposes) social security contributions burden the monthly salary/fees and any allowances/benefits paid/granted to them (i.e. statutory allowances (Christmas, Easter and vacation allowances), monetary bonuses and/or other benefits in kind depending on various conditions).
In fact, the employer withholds from the amounts payable to the employee the latter’s portion of social security contributions and, further, pays the employer’s social security contributions (which are paid on the top of the agreed gross remuneration). The contribution amounts due are declared and attributed to the Greek State in accordance with explicitly defined procedures. Greek legislation provides for a minimum and a maximum amount subject to social security contributions for this type of workforce employed by full time agreements (i.e. currently the minimum is set to € 586.08 gross and the maximum to € 5,860.80 gross on a monthly basis payable 14 times per year in accordance with Greek employment rules).
Freelancers’/Self-employed social security contributions are calculated on the basis of the net taxable income arising from their activity subject to social security as reported in the previous tax year (divided by 12) increased by the corresponding social security contributions paid (a reduction of 15% currently provided is to be abolished as of 1 January 2019). Reductions or deferral of payments are provided for certain categories of freelancers depending on their income or year of registration.
A minimum and a maximum amount subject to social security contributions for this type of workforce is also provided as above (i.e. minimum € 586.08 and maximum € 5,860.80 gross with the annual thresholds calculated on a 12 months basis, though).
What happens in case of income from different sources?
Contrary to the previous framework which provided for the possibility to have only one type of income subject to social security contributions under certain conditions, under Law 4387/2016, income arising from different sources (for instance, dependent employment
and participation in a Limited Liability Company) is subject to social security, separately. However, the maximum monthly ceiling of € 5,860.80 applies in such case as well, meaning for instance that if income from one source exceeds € 5,860.80 on a monthly basis, the other income will not be taken into account for social security purposes.
Under what conditions can pensioners work or undertake activities subject to social security?
Under Law 4387/2016, pension (both main and auxiliary, if any) attributed to pensioners who as of 12 May 2016 start working or undertake any activity which is subject to social security (for instance, they become partners of a Limited Liability Company) is reduced by 60% during the period of employment/activity subject to social security. Pensioners’ activities (either employed or of any nature as above) are subject to social security which could result in a possible increase of the auxiliary and contributory main pension. Pensioners are obliged to notify the social security funds accordingly before undertaking the activities in question, otherwise the corresponding social security contributions (with surcharges) will be imposed by the social security funds.
Pensioners working before 12 May 2016 continue to be subject to the previous framework, which provided for smaller reductions or suspension of payment of pension under certain conditions.
Under what conditions can a person be optionally/voluntarily insured?
In accordance with Law 4387/2016, persons can be optionally/voluntarily insured (for main pension οr/and auxiliary pension or/and health insurance) under certain conditions. In fact, persons can be voluntarily insured under the following conditions:
- They must have completed:
- at least 5 years of insurance, one of which during the last five years before the filing of the voluntary insurance application and they must file the application in question within 12 months from the last day of (obligatory) insurance; or
- 10 years of insurance, irrespective of the date of filing of the voluntary insurance application.
- They must have ceased being obligatorily insured at the time of filing of the voluntary insurance application; and
- They must not be disable to work under the applicable rules at the time of filing of the voluntary insurance application.
Under such schemes, the voluntarily insured persons are personally burdened with the corresponding social security contributions in their entirety (employers’ and employees’ contributions for persons qualifying as employees and freelancers’/self-employed persons’ contributions for freelancers/self-employed) which are calculated under rules similar to the ones applying in case of obligatory insurance.
Can a person be exempted from the obligation to be registered and subject to social security in Greece?
A person providing (dependent and/or independent) services locally can be exempted from the obligation to register and attribute social security contributions in Greece on the basis of either EU legislation (Regulation (EC) No 883/2004 on the coordination of social security systems and Regulation (EC) No 987/2009 on the procedure for implementing Regulation (EC) No 883/2004 as in force) also applying to Switzerland and EEA countries or the provisions of Bilateral Social Security Agreements concluded between Greece and third (non EU) countries.
The most common case of exemption under EU rules is the case whereby an employee who continues to be subject to the social security legislation of a Member State is seconded by the home country employer to a Greek employer to perform work on the former’s behalf. In such a case under a certain procedure, the assignee can be exempted from the obligation to register and pay social security contributions locally if the anticipated period of secondment is up to 24 months and the assignee is not sent to replace another posted person.
Greece has concluded Bilateral Social Security Agreements with various countries, including the United States of America, Canada, Australia and New Zealand.
Can an employee employed by an EU/EEA/Swiss employer without any form of establishment in Greece be locally insured?
In accordance with EU rules, EU/EEA/Swiss employers without any form of establishment/presence in Greece can be registered as employers with the Greek social security funds on the basis of a special procedure. For such registration to take place, the employee must be appointed as the foreign employer’s representative before the Greek social security funds to undertake any responsibility for failure of the employer to attribute the applicable social security contributions. The registration in question takes place with the social security fund of the area where the employee formally resides.
Disclaimer: Τhe article is not updated according to Law 4578/2018 (“Reduction of social security contributions and other provisions”, Official Government Gazette Bulletin A 200/3.12.2018, which reductions apply as of 1/1/2019).