Entrepreneurs: Labor Law boosts business costs in Venezuela

The comeback of the retroactive nature of severance payments has raised serious concern among businesspeople in Venezuela, following the entry into force of the Labor Organic Law (LOTTT).

"For much of the private companies, this could mean death," admonished Víctor Maldonado, the director of the Chamber of Commerce, Industry and Services of Caracas.

Based on the second temporary provision of the law, signed last Monday by President Hugo Chávez and published by the minister of Communication and Information, "the term of service to calculate the severance payment of active workers upon the entry into force hereof shall run since June 19, 1997."

In Maldonado's view, this is the "worst case scenario" for the private sector, especially for small and medium-sized enterprises (SMEs). "It is the worst case scenario of all. For SMEs, this could be fatal," he stressed.

Another factor that will disturb the dynamics of the private sector, according to Maldonado, is the reduction of working hours. The law reduces weekly working hours from 44 to 40 and grants two consecutive days off to workers. This will boost the payroll cost of companies and commercial establishments working Saturdays and Sundays, Maldonado explained. He added that labor costs are to climb up to 20 percent.

"This government wants to control inflation with a law that is overwhelmingly inflationary," Maldonado concluded.