Netherlands set to witness salary hike– boon for full-time workers or bane for small businesses?

Recent discussions over a bill presented by PvdA and GroenLinks which proposes the introduction of a minimum hourly wage have already become the talk of the town. In the Netherlands, currently, minimum wage is calculated on monthly basis and is the same for everyone irrespective of the hours worked.

The petitioners strongly believe that it is important to give even-handed treatment to all employees. They also proposed a 36-hour working week (base hours) as a starting point. This simply means that anyone who works more hours than the base hours is entitled to receive a salary increase. Furthermore, the petitioners are demanding that workers should be paid for the number of hours they work. The hourly rate is still debatable, but it will be the same for all employees. All these provisions will bring a sense of fairness to society. The Senate has apparently put a seal of approval on legislation that revises the current minimum wage system.

Until last year, someone aged 21 or over is entitled to a minimum wage of € 1725 gross per month for a full-time job. Per 1 January, the minimum wage rose to € 1934 gross per month, as a reflection of the recent increase in prices. This amount is considered to be the minimum that an employer is bound to pay full-time workers. With the new proposed amendments, it is expected that full-time workers will see a salary rise of about 11 percent. These positive changes will not just be reflected in Dutch salaries, but the Dutch tax system will also observe significant improvements. The Netherlands Trade Union Confederation (FNV) stated that, based on the new 36-hour contract system, employees working for 38 hours should see their income rise by 5.5 percent, while those with a 40-hour contract will receive a hike of 11 percent.

Previously, the cabinet decided to execute the planned changes in the current wage system over the period of 2024 and 2025. However, with the Netherlands’ rising inflation rate and growing labour shortage, plans will be expedited. On one hand, this unprecedented change is going to be a blessing for employees, whilst on the other end employers, especially smaller businesses, are upset about the proposed plans. They argue that many companies have already used up their reserves to survive in times of Covid. At this difficult time, the employers were exempt from paying taxes, but now this liberty has been cancelled. With soaring energy prices, high inflation and costs of salaries rising, some employers even fear to be made bankrupt. Overall, 80% of small-business owners say their business’ financial health has been hurt due to various reasons such as Covid, inflation, workforce challenges and various supply chain issues.

A recent survey by Hogeschool Utrecht, ONL entrepreneurs’ organization and lender Qredits, it is projected that 7.4 percent of small business entrepreneurs are going to shut down their operations. They also expect that a profound impact will be seen in the hospitality and cultural sector. Entrepreneurs do not oppose the salary hike or new minimum wage system per se; they do empathize with workers who are having a hard time keeping up with inflation. As inflation soars, small businesses will be severely affected by the new law, while major corporations are seen making great profits. The trade union wishes to implement the changes, keeping in mind some crucial factors such as a gradual increase in the minimum hourly wage, and suggests that companies should be compensated for the higher costs by paying lower premiums for unemployment benefits.

Written by Parul Sachdeva