How will the EU Directive on adequate minimum wages affect global employers in 2024?

Author: Rocio Carracedo Lopez

Global employers operating in the EU will have seen the flurry of member states increasing their minimum wages at the beginning of the year. Is 2024 the year for fairer minimum wages in the EU? How should global organisations prepare?

According to Eurostat (statistics office of the European Union), in January 2024, Bulgaria had the lowest minimum wage rate, at €477 per month, and Luxembourg had the highest, at €2,571 per month. The map below sets out the current minimum wage for EU countries, divided into four different wage brackets (hover over the country to see the specific rate).

How are EU minimum wages regulated?

All EU countries have minimum wage protections.

In most countries, there is a statutory national minimum wage. This rate may apply to all employees regardless of age or experience, but in some cases, there can be sub-minimum rates or exclusions from the minimum rate that apply to specific groups of workers. In numerous EU countries with a statutory minimum wage, there may also be higher collectively agreed minimum wages for certain sectors or industries.

In a small number of countries, minimum wages are not regulated by statute but left to collective bargaining. In some cases, the collective bargaining agreement may be "generally applicable", which means that it is binding on all employers that fall within its scope, irrespective of whether or not they are members of a signatory employers' association. Typically, the number of employees covered by collective agreements is very high in these countries (eg around 98% of employees in Austria), but there are gaps in coverage.

Despite these protections, there are still significant concerns about whether earning the minimum wage is enough to ensure a worker can afford a decent standard of living. In the last few years, the increases to minimum wages have failed to keep up with extraordinary economic pressures. However, in 2024, Eurofound (the European foundation for the improvement of living and working conditions) expects substantial nominal increases to overtake inflation in many EU countries that have a statutory national minimum wage.

How are minimum wages changing in 2024?

Among other things, Eurofound cites as a cause for this optimism the Directive on adequate minimum wages in the European Union (EU 2022/2041), which all member states have to transpose into national legislation by 15 November 2024.

The Directive sets out procedural obligations to ensure the adequacy of statutory minimum wages. For minimum wages to be considered adequate, they must be fair in relation to the wage distribution in the country and provide a decent standard of living. This means countries should consider several factors including purchasing power, long-term national productivity levels and wage growth.

EU member states with a statutory minimum wage are required to establish procedures to set and regularly update minimum wage rates. It is up to each country to decide which indicators and reference values to use to assess adequacy (eg they may decide to base rates on 60% of the gross median wage and 50% of the gross average wage, which are commonly used internationally). There must be regular updates to the statutory minimum wages (at least every two years). Where a country uses an automatic indexation mechanism, this must be reviewed at least every four years.

Countries with a collective bargaining coverage rate that is lower than 80% (only six EU countries have a coverage rate of 80% and above) should develop specific action plans to increase the number of people covered by collective bargaining. This action plan should be reviewed regularly (at least once every five years) and it should be made public.

What are the implications of the new Directive for global employers?

The most important aspect of the Directive is that employers should anticipate a rise in labour costs and an increased focus on collective agreements.

In Ireland, for example, a statutory "living wage" will replace the current national minimum wage from 2026 and it will be set each year at 60% of the national median wage. Examining the Directive, the Minister of State at the Department of Enterprise, Trade and Employment said that "Initial analysis of the Directive suggests that our current minimum wage setting framework, namely the Low Pay Commission, is largely already in compliance with the provisions of the Directive". However, Ireland will still need to present an action plan to the European Commission by November 2024. 

In January 2023, Denmark challenged the Directive at the European Court of Justice, seeking to have it annulled. Even with the case pending, EU member states must implement the Directive.

Global employers operating in the EU should monitor legislation in each individual member state where they have operations and review their processes in line with any developments there.