On 2 November 2016, the Council of Ministers approved a proposal of Minister of Employment Kris Peeters to modify the Law of 26 July 1996 regarding employment promotion and competitiveness protection, in respect of the remuneration margin. The margin is currently calculated according to specific criteria, and the Minister wants to reform the system and introduce a more compulsory and effective maximum margin.
The proposal now needs to be adopted by Parliament before being implemented.
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 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 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 Federal Minister of Employment, Kris Peeters (CD&V party), intends to modify the Law as to the remuneration margin, which is currently calculated according to specific criteria, and he wants to reform the system and introduce a more compulsory and effective maximum margin.
To this end, the Minister submitted a proposal to the Council of Ministers, which has approved the proposal, which now needs to be adopted by Parliament and then implemented.
The proposal contains the following essential elements:
- The maximum available margin for increase can be calculated using the “available national and international forecasts” rather than the OECD figures, which are generally considered to be too optimistic. This new calculation base will allow the CEC to make the calculation in accordance with the principle of prudence to avoid overestimating the forecasts.
- 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.
- The salary indexation and the seniority-based wage scales continue to fall outside the scope of the remuneration standard.
- 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:
- the actual remaining wage margin will be calculated every two years by the CEC, as well as the macroeconomic productivity advantage;
- 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. However, it is not yet clear how this should be established.
- 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.
- A safety margin will be 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.
- 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.
In light of the above, it seems that the Minister has tried to reduce or prevent any new unjustified increase of remuneration costs. Unfortunately, many questions and uncertainties remain, making it very difficult for employers to verify whether or not they comply with the remuneration margin. Hopefully there will soon be some clarification when a draft law is submitted to Parliament.