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Minimum Wages

Minimum wage is one of the main issues relating to employment law.

In Europe, the European Pillar of Social Rights includes a principle on wages. This principle states that workers have the right to «fair wages that provide for a decent standard of living» and, in particular, article 6 provides that «adequate minimum wages shall be ensured, in a way that provides for the satisfaction of the needs of the worker and his/her family in the light of national economic and social conditions, whilst safeguarding access to employment and incentives to seek work. In-work poverty shall be prevented».

Even the newly elected President of the European Commission, Ursula von der Leyen, has expressed her idea to introduce a legal instrument which will ensure that every worker in the European Union has a fair minimum wage that allows them a decent living in the country in which they work .

Principle 6 of the European Pillar of Social Rights, which aims to ensure «adequate minimum wages» and its reference to a «transparent and predictable way» of setting minimum wages has inspired many of the national debates taking place. The debates relating to the setting of a minimum wage often go beyond simply establishing a new figure, with different issues often touched upon. For example, many debates focus on the role of minimum wages in ensuring an adequate standard of living and addressing in-work poverty. In addition, the possibility of more substantial increases to minimum wage rates in the future must also be assessed. In fact, increases could in turn have a negative impact on employment or working hours, and cause a loss in competitiveness. Another main issue also regards what kind of approach should be applied in the future when it comes to setting minimum wages. This includes the possible introduction of statutory rates, as well as new ways of organising the process, introducing or changing formula-based approaches, or setting specific target levels.

Ius Laboris – the largest international Alliance of legal specialists in labour, employment and pension law, with over 1,400 lawyers in more than 50 countries – collected figures and information on minimum wages (i.e. how the involved countries set the minimum wage, the current rates, etc.) in more than 40 jurisdictions and summarised them in a chart which shows a complex and diversified picture.

In Europe, 22 out of 28 Member States of the European Union have a generally binding statutory minimum wage. The Member States which do not provide for one are Austria, Cyprus, Denmark, Finland, Italy and Sweden. These countries are characterised by a system of industrial relationships in which trade unions are present in the majority of companies and sectors. In fact, minimum wages are defined by collective bargaining agreements.

In Austria, for example, there are more than 850 different collective agreements that provide for different minimum wage levels.

While in Italy, there is a new bill that is pending approval by the Italian Parliament, which sets out rules to be applied when there is no collective bargaining agreement in place.

The bill provides for a double parameter of reference for identifying (not only the basic pay but) the entire economic remuneration guaranteed to every employed worker. The first parameter can be classified as contractual, while the second one, which is subordinate to the first, can be classified as a legal one.

The contractual parameter makes reference to the total economic remuneration provided for by the national collective agreement stipulated by the most representative trade unions at national level.

The legal parameter provides that, in any case, the hourly wage cannot be less than € 9 gross, regardless of the economic pay provided for by the National Collective Bargaining Agreement.

However, several criticisms have been raised with reference to this new bill. On the one hand, unions are worried that the introduction of such a bill could reduce the collective autonomy of social partners, the interest of employers in adhering to collective agreements and collectively agreed wages. Furthermore, the proposed minimum wage of € 9 is high, especially if it does not include additional and deferred economic pay for employees. This may cause an increase in undeclared work, as the hourly compensation for such work is currently lower.

The situation differs in Cyprus where, according to the Minimum Wage Law, the Council of Ministers may issue decrees to fix minimum wage rates for any occupation in which workers receive unreasonably low salaries (e.g. childcare and sales assistants).

Instead, an increase in minimum wage rates has been registered for those States Member providing for a statutory minimum wage. In fact, the largest nominal increases in the minimum wage rate were in Spain (22%), Greece (11%, as of February 2019) and Bulgaria (10%).

Furthermore, it should be noted that in January 2018, Germany established a legal minimum wage applicable to all types of companies.

Debates and social dialogue are also taking place regarding the introduction of new approaches to setting minimum wages and, in many countries, differences in terms of role, age, type of job, etc. are not considered.

In Bulgaria, for example, the Council of Ministers sets the minimum monthly wage by also taking into consideration elements such as economic development and inflation, but no gradation is made for different positions of employee categories. In Croatia, Estonia and Poland no difference is made according to the type of activity carried out by employees, their age or even other factors.

In France, the law identifies the "SMIC" a minimum wage per hour, regardless of seniority and role of the worker.

Conversely, in the United Kingdom there are four categories of workers, differentiated by age, to which different minimum wages are applied. In Ireland, whether or not to apply the statutory minimum wage in full depends on the age of the employee.

This year in Greece, a new mechanism for setting the minimum wage was introduced. The process of setting the level of the minimum wage begins with a step-by-step consultation process. This process lasts approximately four months and involves social partners and their institutions, specialised public agencies, scientific institutions and related bodies. The consultation is run by a coordination committee, which is specifically set up for this purpose and consists of the President of the Organisation for Mediation and Arbitration (OMED), one representative from the Ministry of Labour and one from the Ministry of Finance.

The periodical update of minimum wages is characterised by different approaches too.

In Bulgaria, Croatia, Poland, and Slovakia the government has unilaterally set the minimum level for 2019.

Other countries, such as Luxembourg, Belgium and Estonia provide for a predetermined formula to amend the minimum wage every year.

While in France, the United Kingdom, Ireland and Germany, expert committees are involved in the process of setting new rates of minimum wages.

In Serbia, the minimum hourly wage is revised every year and cannot be lower than the previous year's minimum wage.

Even outside Europe, the identification of a minimum wage is often entrusted to the law.

In Argentina, national minimum wage rates exist and are defined by the so-called Committee for Minimum Wage, composed of representatives from the government, employers and employees.

In Brazil, there is a federal minimum wage, which applies if there are no specific rules at either individual state level or provided for by a collective bargaining agreement.

In the United States of America, most states identify a legal minimum wage, but even at government level a federal minimum wage is identified.

In Canada the minimum wage varies between provinces and territories and is subject to periodic increases.

In Japan minimum wages are set by the Minimum Wage Law in each prefecture.

Within the context of a comparison at international level, both nominal and real figures of minimum wages should be taken into account since different economic conditions, resulting in different levels of purchasing power for consumers, may need to be considered as fundamental information in order to assess whether the minimum wage established in each country is adequate enough to ensure the satisfaction of the needs of employees and their families.

Introducing or increasing minimum wage rates may also be considered as an instrument for reducing gender pay gaps. However, evidence of this happening in practice is more ambiguous, as minimum wages tend to affect only the lower half of the wage distribution and some workers more than others.

In any case, statistics studies (Eurofound study, based on EU-SILC 2017) show that women are overrepresented among the minimum wage earners in nearly all the European Union Member States.

The minimum wage issue usually refers to subordinate employees, however, in Italy, it has become a relevant parameter also in relation to self-employed workers whose work is organised by a principal, as in the case of riders. In particular, whilst not qualifying them as subordinate employees, recent Italian case law on riders has nonetheless granted riders salary differences using the minimum wages provided for by national collective bargaining agreements as a parameter.

Finally, debates and social dialogue continue to be raised, thus rendering this issue an ever growing hot topic especially since, as mentioned above, it affects and is affected by multiple aspects of employment law.