NEW legislation will protect semi state companies and their employees from having to pay full PRSI rates, even if they are partially privatised. The semi state firms currently pay a lower rate of PRSI than private sector companies.
The three Government parties are understood to have cleared the way for the new legislation.
The change will save semi state companies such as Telecom Eireann, the ESB and Aer Lingus hundreds of millions in extra payroll costs and avert a de facto cut of 5 per cent in take home pay for their workers.
The agreement was reached by a Cabinet sub committee set up to agree terms of reference for Telecom Eireann in its search for a strategic partner.
The sub committee is also understood to have agreed that the Government should opt for the British system of price regulation in the telephone market.
Under the British system telephone charges are pegged to the rate of inflation and then reduced by a further amount set by an independent regulator. At present, British phone charges are based on the rate of inflation, minus per cent.
On PRSI, the sub committee discovered shortly after it was established late last year that if semi state companies sold any, of their equity, even to employees, the firms would be liable to full PRSI. This would lead to a 10 per cent increase in payroll costs for, the companies and a 5 per cent increase in PRSI for employees.
The question of PRSI rates is central to the competitiveness of semi state companies. At present, they pay social insurance at the low public sector rate of 2.25 per cent, instead of 12 per cent per employee in the private sector. Their employees pay 2.25 per cent of their pay, instead of the 7.75 per cent levy in private firms.
The immediate beneficiaries of the change will be Telecom Eireann and its 12,000 staff.
Telecom Eireann has just begun its search for a strategic partner, to whom it will be selling 35 per cent of its equity. A further 5 per cent would go to the workforce, although the Communication Workers Union is looking for 10 per cent for employees of Telecom.
Since January 1995 new recruits to the public sector have to pay the full PRSI rate.