By Francesca Piscioneri
ROME (Reuters) - Italy will approve a decree on Friday abolishing one of the most flexible and unregulated forms of payment for workers, a government source said, heading off a referendum on the issue and bowing to trade union demands.
Payment by vouchers was introduced in 2008 as an experiment for seasonal farm laborers but its use has expanded steadily and is now widely abused, according to labor experts.
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Italy's largest union, the CGIL, collected some three million signatures last year to force a referendum to abolish voucher payment, which is due to be held on May 28.
However, rather than risk a bruising ballot-box defeat, the government has decided to act pre-emptively by withdrawing the vouchers before the vote is held, the source told Reuters. He said the legislation will be approved by the cabinet on Friday.
Former Prime Minister Matteo Renzi resigned after a heavy referendum defeat in December, when Italians rejected his proposed constitutional reforms.
Under the voucher system, workers are not paid directly in money but with certificates which the employer buys online, or at a post office or tobacconist, for 10 euros ($11), 20 euros or 50 euros each.
Workers then cash their vouchers in and receive 7.5 euros for each 10 euros of face value, with 2.5 euros going to the state to cover insurance and pension contributions.
There is no contract, so workers have no rights in areas such as sick pay, holidays or leave, with obvious advantages and savings for employers.
The head of business lobby Confindustria defended the use of vouchers and criticized the government.
"They should at least allow the referendum to go ahead," Vincenzo Boccia told a conference in Rome. "Just dismantling the system without any debate doesn't seem the right path."
The use of vouchers rose by an average of 64 percent a year between 2011 and 2015, according to official data, and in 2015 some 1.7 million workers received some payment in vouchers, according to the UIL trade union.
That represents about 8 percent of all working Italians, and almost 80 percent of temporary workers.
Renzi's 2015 labor reform, known as the "Jobs Act," extended the use of vouchers, allowing workers to earn up to 7,000 euros per year in vouchers, compared to 5,000 previously.
Another referendum is also due to be held on May 28, extending the rights of people working on projects assigned by tender processes. This issue has received much less public attention and the source said the government has not decided whether to legislate to head off this vote as well.
(Writing by Gavin Jones; Editing by Crispian Balmer)