Free movement of workers is one of the fundamental principles of the EU, and brings many benefits. It helps companies move employees to where their skills are needed, or to gain professional experience in another country. It also makes it much easier for businesses to hire the best person for the job, without having to take nationality into consideration, at least for EU citizens. The individuals also benefit because they acquire new skills and knowledge, which can help them develop their careers, and can also gain in personal terms from broadening their cultural horizons. Even the opportunity for foreign postings can make an employer more attractive to a prospective employee. Moreover, national economies gain too, as free movement of workers makes it much easier for gaps in the labour market to be filled, and can help reduce unemployment in periods of recession if citizens can seek employment in other countries.
Currently, mobility within the European Union is still quite low; well below the level in other highly integrated areas like the United States, and well below the level within individual countries. Language is an obvious barrier. But it is increasing, for a number of reasons, particularly economic disparities within the European Union.
From an employer’s perspective, a number of issues need to be taken into consideration when posting workers to other member states. These situations are covered under the EU’s Posting Directive (96/71 EC), which has recently been complemented by a new enforcement directive, adopted in 2014, and which must be transposed into member states’ legislation by 18 June 2016. The latest directive does not make new rules, but is designed to improve the application of existing ones, by strengthening the rights of posted workers, making the cross border provision of services easier and combatting social dumping. The European Union also intends to clamp down on undeclared work, and within member states, tax and labour authorities have become increasingly vigilant.
The Directive and the recent enforcement legislation require for a set of minimum ‘hard core’ elements to be guaranteed to posted workers:
- Maximum work periods and minimum rest periods.
- Minimum paid annual holidays.
- Minimum rates of pay, including overtime rates.
- The conditions of hiring out of workers, in particular the supply of workers by temporary employment undertakings.
- Health, safety and hygiene at work.
- Protective measures with regard to the terms and conditions of employment of pregnant women or women who have recently given birth, of children and of young people.
- Equality of treatment between men and women, and other provisions.
Minimum wage legislation: a complex issue
One of the most important considerations for an EU employer considering posting employees to another member state is the level of the minimum wage in the prospective host country.
Most EU member states have some form of minimum wage legislation, and workers posted from one member state to another must be paid at least the minimum wage in the country they are sent to.
This seems simple and obvious, but in practice it is a very complex area. A number of questions need to be asked by any employer planning to send workers on postings:
- Should the employee’s salary be raised if he/ she does not earn enough income in the home country to meet the level of the minimum wage in the posting country? Or could the shortfall be met by other forms of payment?
- Could the posted employee be granted an assignment allowance on top of the home-country base salary in order to reach the minimum wage requirement in the posting country?
- Would a bonus be sufficient?
- What about per-diems, cost of living allowances or foreign service premiums?
- Can transport and accommodation allowances be considered part of the minimum wage?
Of course, the above list can go on with many more similar questions. The posting employer will also have to deal with issues relating to its country’s domestic legislation, as well as internal policy (if any), such as:
- An increase in salary to meet the minimum wage in the host country could lead to employment law implications in the home country (e.g. what happens upon termination of the assignment and could the base salary be decreased to the home-country level after repatriation?).
- How can a different increase in salary for two assignees holding the same position be justified, when staff are posted to two different countries with different levels of minimum wage
(e.g. assignment to Romania and assignment to Germany)?
Different rules in each country
All EU member states, except Sweden, have some form of minimum wage legislation. There are however two main groups in terms of policy. Most EU member states have a national minimum wage for all workers. In others, different minimum wages are set by Collective Bargaining Agreements and can differ based on sector, industry, worker’s age and professional experience, etc. There are also state members which have minimum wages for highly skilled workers, which can be quite high – currently EUR 4,444 per month in France. Consequently, it can be important for an employer planning to send employees on postings to carefully look at how the employee’s activity is likely to be defined in the legislation of the host country, as well as the implications that might arise both at the level of the company and the individual.
Normally a minimum wage is set as a monthly or hourly rate, and is a gross figure, before income tax and employees’ social security deductions. However, this can vary from one state member to another.
In the state members where the minimum wages are set by the applicable Bargain Collective Agreements, the level of the minimum wage is governed by factors like worker’s age, professional experience, industry, etc.
Once the level of the minimum wage that needs to be reached is known, it is as important to monitor how often this level changes. In many state members, the rate changes annually.
In the Netherlands and France, usually the level of the minimum wage rises twice a year, while in others it changes irregularly. An employer needs to keep close track of legislation when planning assignments and to make sure that the correct minimum wage level is paid to those posted.
The importance of compliance
As we have seen, minimum wage legislation is complex and varies widely across the EU. At the same time, authorities have become increasingly vigilant about enforcing it, amid growing political pressure to protect wage levels within member states.
Employers need to fully understand the legislation when planning their posting strategy and once it is in place, since penalties for non-compliance can be severe, including in some cases a complete ban on doing business in the relevant country.
Moreover, the relatively high level of some minimum wages, particularly for skilled workers, means that even employers who pay generous salaries in their own country need to take note, because these may still be too low to meet the minimum wage requirement in a country of posting. Overall, the best policy for employers is to research this issue thoroughly and seek the right professional advice when planning their foreign postings strategy.
Minimum wage survey
In the attempt to ease the employers’ research on the levels of the minimum wage, KPMG Romania has prepared a survey on the minimum wage within the EU/EEA and Switzerland. Beside part of the information from the survey which is captured on the previous pages, the employers which have or intend to post employees within the EU/EEA or Switzerland can find in the KPMG survey a Country by Country Specific section, where not only the 2015 and 2016 level of the minimum wage is indicated, but also other various countries specifics are provided on this topic.
The KPMG Romania minimum wage survey can be found at https://home.kpmg.com/ro/en/home.html.
