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| April 22, 2024

Predictable minimum wage growth? The government has approved regular indexing

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On 20 March 2024, an amendment to the Labour Code was approved to ensure regular indexing of the minimum wage. The new mechanism introduces clear and transparent rules, on the basis of which the minimum wage will be calculated and updated according to legislative parameters. For this purpose, the Ministry of Labour and Social Affairs will conduct an analysis of the appropriate level of the minimum wage and will propose a targeted ratio based on the results. The government will then determine the relevant coefficients for the following two years. The threshold that the minimum wage should gradually reach by 2029 is at least 47% of the average wage. The coefficients must take into account the purchasing power of minimum wages with respect to the cost of living, the rate of wage growth and the long-term rate of productivity and its evolution.

The minimum wage for the following year will be announced by 30 September at the latest. Its amount will be based on a prediction of the average wage and an analysis assessing adequacy based on mandatory criteria. The amendment is planned to take effect on 1 July 2024, so the minimum wage will probably first be set for 2025 based on the indexing mechanism. The government wants the amendment to eliminate annual negotiations and confusion. The legislative change is based on the government’s programme declaration and transposes the relevant directive of the European Parliament and the Council on adequate minimum wages in the EU.

In addition to the minimum wage, the amendment also affects the guaranteed wage. The so-called guaranteed salary will newly only exist for employees in public services and administration, while private sector employees will be protected from unreasonably low wages by the minimum wage and through collective bargaining, on wages among other things, which the amendment introduces a number of measures to extend.