Mongolia s human resources framework

Transcription

1 JANUARY 2015 Mongolia s human resources framework FOCUS AUDIER & PARTNERS Hanoi Ho Chi Minh City Mongolia - Myanmar

2 2 Audier & Partners - FOCUS - Mongolia s human resources framework Since its transition towards a market economy in the early nineties, Mongolia has been updating its legal framework to match international standards. Human resources legislation was no exception to the rule, and now reflects democratic and liberal attributes adopted by Mongolia. The Labour Code of Mongolia dated 14 May 1999, together with its subsequent revisions, includes all the main rules applicable to employment relationship and various related issues, and is detailed and supported by a variety of other laws and regulations. Even though the legal and regulatory framework applicable to labour relations is not always specific enough, leaving certain subjects or practical questions unanswered, the existing legal corpus and the setting up of detailed internal labour rules and procedures can lead to an effective control and monitoring of labour relations. EXECUTIVE SUMMARY This Focus aims at presenting a broad perspective of the main points of interests regarding human resources to be employed and managed in Mongolia, notably including: type of employment agreements and key provisions; hiring/firing procedures; labour discipline; taxation issues; social insurance obligations and coverage; health and safety obligations; collective labour relationships; dispute resolution. Nicolas Audier Managing Partner Etienne Laumonier Partner audier@audierpartners.com laumonier@audierpartners.com Pierre-Michel Motteau Associate Country representative motteau@audierpartners.com

3 3 Audier & Partners - FOCUS - Mongolia s human resources framework TABLE OF CONTENTS I. OVERVIEW... 5 II. RECRUITMENT Authorized employees Women Minors Foreign employees Prohibited practices Prohibition of discriminations Promotion of employment of disabled people Procedure... 6 III. REGULATION OF THE EMPLOYMENT RELATIONSHIP Employment agreement Scope of use Term Key Provisions Working conditions Compensation Leaves and holidays Professional training Termination Manager contract Scope of use Term Key Provisions Termination Internal regulations IV. TAXATION Employees personal income tax Corporate income tax incentives Tax credit Deductible expanses V. SOCIAL INSURANCE... 15

4 4 Audier & Partners - FOCUS - Mongolia s human resources framework 1. Social Contributions Employer s contribution Employee s contribution Payment procedure Social security coverage Social Security Benefits Private insurance VI. HEALTH AND SAFETY OBLIGATIONS Overview of health and safety obligations Compensation for damage Responsibility for violation VII. COLLECTIVE AGREEMENTS AND TRADE UNIONS Collective agreements Collective agreements Framework agreements Trade unions Role and functions of trade unions Right to join a trade union Guarantees for trade unions officials VIII. MISCELLANEOUS Harassment Data Protection Confidentiality of employer s information Confidentiality of employee s information IX. DISPUTE RESOLUTION Collective labour disputes Disputes in the frame of collective agreements Right to strike Individuals labour disputes Internal discipline Dispute resolution... 20

5 5 Audier & Partners - FOCUS - Mongolia s human resources framework I. OVERVIEW Rules applicable to the employment relationship as well as human resources management can be found primarily in the Constitution of Mongolia, the Civil Code and the Labour Code. A number of other regulations subsequently deal with more particular aspects, the list of which being provided in Appendix 1 below. Key legal aspects of the recruitment process will be presented below. We will then focus on the essential aspects of the employment relationship (type of employment agreements, minimum provisions, wages and benefits etc.). Highlights about tax, social security and health and safety obligations follow. Collective labour relations are also envisaged as well as other various questions, to finally assess dispute resolution issues. II. RECRUITMENT Although there is no strict recruitment procedure provided by law, an employer should be aware of a number of regulations and requirements to be complied with at this stage. These notably include particular rules applicable to certain categories of people, and prohibited practices. 1. Authorized employees Certain categories of people are subject to limitations regarding the possibility to work, or benefit from specifically favourable work conditions. This is the case for women, minors and foreign employees Women Several jobs cannot be undertaken by female employees, including jobs considered as physically too hard Minors Several rules are also protective of employees below the age of 18. Specific jobs (such as working in the alcohol and tobacco industry, bar and nightclubs, security business, etc.) are strictly prohibited. Employment of minors is by principle prohibited, except in the limited following cases: above 16, a minor can be employed if the job is not incompatible with his/her intellectual development or health; from 15 to 16, employment of a minor is possible under condition above and with the parent's consent; from 14 to 15, employment of a minor is possible under condition and above, for the purpose of professional training or orientation, and with the consent of the labour department. A medical examination should furthermore be undergone by minor workers every 6 months, and several other protective rules apply, such as the prohibition to work outside of legal hours, or to carry a heavy weight Foreign employees The Mongolian labour market being limited in terms of job offers (real unemployment rates peaked in the past years, employment of foreign workers raises recurrent political and social issues. The legal response to these is a control and limitation of the employment of foreign workers. By principle, only foreign employees with high professional skills can be employed, for the purpose of introducing progressive techniques and technologies in various fields. The procedure for the employment of foreign workers notably includes 1 as of the date of this note, the relevant regulation is missing. However, as an example, previously applicable regulation prohibited jobs like driving certain vehicles, logging wood, fireman, etc.

6 6 Audier & Partners - FOCUS - Mongolia s human resources framework obtaining an authorization with the labour department (notably evidencing qualifications deemed necessary to introduce new techniques and technologies); applying for relevant work visa; and paying the relevant fees (including a monthly workplace payment equal to 2 times the minimum salary 2 ) This procedure shall be renewed at least once every year. Employment of foreign workers is only allowed within the limits of a quota determined in consideration of the receiving company s sector of activity (for 2014, the general quota is 5% of foreign workers, but can be up to 75% in certain sectors, such as the mining industry). 2. Prohibited practices During the recruitment process, the employer is prohibited to discriminate amongst candidates outside of their professional skills, except cases where the employment of certain categories of people is fostered Prohibition of discriminations Except if related to the work position in question, the employer shall not ask any question to the candidate pertaining to his/her private life, opinions, marital status, political party membership, religious beliefs or pregnancy. A set of provisions further precludes discrimination against HIV positive people, disabled people and retired people benefiting from a pension. A specific law prohibiting gender-based discrimination has also been passed, which aims quite thoroughly any kind of discrimination based on gender, including discrimination during the hiring process or the job performance Promotion of employment of disabled people Once an organization reaches a certain size, it becomes subject to social employment obligations. Currently, organizations over 25 employees are required to employ at least 4% of disabled people or persons suffering from dwarfism. In case of noncompliance, the employer will be liable to pay a monthly MNT 57,600 to 96,000 (depending on the size and the location of the employer) fine per employee it should have hired pursuant to this rule. 3. Procedure The employer generally interviews the relevant candidates one or several times. Once the parties agree on the main terms, a contract is drafted and executed by the employer and the employee. This contract is necessarily written and shall contain minimum requirements (see paragraph III.1.3 below). At least 3 original copies should be made, one being kept by each party (the third copy being later filed with the social insurance department). Once the employment agreement is executed, the employer shall file a copy of this document together with relevant information: III. to the social security office to register the employee as a social security beneficiary; and to the tax office for future payment by the employer of the withholding personal income tax on wages paid to the employee. REGULATION OF THE EMPLOYMENT RELATIONSHIP The Labour Code makes a distinction between two types of agreements, these applicable to most employees, and those applicable only to managing personnel. 2 MNT 384,000 per month for the year 2014

7 7 Audier & Partners - FOCUS - Mongolia s human resources framework 1. Employment agreement 1.1. Scope of use Employment agreements are used for all employees except the persons mentioned in paragraph III.2 below. An employment agreement is the only type of agreement that can be entered into for permanent employment positions, service contracts being limited to temporary work needs Term Employment agreements can be either fix-term or indefinite. Fix-term employment agreements are only allowed for temporary positions, and are automatically renewed in case neither of the parties terminates it. Necessary ground for entering into a definite-term employment agreement shall be specifically stated in the employment agreement. Permanent employment positions hence imply to enter into an employment agreement with an indefinite term. Termination can occur at the employer s or employee s initiative (see paragraph III.1.8 below), whereas expiry can occur in case of mutual agreement, death of one of the parties, conscription of the employee to military service, or decision/judgement of a competent authority Key Provisions The Labour Code provides for minimum provisions that should be inserted in every employment agreement. These include the name of the position, works and duties to be performed, the amount of base salary and labour conditions. Further provisions can be included, but an employment agreement will be considered valid as long as it includes these four elements. Employment agreements shall also be in line with collective and framework agreements. Any provision of the employment agreement less favourable will be considered null and void. Managing positions cannot be undertaken for two different employers, except if the work positions and business activities are different. Except if provided otherwise in the employment agreement, compensation for damages (for damages incurred by the employer at the employee s fault) should not exceed the employee s monthly salary. Full compensation for damages can however be imposed in limited cases (e.g. crime, failure to return assets temporarily transferred, loss of working tools, etc.). Provisions of the agreement may not be amended unilaterally by one party. As a result, if an employer wishes to modify the position, working conditions or hours, etc., a mutual agreement shall be reached for such modifications Working conditions Working hours Legal working hours are limited to 8 hours a day, and 40 hours a week. If, due to the particular needs of the business, daily and weekly limitation cannot be followed, and employer shall issue a regulation stating how working hours will be calculated and unified in order to comply with legal requirements. In any case, a working day shall not exceed 12 hours a day, save for overtime provisions. In order to protect certain categories of workers, reduced business hours shall apply for the following categories: minors aged between 14 and 15 years old shall not work more than 30 hours a week, whereas minors aged between 16 and 17 years old shall not work more than 36 hours a week; disabled people shall not work more than 36 hours a week;

8 8 Audier & Partners - FOCUS - Mongolia s human resources framework night hours and overtime shall be prohibited for pregnant women, mother of a child of up to 8 years old, and single parent of a child of up to 16 years old Breaks During working hours, a break for meal shall be provided to employees. If the particular features of work and duties make it impossible to provide such break, the employer shall at least provide to employee the possibility to have a meal at the workplace. Babycare break shall also be provided for mother of young babies and single fathers during working hours. Outside of working hours, a minimum 12-hours break shall be provided to all employees between two shifts. Saturday and Sunday are considered public weekends, during which employees are entitled to a break. If the features of the work and duties make it necessary to work on weekends, employees shall be provided with a two-consecutive days break during the week. Work on weekends and public holidays is limited to specific situations or agreement with the employee Overtime Hours worked in excess of daily or weekly business hours - as defined in the Labour Code and in the employer s internal regulation - are considered overtime. Overtime can be at the employer s initiative only in a limited number of cases: Emergency situations relating to the defence of the country or the protection of human life or health; To prevent for natural disasters, public disasters or industrial accidents, or immediately remedy to the arm thereof; (iv) To remedy breakages of public water, electricity and heating supply, as well as transportation and communication; For the performance of urgent works that were unforeseeable, and to remedy probable hindrance to normal operations of the business if such works were not undertaken. Overtime can also be undertaken on a voluntary basis. In such case, payment and/or compensation by providing extra leave shall be addressed in the employer s internal regulations or in the employment agreement (the general rule being that overtime should be paid if it cannot be compensated by extra leaves). In any case, overtime work may never lead to have an employee working for two consecutive work shifts Work position The work position shall be defined in the employment agreement. As a consequence, only the performance of work and duties specifically stated in the employment agreement can be required from an employee. Only in exceptional cases can the employer transfer an employee to another position: To prevent a natural disaster or industrial accident to happen, or to repair their consequences. In such case, the transfer shall not exceed 45 days; during idle time of the employee, with the employee s consent. In some cases, an employer might have to retain a work position to the benefit of a particular employee while the latter is not actually performing his/her work and duties (e.g. while the employee is performing duties by election to a state body, participating in negotiations to enter into a collective contract/agreement, is undergoing medical test or acts

9 9 Audier & Partners - FOCUS - Mongolia s human resources framework as a donor, or has been called up for conscription to military service, etc.). The employer might also have to reinstate an employee to his/her previous job position, for example in case of quick recovery after an industrial accident, or following a court decision for wrongful dismissal working conditions Outside of health and safety obligations that require an employer to ensure a suitable, non-hazardous and safe work environment (see paragraph VI below), working conditions shall not breach employee s fundamental rights. This is for example the case of work that would be imposed to an employee with the view of punishing participation to a lawful strike, expression of political views, or discriminating on the basis of social origin, ethnicity, gender, race or religion. Such kind of discrimination is prohibited in the allocation of work and duties as well as during their performance by an employee. If an employer is to limit employees rights and freedom during the performance of the work and duties, such limitation have to be justified by specific requirements of the works, in which case the grounds must be specifically provided by the employer. Specific limitations also aim at protecting some categories of employees, such as regulations setting the maximum weight that can be lifted or carried by women or minors Compensation Wages and Salary Monetary compensation for works and duties performed by an employee consist at least of the base salary, and can also include additional wage, salary increase, as well as award and bonuses. Base Salary Although fix salary is common practice, other methods of determining salary can be adopted. Salary can for example be allocated on a piecework basis, at an hourly rate, or according to the work results (i.e. by reaching certain predetermined objectives). In any case, an employee s salary cannot be inferior to the minimum determined by the law 3. The employer s internal regulation may contain provisions related to annual salary increase based for example on seniority or results. Additional Wage/salary In case the employee, in addition to the work position specified in his/her employment agreement, performs additional works and/or duties, substitutes for an absent employee, or work outside of normal work hours, he will be entitled to additional salary. Works and duties performed outside of normal work hours should be compensated at the following rates 4 : (iv) Work and duties performed during public holidays shall give rise to a 200% salary increase; Work and duties performed overtime shall give rise to a 150% salary increase (except if a compensation leave has been granted); Work and duties performed during weekends shall give rise to a 150% salary increase (except if a compensation leave has been granted); Work and duties performed during night hours shall be paid in accordance with the applicable collective/ framework agreement and the employment contract. 3 At the day of writing, the minimum monthly salary is MNT 192,000 (approx USD 110) 4 All the salary increases mentioned below should be determined in accordance with the base salary

10 10 Audier & Partners - FOCUS - Mongolia s human resources framework Compensations Outside of base salary and additional wage, an employer might have to compensate an employee in several situations. Firstly, in case an employer is unable to transfer an employee to another work position during idle time that occurs without any fault from the employee, the latter should be compensated according to the relevant provisions of the collective agreement. In any case, such compensation can neither be less than 60% of the employee's base salary nor less than the minimum salary. Secondly, in certain cases when an employee position has been retained (see paragraph III above), an employer may have to compensate such employee up to his/her average salary. In case of transfer of an employee to another permanent workplace (i.e. in another city or aimag) at the employer s initiative, the receiving employer s shall compensate family transportation and moving costs of such employee. Finally, an employee who is unable to arrive to work due to reasonable ground (e.g. health reasons, natural disasters) should be compensated in an amount at least equal to 50% of his/her base salary, provided the reason is justified. Procedure and calculation of salary Salary may be paid on an hourly, daily or weekly calculation basis, twice or more times a month on a fix day. At the employee s request, salary may be paid in advance. When paying salaries, an employer shall withhold 10% of the gross salary in order to pay the employee personal income tax on his/her behalf. The employer shall also pay the employee s social security contribution at the rate of 10% withheld over his/her gross salary. Finally, the employer shall pay the employer s social security contribution at the rate of 10% based on the employee s gross salary (see paragraph IV and V below for details). Once these amounts have been calculated, the employer shall make the relevant deductions and pay the net salary to the employee. The employer is required to transfer every month the personal income tax withheld amounts on the relevant tax office bank account and the social security contributions to the social insurance fund bank account. The rules set up above apply to every person working by under a Mongolian employment agreement (i.e. including Mongolian citizens employed by foreign legal entities in Mongolia and foreign employees working for domestic or foreign legal entities in Mongolia). In order to prevent frauds, the Labour Code provides that foreign legal entities have an obligation to provide Mongolian competent organizations and official with true and correct information regarding the employee s salary and related incomes Benefits and bonuses The Labour Code does not provide for any compulsory provision applicable to benefits and bonuses. Such provisions can however be included in collective and framework agreements, or be inserted in the internal regulations Leaves and holidays Annual Leaves All employees are entitled to an annual leave. If an employee is not able to take such annual vacation, he should be entitled to payment of salary according to the applicable collective agreement (if none, according to a employer's resolution based on an agreement with the employee). The minimum annual vacation period is 15 business days, save for minor and disabled employees, who are entitled to 20 business days. The level of seniority

11 11 Audier & Partners - FOCUS - Mongolia s human resources framework will further determine additional vacation that an employee might be entitled to: between 6 and 10 years of employment, 3 additional business days; (iv) (v) (vi) between 11 and 15 years, 5 business days; between 16 and 20 years, 7 business days; between 21 and 25 years, 9 business days; between 26 and 31 years, 11 business days; beyond 32 years, 14 additional business days. Years of employment not only include work and duties performed for a single employer, but every position held by an employee since the beginning of his/her carrier. Such information is evidenced by the social insurance payment book, which gathers all information related to an employee s work positions since the employee started working. During annual leaves, an employee should be paid compensation on the basis of his/her average salary for that particular year Public holidays Public holidays for 2015 are the following days: (iv) (v) (vi) New year s day (1 st of January); White moon days (3 days at the beginning of the first spring month according to the lunar calendar - 19 to 21 February for 2015); International women s day (8 th of March); Children s day (1 st of June); National Naadam holiday (11 th, 12 th, 13 th, 14 th and 15 th of July); Chinggis Khan day (first day of the first winter month of lunar calendar 12 November for 2015); (vii) National Freedom and Independence Day (29 th of December). The list of public holidays is amended from time to time by the Parliament, hence subject to change. During public holidays, an employee should be paid compensation on the basis of his/her average salary for that particular year Other leaves Sick leave If an employee, due to normal disease or domestic injury, is determined temporary not able to perform his/her work and duties by a competent medical authority (the Treatment Quality Control Commission of a medical institution, if none, a senior physician), he should be entitled to sick leave for the duration of such temporary inability. In such case, if the employee is entitled to temporarily invalid allowance, the employer will be liable to pay the employee's salary only during the first six days, after what allowance shall be allocated. Maternity and adoption leave An employee who gave/is about to give birth to a child is entitled to 120 days of maternity leave. Such leave can, at the choice of the employee be taken at any time around the delivery date. A female employee or a single male employee who adopted a newborn child is entitled to the same duration of leave, until the child reaches 60 days of age. As for the procedure applicable to sick leave, the employer shall pay the employee average salary for the 6 first days of maternity/adoption leave. Child care leave At the request of an employee, an employer should grant an unpaid child care leave. Employees entitled to child care leave are the following:

12 12 Audier & Partners - FOCUS - Mongolia s human resources framework mother who has already taken her maternity leave and annual vacation; father with a child up to three years of age; and father or mother of an adopted child up to three years of age. On the expiration of such leave, the employer is bound to continue the employment agreement for the same position, or an equivalent position in case of reduction of the number of employees. Unpaid leave Unpaid leaves (outside of the different kind of leaves provided above) may be granted to an employee on his/her request. Such extra leave might be regulated by the collective or framework agreement, or the employer internal regulations. If not, the employer grants unpaid leave on a discretionary basis and is hence free to determine their duration and possible payment of compensation Professional training The employer shall ensure relevant knowledge and skills of the employees by organizing training and retraining during working hours. The employer is liable to ensure proper conditions for employees to be able to receive relevant training Termination Termination of the employment agreement can occur either at the employee's or at the employer's initiative. In the latter case however, termination is allowed only for a limited set of grounds. Termination procedure and the need to pay a severance pay to the employee vary according the grounds for termination Employer s initiated termination Grounds Termination at the employer's initiative can only occur if based on one of the following grounds: (iv) (v) (vi) liquidation of the employer's business entity or organization, and branch or unit thereof, reduction of position, or diminishing the number of employees; it is determined by an internal commission that the employee fails to meet the requirements of the job or position due to the lack of professional qualifications or skills, or health reasons. Such internal commission is appointed annually or on a case-by-case basis, and should include representatives of the employer and the employees. For several job positions, specific regulations might provide that a representative of a certain public authority must take part in the commission; an employee attained 60 years of age and is eligible to receive a pension (having worked at least 20 years); the employee committed several breaches of the disciplinary rules, or a material breach specifically provided for in the employment agreement as a ground for termination; it is determined by an independent commission or authority that an employee who is in charge of money or assets committed a faulty action or omission which betrayed the employer's trust; an employee is elected or appointed to another job or position; (vii) ground set forth in the contract as likely to lead to termination arise. Except for grounds, (iv) and (v) above, it is prohibited to dismiss an employee who is pregnant, an employee mother of a child of up to 3 years old and a single father of a child up to 3 years old. It is further prohibited for the employer to terminate an employment agreement for an employee whose position is retained (e.g. authorized leave, participation to a collective bargaining, etc.), except in case of liquidation of the employer.

13 13 Audier & Partners - FOCUS - Mongolia s human resources framework Severance pay A severance pay at least equal to the average salary for one month should be paid to the employee in the following cases: Procedure the employee is conscripted for military service; grounds, and listed in the previous paragraph. By principle, no specific notice is needed in case of termination. In case of liquidation/reduction of the business or in case of failure by the employee to meet the job requirements (grounds and listed in sub-paragraph above) a notice will however be required to be served to the employee at least one month in advance. A specific procedure is also provided in the Labour Code in case of mass dismissal of employee following downsizing measures. In the decision to dismiss the employee, the employer shall fix the date for handover of works, the last day of handover being deemed to be the day of dismissal. If the employee requires so, the employer has to provide him/her with a reference letter stating the position, salary, specialization and tasks undertaken during the employment period Employee s initiative termination The employee may resign based on any ground and at any time, hence terminating the employment agreement. Such termination will only occur after a one-month written notice sent to the employer, save if there is a reasonable ground for termination to occur earlier, or in case of agreement for early termination with the employer. 2. Manager contract Manager contract (also referred to as individual labour contract in the Labour Code) is a specific kind of agreement for high-skilled manager positions Scope of use The manager contract is used for jobs that imply the exercise of parts of the employer's ownership rights (e.g. rights over assets, human resources, capacity to enter into contracts, etc.). This kind of agreement is more tailored than regular employment agreements, and includes specificities of the job position in consideration of the manager personal skills. The Labour Code provides for a list of positions that should necessarily be performed under this particular kind of agreement (e.g. executive officer, executive director, general manager, chief executive officer, unit manager, etc.) Term The maximum term of a manager contract is 5 years. At the expiration of such term, the parties may however agree on an extension if the manager properly performed his/her works and duties, and achieved his/her mission Key Provisions In order to be valid, the manager contract should necessarily be a written agreement, and include at least the following provisions: (iv) (v) (vi) term of the contract; final result of the work and duties to be achieved; mutual obligations of the parties; manager's power over assets; remuneration, benefits and percentage of profits to be paid to the manager; responsibilities of the manager.

14 14 Audier & Partners - FOCUS - Mongolia s human resources framework A person who is employed under a manager contract for an employer is prohibited to enter into a second manager contract with another employer engaged in a similar business. If he does so, the manager might be liable to compensate damages incurred by the first employer. Compared to the employment agreement, the manager contract implies a broader liability over the employer assets, as the maximum liability can be up to 6 months salary. Cases in which full liability may be imposed are the same as for the employment agreement (e.g. crime, breach of power of attorney, etc.) Termination Employer s initiative termination Even though grounds for termination at the employer s initiative are quite flexible for the manager contract, they are still in limited number: (iv) In case of failure of the manager to achieve the results of the work as provided for in the contract, or in case of failure to work adequately; In case the manager entered into another contract with another employer engaged in a similar business; Transfer by the employer of his/her ownership rights to a third party; In case the manager inefficiently disposed of or lost the assets transferred to him under the contract, or exceeds the authority granted to him by the owner. If not provided in the contract, no particular procedure or notice is compulsory in case of termination at the employer s initiative, save the case of transfer of his/her entire ownership rights by the employer, in which case the employer shall notify the manager at least 2 months before termination. Only in such case will the employer have to pay the manager a severance pay. Such severance pay shall be at least equal 3 months average salary Manager's initiative termination Except if the manager contract provides otherwise, no particular grounds or procedure is required in case of termination at the manager s initiative. 3. Internal regulations In order to further regulate work conditions, discipline, procedures as well as right and duties of the employees, an employer shall approve and enforce internal regulations, in conformity with the law and considering proposals of representatives of the employee. Such internal regulations are highly recommended for human resources intensive businesses, as the provisions of the law are often not precise enough to cover all the particulars of the employment relationship. It is particularly relevant to regulate precisely matters like work discipline (e.g. work hours, behaviour, procedure applicable to disciplinary sanctions), leave and holidays (specific procedure, grounds) and termination of employment agreements. IV. TAXATION 1. Employees personal income tax Employees earning salary and wage from an employer operating in Mongolia are subject to personal income tax in Mongolia, irrespective of their nationality (except if an international treaty provides otherwise). The employee taxable income includes salary and wages, bonuses, incentives, allowances and fringe benefits, except the provision of meals, of transportation to/from the workplace and medical

15 15 Audier & Partners - FOCUS - Mongolia s human resources framework expenses. Taxable income from activities is imposed at the fix rate of 10%. Before transferring the salary on the employee's account, an employer should first withhold the relevant amount corresponding to his/her income tax, and transfer such amount to the relevant tax office bank account before the 10th day of the following month. 2. Corporate income tax incentives The Economic Entities Income Tax Law provides for several incentives relating to human resources Tax credit In order to foster the employment of disabled people, a general tax credit is granted for entities employing disabled Mongolian citizens who lost over 50% of their working capacity. The tax credit rate should be equivalent to the number of such employees in proportion of the total number of employees Deductible expenses With a view of encouraging the implementation of measures in favour of the employees, bonuses, incentives and allowances (for housing, meal and fuel expenses) are considered as expenses deductible from the company's taxable income. Likewise, training and retraining actual incurred expenses are considered out of the tax base (Allowances and benefits are however subject to personal taxation from the employee's side, which is not the case of training and retraining expenses). V. SOCIAL INSURANCE 1. Social Contributions Every person working under an employment agreement should be duly registered and insured with the social security. This obligation is also applicable to employees working for foreign legal entities in Mongolia Employer s contribution Employer's share of the social security contribution amount to 10 or 13%, and include the following 5 : pension insurance: 7%; benefit insurance: 0.8%; health insurance: 2%; (iv) unemployment insurance: 0.2% (v) industrial accidents and occupational disease: from 0.5 to 3% (depending on the employer s economic activity) Employee s contribution Employee's share of the social security contribution amount to 10%, and include the following 6 : pension insurance: 7%; benefit insurance: 0.8%; health insurance: 2%; (iv) unemployment insurance: 0.2% Payment procedure Once a new employee has been recruited, the employer shall open a social insurance book on his/her behalf at the date of employment and make monthly entries and relevant payments. The employer shall withhold 10% of the employee s salary for payment of the employee s social contributions, and independently pay 10 to 13% of employer s social contributions, based on the employee s gross salary. Such withheld amounts must then be transferred to the social insurance fund bank account at the latest on 5 Percentages expressed below are against gross salary paid by the employer 6 Percentages expressed below are against gross salary received by the employee

16 16 Audier & Partners - FOCUS - Mongolia s human resources framework the 5 th day of the month following the date of payment of salary. 2. Social security coverage A duly insured employee is entitled to several pension and benefits for normal diseases and domestic injuries, whether happening at or outside of the workplace. For industrial accidents (happening during the performance of the works and duties) and occupation diseases (diseases indirectly or directly caused by the work conditions), specific pension and benefits can be provided. Each allowance and benefit is granted according to several conditions, including minimum payment premiums, context/cause of the event, qualities of the beneficiary, etc. Such particular conditions are detailed on the Law on Pension and Benefits Paid from the Social Insurance Funds and the Law on Pensions, Benefits and Payments from the Social Insurance Fund in Case of Industrial Accidents and Occupational Diseases. 3. Social Security Benefits An employee who is duly insured and have paid relevant contributions shall be entitled to several payments from the social insurance funds. These include: retirement pension: for employees who have worked for at least 20 years, and reached 60 years for males and 55 years for females; invalid's pension: for employees who lost permanently their ability to work as a result of (a) normal disease or domestic accident or (b) industrial accident or occupational disease (pension calculation and amount will be different according to the case); dependant's pension: to be paid to dependant relatives of the insured employee in case of death from normal disease or domestic injury; (iv) (v) (vi) survivor's pension: to be paid to the members of the insured employee's family who are not able to work, in case of death of the employee due to industrial accident or occupational disease; payment in respect of rehabilitation of working ability: an insured employee who lost more than 30% of his/her ability to work as a result of industrial accident or occupational disease shall be entitled to payment for restoration of such ability (e.g. prosthetic appliances, orthopaedics, etc.). temporary disability benefit: for employees who temporarily lost the ability to work due to (a) normal disease or domestic accident (this also includes pregnancy leave benefits) or (b) industrial accident or occupational disease (pension calculation and amount will be different according to the case); and (vii) funeral benefit: for insured employees who died of normal or occupational disease, domestic or industrial accident. 4. Private insurance Outside of social security premiums, which are compulsory for all employees, an employee is free to contract a private insurance policy. Such extra insurance might be needed in Mongolia, as the social insurance only cover medical care in public hospitals. As the public health sector still significantly lacks financial, human and technical means, offering an extra private health insurance to employee can be a significant benefit. VI. HEALTH AND SAFETY OBLIGATIONS 1. Overview of health and safety obligations An employer has the duty to provide employees with favourable work conditions that meet health and safety standards. Proper information should be provided to the employee regarding his/her work conditions and risks that may arise regarding health

17 17 Audier & Partners - FOCUS - Mongolia s human resources framework and safety. From the employee's side, this implies a duty to strictly comply with health and safety requirements and regulations. Health and safety regulations are issued by various authorities, and aim to ensure a safe work environment to the employees. Such rules imply for example the duty for an employer to inform on hazardous substances and provide for specific procedures, maintaining equipment and machinery according to certain technical and safety standards, obtaining prior certification or license before use, covering the expenses of medical check of the employees in certain cases, supply the employees with protective equipments, provide the employee with relevant training, etc. 2. Compensation for damage Irrespective of the status of the employee regarding social security, an employer shall pay compensation to an employee (or his/her successors and assigns) for damages incurred from an industrial accident, occupational disease or acute poisoning. Such compensation ranges from 5 months average salary in case of loss of 30% of the employee working ability, up to 36 months average salary in case of death of the employee. 3. Responsibility for violation In case industrial accident or poisoning occurred at the employer's fault, a fine ranging from MNT 350,000 up to 500,000 (USD 200 to 290) may be imposed by a state inspector. Higher fines may be imposed by courts in case of repeated offences, attempt to dissimulate the offense or obstruction to control. For such aggravating factors, fines may also be imposed to managerial personnel of the employer. VII. COLLECTIVE AGREEMENTS AND TRADE UNIONS 1. Collective agreements As a consequence of the freedom of association, employees shall have the right to gather in order to protect their legitimate interests. The Labour Code provides for a frame to such gathering: the negotiation of collective agreements, agreements between an employer and representatives of employees at a company level, and of framework agreements, at a wider level (geographical or sectorspecific). The negotiation of such agreements must follow several principles to ensure the legality and protect right and interest of the parties. Such negotiations shall hence be transparent, insure equality of rights of the parties. A specific procedure is provided to conduct the negotiation of these agreements, which includes obligation of information, prohibition of third party interference. In order to come into force, such agreements need to be registered once executed. The most important employers and employees representative organizations are the Confederation of Mongolian Trade Unions (CMTU), which represents around 200,000 active members, and the Mongolian Employer s Federation (MONEF), which represents all types of employers in Mongolia Collective agreements Collective agreements are entered into an employer and representatives of the employees at a company level in order to ensure more favourable rights and interests of employees than those provided for in the law. Collective agreements are applicable to every employee of a given legal entity, including all its units and divisions, for a one-year term minimum. The scope of collective agreements covers the following aspects of the employment relationship:

18 18 Audier & Partners - FOCUS - Mongolia s human resources framework (iv) (v) (vi) minimum salary, additional salary, bonuses, pensions, allowances and compensation; training and retraining of employees, workplace guarantees; business and rest hours; improved labour safety and hygiene standards, protect certain categories of employees (e.g. minors, disabled persons, pregnant women); increase of salary according to price increase and inflation; various provisions to improve the employee s well-being at and outside of the workplace Framework agreements Framework agreements are tripartite agreements entered into between representatives of employers, representatives of employees and a public authority at a geographical or industry/profession level. Such agreement is applicable to all employers and employees who were represented in the negotiation process, for a minimum duration of two years. The scope of framework agreements covers the following elements: National framework agreements shall consider protection of rights and legitimate interests of social protection; Regional framework agreements shall determine compensations for populations, protection of right to employment and related legitimate interests; Territorial unit framework agreements (at the aimag, soum or district level) shall regulate matters concerning employment and labour relations; (iv) Inter-industry framework agreements shall provide for the amount of salary and wage, labour conditions, organization of employment, labour standards; (v) Inter-professional framework agreements shall cover matters related to labour relations in that specific profession or occupation. 2. Trade unions 2.1. Role and functions of trade unions Trade unions are associations of employees intended to secure and defends their common legitimate interests in the context of work. Their prerogatives are notably the following: Conduct negotiation with employers and their representatives to the benefit of employees for the entering into collective and framework agreements and monitor their implementation; Represent and defend the interests of their members in front of labour dispute settlement institutions; Monitor and foster the implementation of work legislation; (iv) Organize demonstrations, gatherings and strikes within the frame of the law Right to join a trade union Another consequence of the right to free association granted by the Constitution of Mongolia is the right for every employee to freely join a trade union (such membership can however never be forced upon employees, who remain free not to join a trade union). Every discrimination from the employer based on membership or non-membership to such association is prohibited Guarantees for trade unions officials In order to enable a free and effective exercise of their rights by trade unions, their representatives benefit from specific rights. Trade unions officials can for example not be transferred to another job position without consent, or be dismissed or imposed disciplinary measures based on their representative s

19 19 Audier & Partners - FOCUS - Mongolia s human resources framework quality. Employees that are temporary elected at a permanent position within a trade union shall be reinstated in the same work position by the employer at the end of their duties for the trade union, without any salary decrease. national security, public health and legal interests. In order to avoid misuse of employee information by his/ her management, employers tense to regulate matters relating to employee s confidential information. VIII. MISCELLANEOUS IX. DISPUTE RESOLUTION 1. Harassment Sexual harassment, defined as unwelcome sexual advances, intimidation, threat or other forms of coercion leading to an unbearable hostile environment and harm to an employee s well-being, is prohibited as a gender discrimination. Employers must take various measures to prevent sexual harassment to happen at the workplace, such as providing for norms, procedures and sanctions to such actions and conducting training programs toward the prevention of sexual harassment. 2. Data Protection 2.1. Confidentiality of employer s information Outside of what may be specifically provided in the employment agreement and/or in the employer s internal regulations, an employee has an obligation to keep confidential matters that pertain to his/her work and duties, such as defined as secret by law. Such legal definition covers a broad range of information and elements that can be considered as confidential, but does not precise how to identify such information. As a consequence, defining what makes information confidential (e.g. stamping, mail subject, etc.) remains essential Confidentiality of employee s information The Law on Personal Secrecy protects certain information related to employees, notably correspondence, information related to the health of an individual, his property or his family. Such information, defined as secret, may hence not be used in public. Disclosure is only allowed for reasons of 1. Collective labour disputes 1.1. Disputes in the frame of collective agreements When negotiating a collective or framework agreement, representatives of the employees have the right to make requests and initiate a collective labour dispute. Such disputes may arise because of opposite interests of the parties and the impossibility to reach an agreement. In such case, the collective labour dispute may be resolved by intermediaries or labour arbitration. Specific procedures are provided for by the Labour Code, and impose the parties to use all the possibilities offered by the law to settle the collective labour dispute. In several cases, employees have the right to strike to support their interests in the frame of a collective labour dispute Right to strike A strike is defined by the Labour Code as an action of employees whereby they completely or partially cease work, on a voluntary basis and for a definite period of time with the purpose of resolving a collective labour dispute. A strike is considered lawful only if based on the following grounds: If an employer fails to participate in reconciliation measures (through intermediaries or arbitration), as provided in the law; If an employer fails to implement a decision agreed with the participation of an intermediary;