- On 1 January 2017 the minimum wage rose to €707.60 a month in fourteen instalments, 8% above the previous level.
- It is the biggest rise in decades and forces a review of payrolls close to the minimum and of the grades just above it.
- It pays to anticipate the labour cost in prices, budgets and household employment contracts to avoid surprises during the year.
On 1 January 2017 the increase in Spain’s national minimum wage came into force, taking it to €707.60 a month, paid in fourteen instalments. It is 8% above the previous figure and the biggest rise in decades. The measure applies generally and simultaneously to every sector, so its effects are felt from the first day in the payrolls of companies of every size and in the homes of those who employ domestic help.
Behind such a precise figure lie very different decisions. For the worker on the minimum it means a somewhat higher monthly income; for the employer, a higher cost that must be absorbed or passed on. That is why the rise is not only a labour matter: it affects the financial planning of businesses and families, the setting of prices and the way salaries close to the new floor are negotiated.
What the minimum wage sets
The national minimum wage is the lowest pay a full-time employee may receive, whatever the sector. It is approved by the government and works as a legal floor: no contract may fall below it, although it may sit above. When it is updated, it applies to everyone at once, so the effect on a workforce is immediate and requires checking that no payslip falls below the new amount.
A rise of 8% also has a knock-on effect. Companies that paid amounts close to the minimum must raise those salaries and, often, those just above them too, so that the gaps between job grades do not narrow until they disappear. That readjustment has a cost that reaches beyond the lowest pay, because it extends across much of the organisation’s pay scale.
Businesses and households
Labour-intensive businesses, such as retail, hospitality or cleaning and care services, feel it the most, because pay is their heaviest item of expenditure. Besides the salary itself, the social security contribution paid by the employer rises, so the total cost grows slightly more than the payslip. A rise like this can change the profitability of a service or of a contract signed at prices fixed before the new minimum was known.
It also concerns families who employ domestic or care staff, because what they pay and contribute depends on these reference figures. Anyone with a person employed at home should check that the contract, the pay and the contributions match the amounts now in force. It is a simple step that avoids later corrections and misunderstandings with the person working in the household.
What to review
In a company, the first step is to review the whole payroll, not only the lowest grades: which salaries fall below the minimum, which are approaching it and what adjustments are needed to keep the differences between positions. Then the cost has to be carried into the year’s budget, checking whether service prices, especially those contracted for the long term, still leave enough margin.
It is also useful to talk to suppliers and customers about price-adjustment clauses, and to consult the labour adviser on how the rise applies under each sector’s collective agreement. At home, calmly going over the contract is enough. Knowing the new cost in good time makes it possible to decide with room to manoeuvre, rather than adjusting in a hurry once the accounts have already begun to suffer.
Building the labour cost into prices and budgets in advance avoids surprises halfway through the year.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
