The Lebanese Private Sector Network (LPSN) is a coalition of business leaders, professionals, and organizations committed to safeguard Lebanon’s formal economy and promote sustainable growth. It operates through two main pillars: first, advocacy, which issues policy positions and engages in reform debates. Second a policy-to-action, represented by Lebanon Works, it aims to turn policy ideas into tangible initiatives that promote employment and growth.

In recent years, LPSN in collaboration with other private sector actors, has been actively advocating for reforms and practical solutions to the End-of-Service Indemnities (EOSI), managed by the National Social Security Fund (NSSF).

Following the 2019 economic collapse and the sharp currency devaluation of the Lebanese pound, in February 2024, the NSSF issued memo 740 updating the exchange rate used to calculate EOSI benefits accumulated over a 20-year period. The new calculation now applies an exchange rate of 89,500 LBP. However, throughout most of that period, employers made their contributions based on the official exchange rates at the time, which were first 1,500 LBP and later 15,000 LBP per one USD. This shift has created a significant challenge to Lebanon’s private sector due to the gap between the value of contributions made and the compensation now to employees. Executive spoke with representatives of LPSN to discuss the pressures the formal private sector is currently facing, the risks on businesses, employees, and the whole economy, and the unresolved question of how to finance the gap.

The interview was conducted with the following representatives of the Lebanese Private Sector Network (LPSN):

• Rima Freiji – LPSN President | Tanmia – Chairwoman
• Riccardo Hosri – LPSN Treasurer & Economic Security unit lead | SACOTEL – CEO
• Nay El Hachem – LPSN Board member | El Hachem Law Firm – Managing Partner
• George Abboud – LPSN Co-lead Economic Security unit | Earth Technologies – CEO & Co-owner
• Naeim EL Zein – Mira-Clé Training – Founder & Managing Partner

The responses to each of the questions reflect the views and insights shared by the network’s representatives during the interview.

What is the end-of-service indemnity in Lebanon, and what is happening with it today?

The EOSI is a lump sum that employees are entitled to at the end of their service. It is calculated by multiplying an employee’s last monthly salary by the total number of years worked. Employers contribute 8.5 percent of salaries to the NSSF’s EOSI branch, on a monthly basis. When an employee claims their end of service compensation, the last employer is responsible for covering any missing amount between total contribution made and the amount the employee is entitled to.

For decades, contributions were declared in Lebanese lira at the fixed official rate of 1,500 LBP per USD. Today, under NSSF memo 740, settlements are calculated at 89,500 LBP per USD. This change means earlier contributions cover only a fraction of the current required settlement, as there is no acknowledgment of earlier payments made at the old rate. This leaves employers responsible to cover the complete huge missing amount at the new rate.

The fund continued applying the law literally and issuing new memos, disregarding previous paid obligations at the exchange rate at that time and the extraordinary conditions created by the collapse in the country.

For firms with long-serving employees, EOSI settlements may now reach hundreds of thousands of dollars, a severe burden that might threaten companies’ survival. As a private sector, we have already met our obligations in the past, yet are effectively forced to pay again the missing amount which is at inflated exchange rates and ignore the reality of the downturn situation.

Why do you describe this as unfair to the formal private sector? What are the risks if this continues?

The formal private sector is now paying the price for compliance. Companies that consistently declared salaries, paid taxes, and contributed 8.5 percent to the NSSF are now accountable for the full weight of EOSI shortfalls. While in parallel, informal businesses, estimated to represent around 60 percent of Lebanon’s economy, avoid such burdens entirely and remain untouched. This creates unfair competition. Formal companies bear the full cost of compliance, whereas informal businesses carry none of these burdens and dismiss employees without any consequence.

Additionally, by 2024, formal private sectors had systematically worked to restore salaries to their original pre-2019 USD value, despite the economic crisis and currency devaluation. This effort is to retain and shield employees from the unfolding crisis.

The issue is not only seen financially but structurally as well. The NSSF has not conducted regular audits of its accounts, transparency is absent, and the Court of Audit has failed to publish reports. This leaves the fund in a fragile position, with little trust and accountability to contributors or beneficiaries. We have already made our previous contribution at the exchange rate at that time, and it was the state’s role to safeguard those funds. Our conscience is clear. We pay what the law requires, adjusted salaries, and support our staff, yet are treated as though those payments never happened.

In its current form, in case of default to fulfill its financial and legal commitments, which includes covering EOSI shortfall amount, the NSSF can block companies from importing, exporting, or completing corporate procedures through the “disclaimer clearance” (براءة الذمة). Such action paralyzes businesses, even those that have paid their contribution for decades. The company’s activity, operation, and survival are linked to a systemic problem beyond our control.

There will be a lot of risks if continuing down this path. Such overwhelming obligations of this scale threaten the survival of even well-established businesses. This is not a problem limited to one employer or one employee, it is a systemic issue across the entire formal private sector, due to currency devaluation. Companies with staff who have long service records face settlements that can wipe out years of revenue, while smaller firms are at equal risk of collapse under liabilities they could not anticipate or control. The issue of end of service compensation does not apply to a single company, but to the country’s productive formal economy as a whole. If this continues, the result is a wave of bankruptcies and shutdowns in the formal sector, leading to widespread job losses, accelerating informality, and weakening of the social protection system that EOSI is meant to safeguard.

Faced with these risks, who should shoulder responsibility for closing the EOSI gap? Should it fall entirely on compliant employers, or should the cost be shared more fairly across government, businesses, and employees?

The solution cannot be through pushing the entire cost of the shortfall onto employers. The legal private sector has already complied with the law and paid their contribution, but the state failed to safeguard these amounts. Now, those who follow the law and have adjusted their employees’ salaries are penalized, while letting non-compliant sectors escape. Ironically, during the past five years of crisis, the only real safety net employees witnessed came from the formal private sector itself. Businesses continued to support staff and sustain operations at a time when neither the state nor the NSSF provided meaningful protection.

It is the NSSF and the government responsibility to find a solution. We are willing to contribute, but only in a realistic and predictable way that considers previous contributions and does not threaten our survival. A balanced framework, under state oversight and within a response that recognizes the crisis as national rather than individual, could distribute responsibility more equitably and give both employers and employees a degree of security.

How does the new pension law change things? Is the private sector ready to embrace this pension system?

The new pension law, Law 319, passed in late 2023, seeks to replace the lump-sum EOSI with a pension system. Pensions will be paid monthly, rather than in a single lump sum. However, the exact employer contribution rates and the necessary implementation decrees are still very unclear.

On paper, this model addresses several flaws of the EOSI system. Yet for it to become a real solution, it must be implemented effectively, cover both employers and employees in the formal economy, and be paired with genuine reforms to address unresolved EOSI gaps. Without these conditions, the shift risks being another policy without delivering the stability and fairness needed for long-term viability.

Concerns remain. Higher contributions mean higher labor costs, and unless the system is applied nationwide, including to informal businesses, compliant firms will be at a greater disadvantage. Without stronger regulation, monitoring, and enforcement, the gap between the formal and informal sectors will widen further, and businesses will be at risk. They are already at risk. Moreover, pension system implementation decrees have not yet been issued, and the NSSF itself remains financially unstable and administratively weak.

It is unrealistic to move forward with pension reform while the unresolved EOSI gap remains. Switching to the new system without first settling the pre-crisis gap is not reasonable. If firms are forced to absorb the missing amount and then higher future contributions, they will simply collapse, leaving no private sector to fund the new pension scheme. In that case, the very system designed to provide secure retirement benefits would fail before it even begins.

What is your advice to employers, employees and the state?

The formal private sector is the backbone of the economy. Formal firms pay taxes, customs, and NSSF contributions, and provide additional benefits such as medical insurance, if they collapse under impossible obligations, employees will lose their jobs and protections, while also, the state loses a critical source of revenue. Therefore, moving into informality may offer relief to employers and over time this will weaken worker protections and destabilize the economy.

Employers in the formal private sector are committed to formality, and cannot not declare salaries and pay NSSF contributions, and continue to ensure that employees keep their rights. The EOSI missing amounts are systemic and not the fault of individual companies. Hence, NSSF should stop using the disclaimer clearance as a tool to pressure companies. Currently, companies can be blocked from importing, exporting, or carrying out corporate procedures if they cannot cover EOSI gaps from the sharp currency devaluation. You cannot stop a company’s trade activity because of a systematic problem. This practice risks shutting down long-established businesses and will be a back turn to employees as well as employers.

There should be a clear cut-off point between pre and post crisis years, recognizing contributions made before the collapse. It is unreasonable to say everything paid before is now nothing. There must be a legal settlement. Only a government-led framework can restore fairness and protect employers, employees, and the economy.

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