10 Things You Need To Know About Honduras' Law On Social Protection

Honduras' Law on Social Protection means that financial institutions under the Private Contribution Regime (RAP) will transition into pension fund management companies (AFPs), with employer and employee contributions rising to 8.7% and 5%, respectively. Our local expert explains 10 things every company need to know about this law.

1. New employees: The percentage of contribution for employees hired after the law was implemented on 4 September 2015 should reach 4% calculated on the employee's salary and reaching a maximum of three times the highest minimum wage approved by the Ministry of Labor. This will be deposited in a labour reserve sub-account of individual capitalization managed by a Pension and Unemployment Fund Administrator (AFP). Every employee must open a sub-account in the AFP of convenience.

2. Employees with seniority will accumulate in the AFP only the percentage earned from 4 September until the day the employment relationship ends. The employer will have to contribute the difference to reach a total of 100% - but only if the employee is dismissed (the Labor Code in force at the moment must be taken into consideration).

3. Government employees: The Law on Social Protection does not require the State to have a reserve for the payment of benefits to public workers. These shall continue following the Labor Code, the Civil Service Law and any agreements made with the employer.

4. Administration of funds: The funds will be managed by the AFPs, which in turn will be regulated and supervised by the National Commission of Banks and Insurance.

5. Disposal of the accrued money: On termination of employment - regardless of the reason - the worker may immediately dispose of the money accumulated in the AFP and the interests that these funds generated during their stay in the AFP or the RAP Pension Fund. The new law mandates that workers shall receive 50% of their benefits. To receive these funds the employee must only provide proof of the labour disruption.

6. Loans with Private Contributions Regime (RAP): Employees who have loans with RAP cannot move the funds to another institution until the debt is canceled.

7. Total...