On 4 January 2017, a legislative proposal was presented to the Belgian Parliament to modify the Law of 26 July 1996 as to the remuneration margin, which is currently calculated according to specific criteria. This proposal wants to reform the system and would lead to a more compulsory and effective maximum margin, namely by introducing a new calculation method for the remuneration margin to prevent any new unjustified increase in remuneration costs.

In Belgium, a competitiveness gap is acknowledged with regard to neighbouring countries, i.e. Germany, the Netherlands and France. In order to reduce and close this gap, the Belgian government enacted the Law of 26 July 1996 (“Law”) regarding employment promotion and competitiveness protection.

According to the Law, the average annual salary of an employee in a company should not increase from one period of two years to the next period of two years by more than the percentage set by the Law (with some exceptions).

As a key reference, the wage trend in these neighbouring countries had to be defined in an annual technical report from the Central Economic Council (“CEC”) determining the maximum available margin and in a joint report from the CEC and the National Labour Council.

This maximum margin for the increase in salary costs (remuneration margin) is currently decided in a biannual agreement, the so-called ‘inter-professional agreement’ (IPA), by the Group of Ten, the national leaders of the most representative employers’ and workers’ organizations. This IPA has the same legal value as a gentlemen’s agreement.

The proposal presented to the Parliament on 4 January 2017 aims to modify the Law as to the remuneration margin, which is currently calculated according to specific criteria. The new bill wants to reform the system and would introduce a more compulsory and effective maximum margin, namely by introducing a new calculation method for the remuneration margin to prevent any new unjustified increase in remuneration costs.

This legislative proposal contains the following essential elements:

(1) The maximum available margin for increase can be calculated using the data and forecasts of the National Account Institute and available national and international sources, rather than the OECD figures, which were considered to be too optimistic.

(2) The concept of “labour cost” is defined as “the total remuneration, in cash or in kind, payable by an employer to an employee in return for work done by the latter during an accounting period, as set out in Annex A, Chapter 4, 4.02 of Regulation (EU) No 549/2013 of 21 May 2013 of the European Parliament and of the Council on the European system of national and regional accounts in the European Union”.

(3) The principle of the biannual setting of the remuneration margin by the social partners, or by the Council of Ministers if no agreement is reached between the social partners, still remains. The biannual margin will be enshrined in a generally binding collective agreement (CBA) or in a Royal Decree if no agreement is reached between the social partners, and will no longer be decided in the ‘gentlemen’s’ IPA.

(4) The salary indexation and the seniority-based wage scales continue to fall outside the scope of the remuneration standard. The term ‘salary indexation’ makes reference to the so-called “flattened” health index, an index standard which is already used for the calculation of the indexations of pensions and social benefits.

(5) A new element involves the implementation of ex post correction mechanisms to remediate any unjustified increase.

In this respect, the following measures will be taken:

  • In the biannual reports of the CEC, the actual remaining wage margin will be calculated, as well as the macroeconomic productivity advantage and a separate ‘corrected’ calculation of the remaining wage margin, taking into account wage subsidies and cost reduction systems.
  • All cost reductions resulting from the tax shift, with the sole exception of a part of the cost reductions from the Competitiveness Pact 2016, and at least 50% of new cost reductions will be exclusively deployed to reduce the historical backlog. Today, these cost reductions are taken into account when calculating the remuneration margin and thus create de facto an extra margin for wage increases.
  • If Belgian wages grow less rapidly than those of our neighbouring countries and consequently the handicap compared with the remuneration margin of 1996 turns negative, at least half of this surplus should be spent to further reduce the historical backlog.
  • In order to calculate the maximum available margin, the prospective indexation as well as a correction factor and a safety margin will be deducted from a theoretical margin resulting from the wage increases in the neighbouring countries (Germany, the Netherlands and France). This safety margin is provided to absorb potential mistakes in the forecasts (the index development and the wage development in the neighbouring countries). This safety margin will be one-quarter of the margin and at least 0.5%. If this safety margin remains unused, it will be placed on top of the next margin.

(6) The employers who exceed the maximum remuneration margin may have to pay a penalty administrative fine ranging between EUR 250 and EUR 5,000. The proposal includes scope for multiplication of these amounts per employee with a maximum of 100 employees. In light of the above, the legislative proposal of 4 January 2017 is focussing strongly on reducing or preventing any new unjustified increase in remuneration costs.

However, under the current legislation, employers face many questions and uncertainties when verifying whether or not they are complying with the remuneration margin. Unfortunately, the legislative proposal does not provide sufficient clarification. Hopefully, this will be subject to further parliamentary discussion, leading to further answers in the final legal text.