European Union: Minimum Wage Directive takes effect

Employer Action Code: Monitor

Directive 2022/2041 establishes requirements for European Union member states to update their minimum wage levels in line with prevailing market rates. First proposed in 2020, the directive seeks to reduce working poverty rates by introducing more robust minimum wage standards and to encourage more widespread collective bargaining. Following the directive’s recent approval by the Council of Ministers, member states should transpose it into national law by November 15, 2024.

Key details

The key provisions of Directive 2022/2041 include:

• Member states with minimum wage rates must set clear processes to establish and review those rates. When determining “adequacy” (defined by the directive as being “fair in relation to the wage distribution in the relevant Member State and if they provide a decent standard of living for workers based on a full-time employment relationship,” with a general target of 60% of the gross median national wage), processes should consider specific criteria, such as changes in the cost of living and changes in average national wages (although it is ultimately up the member states to determine what those criteria are). Data collection tools supporting such processes must also meet certain standards.
• Member states should consult with social partners to review and establish minimum wage rates. States with systems where rate increases are automatically triggered by specific criteria (e.g., cost-of-living increases) should have provisions that ensure rate reviews (but not necessarily increases) occur at least once every four years. Otherwise, reviews should take place every two years.
• While minimum wage requirements should apply to all employees, specific exclusions may apply for small employers.
• Where less than 80% of the workforce are covered by a collective bargaining agreement (CBA), states must formulate action plans to further encourage collective bargaining. States must consult with social partners to establish such plans, make them publicly available and provide them to the European Commission. Plans should be reviewed at least once every five years.

Employer implications

The directive doesn’t impose a uniform minimum wage level on member states or require the establishment of rates where they do not currently exist. The greatest practical impact is expected to be in those states where either existing rates are deemed “inadequate” under the directive’s standards or where collective bargaining coverage rates fall below the directive’s thresholds; however, due to the somewhat vague nature in which the directive determines “adequacy” while imposing few specific criteria or processes, it remains to be seen how member states will interpret certain provisions when transposing the requirements into national law. Among the 27 member states, six do not have statutory minimum wage rates while only eight have CBA coverage rates of 80% or higher (ILO data).

Note that the Danish government has opted to challenge the directive in the European Court of Justice (ECJ) as undermining the Danish social model for wage setting. The lawsuit has no immediate effect on the requirement for member states to transpose the directive unless the ECJ rules in favor of Denmark.

Contacts

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Marco Schmid

Director, Work & Rewards Switzerland

email Email phone +41 43 488 44 18

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Nadine Balmer

Director Work & Rewards, Switzerland

email Email phone +41 43 488 44 25

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