- On 21 December the Council of Ministers approved setting the minimum wage at €900 a month, in fourteen payments, for 2019.
- The increase was equivalent to 22% over the previous level.
- With the measure approved, it is time to calculate the effect on payroll cost, review prices and margins and plan cash flow.
On 21 December 2018, the Council of Ministers approved raising the national minimum wage to €900 a month in fourteen payments for 2019, an increase of 22% over the previous level. The measure, which had been anticipated weeks earlier within the budget agreement, thus moved from a political commitment to a formal decision with concrete effects for the following year. For many small companies and for families with domestic staff, it is one of the most relevant items in each year’s economic calendar.
With the decision taken, uncertainty is reduced. Workers on the minimum wage know what income to count on, and business owners, families and advisers have a figure to work with. It is time to move from hypotheses to calculations, to check how the measure fits each company and each household with domestic staff, and to plan the practical consequences for 2019 ahead of time. Leaving this analysis until January, when the new amounts already apply, reduces room for manoeuvre.
What was approved
The Council of Ministers approved setting the national minimum wage at €900 a month, in fourteen payments, for 2019. The increase was equivalent to 22% over the previous level.
Speaking of fourteen payments means that the annual amount results from multiplying the monthly figure by fourteen, including the two extra payments, which can be spread across the twelve monthly payslips if so agreed. It is an important detail when comparing with other figures, because an amount expressed in twelve payments is not the same as one expressed in fourteen. It is wise always to check the basis of calculation to avoid confusion. If there are doubts about how to apply it to a specific payslip, the employment adviser or administrative agent can confirm it.
Effects on the company
The minimum wage conditions the wage bill in labour-intensive sectors. Besides pay, social security contributions rise, and the total cost to the employer grows by more than the figure visible on the payslip. Collective agreements that use this figure as a floor will also have to adjust.
For a small or medium-sized firm with several employees in that bracket, the increase can be a significant item. Businesses with narrow margins may find it hard to absorb without adjusting prices, and decisions on hiring, working hours and work organisation are affected. That is why it is worth judging realistically how much the company can bear, how much it can pass on and what changes in productivity could offset the increase. That conversation is easier with the data in front of you than with hunches.
Doing the sums in time
With the measure approved, uncertainty is reduced and it is time to calculate the effect on payroll cost, review prices and margins and plan cash flow. For families with domestic employees, it is appropriate to check the new amount and the corresponding contributions with their employment adviser.
A practical method is to draw up a table with each affected post, its current cost, the new cost, the monthly difference and the annual effect. With that summary, different responses can be compared: adjusting rates, reorganising tasks, reviewing working hours or investing in tools that improve productivity. If there are service contracts with customers that fix prices, it is time to review them and to talk to customers before the cost builds up with no pass-through. It also helps to explain to customers, transparently, why rates are being adjusted.
A pay change known in advance is a change that can be budgeted for.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
