- On 22 January an agreement was reached to raise the minimum wage to €950 a month over fourteen payments.
- The rise follows the large increase of the previous year and applies to all contracts at once, with immediate effect on payrolls.
- The real cost goes beyond the payslip: contributions and wages close to the minimum also move, and it pays to simulate it job by job.
On 22 January 2020 an agreement was reached to raise the statutory minimum wage to €950 a month over fourteen payments. The rise came after the large increase of the previous year, so many companies, above all those in low-wage sectors, faced two adjustments in a row to their labour costs.
The minimum wage is one of the few measures that apply immediately and across the board: it does not depend on the sector, the size of the company or the collective agreement. That is why every announcement is followed closely, not only by companies with staff at that level, but also by those that pay slightly above it and by those who negotiate collective agreements. It is also a reference figure that shapes the pay expectations of the whole workforce.
What the minimum wage is
The statutory minimum wage is the lowest amount a company must pay for a full-time working day, whatever the sector. It is set each year by the government and acts as a legal floor: no contract, individual or collective, may set lower pay for a full-time day. It is expressed as a monthly figure, and the reference to fourteen payments shows how it is spread over the year.
When the minimum wage rises, it does so for all contracts at once, so its effect on a workforce is immediate and widespread. Unlike other cost decisions, the company cannot choose the timing or the pace: the rule applies from the date it sets, and contracts with pay below the new level must be adjusted. This means having the lowest payslips under control before the date of application, so as not to fall into non-compliance.
Beyond the payslip
The real cost of a rise is not limited to pay. The employer’s social security contributions also go up, because they are calculated on salary, and wages just above the minimum are often pushed up to preserve the gaps between job categories. If that were not done, an employee with more responsibility could end up earning almost the same as one at a lower level, with the resulting unrest inside the team.
Companies with staff on low wages, such as hospitality, retail or services, feel it most, because the minimum affects a larger part of their cost structure. And the effect does not stop at the company: collective agreements and pay supplements move with it, so the review has to be done with the text of the agreement in front of you. Some agreements have scales that fall below the new minimum and must be updated.
How to anticipate it
It is worth reviewing in good time the cost structure, the pricing policy and what the applicable collective agreements say, and checking which contracts allow part of the increase to be passed on to the customer. In long-term contracts with a fixed price, for example, a pay rise can erode the margin without the company being able to recover it, and it is better to know that before renewing.
A simulation by job gives a concrete figure to negotiate and decide with: salary, contributions and possible adjustments in nearby categories. With that calculation, the owner can judge whether rates need revising, shifts need reorganising or the cash forecast needs adjusting, and can speak to the employment adviser with data in hand. The resulting figure also helps to set the room for manoeuvre in coming negotiations with customers.
Doing it with figures rather than instinct 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.
