Social Protection

Cyprus Social Insurance Scheme - On 6 October 1980 an earnings-related Social Insurance Scheme was introduced in Cyprus, incorporating the previous flat-rate scheme in a modified structure providing in addition supplementary earnings - related benefits. Thus the Scheme is divided into two parts: the basic part, corresponding to the repealed flat rate scheme and the earnings - related part. The main characteristic of this legislation is the provision for the adjustment of the insurable earnings and the benefits provided under the Social Insurance Scheme according to the increase of earnings and the cost of living index. The Scheme covers compulsorily every person gainfully occupied in Cyprus either as an employed or as a self-employed person. Persons working abroad in the service of Cypriot employers and persons who interrupt their compulsory insurance are allowed, under certain conditions, to be insured voluntarily.

The insured persons are classified in three categories: employed persons, self-employed persons and voluntary contributors.

In the case of employed persons, the contribution is 16,6% of their 'insurauble earnings.' From the 16,6%, 6,3% is paid by the employee himself, 6,3% by the employer and 4% by the state. 'Insurable earnings' are earnings on which contributions and benefits are calculated and include any remuneration derived from employment, excluding ex-gratia payments and occasional bonus, but including the contributions payable in respect of that person to the Central Holiday Fund. The legislation defines a maximum amount of insurable earnings for the purpose of contributions, which is revised every year. For 2003 the maximum amount of insurable earnings is CYP 425 per week or CYP 1.842 per month. In the case where earnings are higher than the maximum amount of insurable earnings, no contribution is paid on that higher amount.

For the self-employed persons, the contributions are calculated on their “notional“ income, which is determined according to occupation and place of employment. The self-employed person is obliged to pay contribution on the notional income of his occupational category. However, he has the right to pay contributions on his real income, if he proves that this is lower than the notional income. Moreover, the self-employed person has the right to pay contributions on income higher than the notional up to the maximum amount of insurable earnings. The contribution is payable by the self-employed person and the State at the rate of 11,6% and 4% respectively. In the case of voluntary contributors, the contribution is 13,5% on their insurable income, 10% paid by the voluntary contributor and 3,5% by the State.

Voluntary contributors working abroad in the service of Cypriot employers pay contributions of 12,6% on either the basic insurable earnings or their normal earnings, as agreed in the respective contract of employment, up to the maximum insurable earnings. An additional contribution of 4% is paid by the State. The Scheme provides cash benefits for marriage, maternity, sickness, unemployment, widowhood, invalidity, orphan hood, old age, death and employment injury. The Scheme also provides free medical treatment for persons receiving invalidity pension and for employed persons who sustain injuries as a result of an employment accident or an occupational disease. Employed persons are entitled to all the above benefits, but self-employed persons are not entitled to unemployment benefit and benefits for employment accidents and occupational diseases.

Voluntary contributors are entitled only to marriage, maternity and funeral grants and to old age and survivor's benefit. Voluntary insured persons working abroad for Cypriot employers are entitled to all benefits except benefits for employment injuries. All the benefits with the exception of the marriage, maternity and funeral grants are comprised of two parts: the basic and the supplementary part. The basic part, which includes increases for dependants, is assessed on the basic amount of insurable earnings, which for 2003 is CYP 70, 83 per week. The supplementary part is assessed on earnings above the basic insurable earnings up to a maximum amount of insurable earnings. The payment of benefits, provided under the Scheme, with the exception of benefits for employment accidents and orphan hood, depends on certain contribution conditions. In addition to the above mentioned benefits the Scheme provides free medical treatment to insured persons who suffer an injury due to employment accident and occupational disease as well as to people receiving invalidity pension.

Annual Holidays With Pay - The Annual Holidays with Pay Scheme provides for the administration of holidays with pay for employed persons who have worked for a period of at least 13 weeks during the previous year. For this purpose the employers pay contributions to the Central Holiday Fund.

The Scheme covers all employed persons. However, those employers who provide leave to their employees under more favorable terms than those provided by the Annual Holidays with Pay Law, may apply for exception from the obligation to pay contributions to the Central Holiday Fund. For the administration of the holidays with pay for at least 20 days (for persons employed for five days a week) under the Scheme, the employers are liable to contribute to the Fund pay 8% on the earnings of each employee up to the maximum amount of insurable earnings, which for 2003 is CYP 425 per week or CYP 1.842 per month for four working weeks leave.

The Central Holiday Fund, in addition to the payment of annual leave, subsidizes the holidays of employed persons at mountain and seaside hotels. Entitled to the scheme for the subsidization of holidays at mountain hotels are all employees who are not residing in mountain areas whereas entitled to the scheme for the subsidization of holidays at seaside hotels are all employees who are not residing in seaside areas.

The dependants of the above mentioned persons are also entitled to subsidization. The term “dependant“ includes the children, as determined under the Social Insurance legislation, and the wife or the husband.

Termination of Employment - The Termination of Employment Scheme covers all employed persons. The main objectives of the Scheme are:

  1. to protect employees against arbitrary dismissals by the employer by compelling the latter to pay compensation and to cushion the effects of redundancy resulting from technological and social changes by the provision of redundancy payment out of the Redundancy fund,
  2. to provide minimum period of notice in cases of dismissals and redundancy and
  3. to establish a National Redundancy Fund into which employers pay contributions on their payroll in order to spread the risks of redundancy on the insurable principle, over all the employers in the island.

The Redundancy Fund is wholly financed by contributions from employers. The rate of contribution is 1,2% on employees' insurable earnings up to a maximum amount, which for 2003 is CYP 425 per week or CYP 1.842 per month.

Cyprus Provident Funds - The Provident Funds Law provides for approval and registration of every provident fund before it is put into operation and ensures the good management of such funds. The management of each Provident Fund is undertaken by a Management Committee, which represents the Fund legally. The employer is obligated to pay contributions to the Provident Fund relative to the periods which he withheld contributions from his employees. The investment of the monies of each provident Fund is the responsibility of its management committee, subject to investment policy principles and directions issued from time to time by the Minister of Finance. In the event of any differences between the Provident Funds and their members, the parties can apply to the Industrial Dispute Court. The benefits form the provident funds are lump sum payments payable on termination of employment, permanent invalidity, retirement or death.

Social Pension - The legislation for the payment of social pension provides for the payment of pension from the General Revenue of the Republic to persons who have completed the age of 65 and do not have the right to pension or other similar payment from any other source provided that they satisfy certain residence conditions. In the case the claimant is entitled to a pension from other source the rate of which is lower than the rate of social pension, then the entitlement to social pension is equal to the difference between the two pensions. The monthly amount of the social pension, which is equal to 81% of the full basic pension payable under the Social Insurance Scheme, is CYP 142,84 for 2004. Social pension is reviewed annually in the same way as the rate of the basic pension payable under the Social Insurance legislation. In December each year a 13th pension is paid which is equal to 1/12 of the total amount of the pension, which was paid during the year. Social Pension is financed by the General Revenue of the Republic.

Compensation of Victims of Violent Crimes - The purpose of this Scheme is to provide compensation for victims of crimes of violence and for dependants of persons who have died as a result of such crimes. The compensation includes medical treatment in Government Hospitals and Institutions up to CYP 1.000, sickness benefit, invalidity pension, widow's pension, orphan's benefit and funeral grant. The amount of sickness benefit, invalidity pension, and widow's pension, orphan's benefit and funeral grant is equal to the amount of the equivalent basic benefits payable under the Social Insurance legislation. The cost of the compensation is paid out of the General Revenue of the Republic.

Protection of the Rights of Employees in Case of Insolvency of the Employer - The Protection of Employees Rights in the case of Insolvency of the Employer Scheme provides for the establishment of a Fund to cover the cost in the event of insolvency of the employer. The employee is entitled to payment out of the Fund of outstanding claims relating to pay for the last 13 weeks of employment and a payment of the proportion of the outstanding claims relating to paid leave of these 13 weeks. In addition the employee is entitled to payment of the proportion of the 13th or the 14th salary or the 53rd to 56th weeks wages. The Fund is financed each month with a transfer of 16,6% of the contributions paid by employers to the Redundancy Fund.

Source: Press And Information Office, Republic Of Cyprus, 2005