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Employers required to pay more into NSSF for workers

Labour Minister Ith Sam Heng speaks at a National Social Security Fund meeting in Phnom Penh in February. Photo supplied
Labour Minister Ith Sam Heng speaks at a National Social Security Fund meeting in Phnom Penh in February. Photo supplied

Employers required to pay more into NSSF for workers

A government policy that went into effect at the start of the year requires employers to pay more into their employees’ government-managed social security funds, a move that could have wide-ranging effects on the country’s nascent private- and government-run health care systems.

According to a prakas and a sub-decree released last year by the Ministry of Labour, as of January 1, 2018, all businesses hiring one or more employees are now required to pay 3.4 percent of each employee’s average salary each month – up to a maximum of about $8.50 – into the National Social Security Fund (NSSF). The money is intended to provide employees with injury insurance and health care.

While officials and union leaders lauded the move as likely to expand health care coverage for workers, business insiders say that the new regulation is likely to stop some businesses from providing higher-quality private health insurance plans.

In the past, employers were required to pay only 1.3 percent of workers’ average monthly salary into the NSSF, with employees paying another 1.3 percent out of pocket. With the new change, a factory owner paying his employees minimum wage would have to pay about $70 per employee each year into the NSSF, compared to $26 per employee under the previous rules.

Ath Thorn, president of the independent union Cambodian Labour Confederation, lauded the new policy as a means of boosting the quality of life for garment workers.

“This will help garment workers save money for other expenses,” he said. “But even though employers are paying less to operate in Cambodia than elsewhere [in the region], some employers are not happy with the increased expenses.”

Labour Ministry spokesman Heng Sour said the new health care scheme would not impose too great a financial burden on employers.

“This policy should not deter future investors from entering Cambodia, because the government has also exempted these businesses from export management and prepayment taxes in order to reduce the costs to the employers,” he said, a total tax break he estimated at $40 million.

Despite these breaks, many businesses could drop their private health care schemes after being required to contribute more to the NSSF, according to Stephen Higgins, managing partner of Mekong Strategic Partners.

“Most medium to large employers provide health coverage to their staff already, which allows those staff to access private clinics and hospitals,” he said. “There is a risk that some of these employers will cease their existing private coverage and go just with the NSSF, rather than paying for two different sets of health care policies, which would likely result in their staff being worse off.”

If those firms were to drop private health insurance plans, the Kingdom’s private health insurance industry, as well as the workers themselves, could suffer, according to Anthony Galliano, CEO of Cambodian Investment Management.

“We have already seen an evolving trend whereby some employers who provided their employees personal accident insurance have declined to renew the coverage, citing the cost of monthly NSSF contributions,” he said.

“Whether the NSSF coverage rivals the insurance industry is yet to be seen, as this is untested on a large scale, [and] the risk is that employers will replace high quality insurance company plans with less coverage through the NSSF.”

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