Collective bargaining and social partnership to be strengthened

Negotiators from the French Council Presidency and the European Parliament reached a provisional political agreement on the European Minimum Wage Directive on 7 June 2022, which was presented to the social ministers of the EU Member States at their meeting in Luxembourg on June 16. Almost all Member States welcomed the agreement. The Proposal for a Directive was submitted by the European Commission on 28 October 2020.

The directive establishes procedures for agreeing on appropriate statutory minimum wages, reinforces the importance of social partners and collective bargaining, and lays down measures to ensure that the minimum wage is actually paid.

Adequate minimum wages in the EU

Fair pay that enables a decent standard of living is one of the principles of the European Pillar of Social Rights. To make this a reality, negotiators have agreed on a common framework on how statutory minimum wages will be set, updated and enforced.

The aim is explicitly not to establish a common European minimum wage or to specify its level. This is also not within the competence of European politics. Even the six Member States without a national minimum wage are not obliged to introduce a minimum wage. These are Cyprus, Denmark, Italy, Austria, Sweden and Finland. However, if a national minimum wage exists, the policy establishes a framework for how it will be determined and updated.

According to the Minimum Wage Directive, statutory minimum wages must be updated every two years, or at the latest every four years in countries with an automatic indexation mechanism. The national social partners must be involved in the procedures for setting and updating statutory minimum wages. Also, the criteria used to determine the minimum wage must include purchasing power, productivity, and the level, distribution, and growth rate of wages.

Promotion of collective bargaining

The new directive is intended to strengthen social partnership and collective bargaining. In this regard, the agreement stipulates that Member States, where tariff commitment is below a threshold of 80 per cent – meaning that less than 80 per cent of employees are under a collective agreement – should draw up an action plan to promote collective bargaining. This should lay down a clear timetable and list concrete measures for gradually increasing tariff commitment. So far, only Austria, France, Belgium, Italy, Finland, Denmark and Sweden have reached the 80 per cent threshold. At around 50 per cent, Germany is still in the middle range.

Enforcement of the minimum wage

The European Council and the European Parliament have also agreed on a number of measures to ensure that dependent employees also receive the minimum wage. These measures include checks by labour inspectorates, easily accessible information on the minimum wage, and measures to enable national enforcement authorities to take action against employers who do not comply with minimum wage regulations.

Effects on social security

It is also important from a social security perspective that the minimum wage is actually paid. Over the past decade, wages have drifted apart in many EU Member States. This has also led to an expansion of the low-wage sector. An appropriate minimum wage can at least counteract, perhaps even compensate for the resulting deterioration in the social security contribution base.

Next steps

In July, the European Parliament will vote on the adapted draft directive so that the Directive can be adopted after the summer break. The Member States then have two years to transpose the Directive into national law.