Raising the minimum wage in 2023 will cost BV the Netherlands billions
On Budget Day, the cabinet officially announced that the minimum wage will be increased by 10% from 1 January 2023. This operation will cost the state billions, but it will also cost employers in the billions.
It can rightly be called a historic package, with no less than €17 billion being released to “protect the most vulnerable people and offer lower-middle-income prospects”.
A €12 billion of this will be used for incidental measures in 2023, such as a continuation of the energy surcharge and a reduction in the energy tax and a reduction in the energy tax and fuel excise duties.
Nearly €5 billion is earmarked for structural measures, including a 10% increase in the statutory minimum wage.
The current minimum wage this year is €3.04 gross for someone aged 15 and €10.14 gross for someone aged 21 and older. Per month this comes down to a gross monthly amount of € 526.85 (15 years) and € 1,756 (21+).
These amounts will all increase by 10% from the beginning of next year. The change runs parallel to the implementation of the Minimum Wage Directive in the European Union, recently introduced by the European Parliament.
While less than 5% of those employed in the Netherlands earn minimum wage — half of them are under the age of 25 — the increase is causing a “huge snowball effect for business and millions of Dutch people,” according to an analysis by Mercer.
“The activities focus on all in all about 6.3 million Dutch people – 70% of the working population. And the financial impact is also much greater than initially thought,” says Bart Brenninkmeijer of Mercer.
Increase in wage structure
How is that possible? For employers, the impact at the bottom of the salary house is of course straightforward: organizations where the starting salary is equal to the minimum wage will spend 10% more on the salary costs of their starters.
However, this trickles down to the rest of the salary house, because the higher salary scales will also be adjusted. Brenninkmeijer: “And many employers are putting upward pressure on the entire wage structure.”
“The results will be everywhere. If you, as an employer, do nothing, you run the risk of eventually leaving.”
According to Mercer’s agreement, the rate of increase per level will be around 3% for the higher salary levels. This is an additional cost item, which could cost the BV Netherlands several billions.
“As an employer, you are more or less ready to rise everywhere in the coming years. If you, as an employer, do nothing, you run the risk of eventually leaving,” says Brenninkmeijer.
Premiums for employers
In addition, the increase in the minimum wage has consequences for the premiums that employers pay for insurance against sickness absence and incapacity for work, and for sickness benefits.
Because the maximum premium is paid, more is paid for people who earn much more than the minimum wage. That could cost employers around €3.8 billion, Mercer said.
Linked AOW benefits
There is also a large spillover effect for the government. In the Netherlands, the minimum wage is on the state pension. Our country has about 3.5 million pensioners, and they also see their allowance increase by 10%. According to Mercer, this step will cost at least €5 billion.
All in all, Mercer calculates that the minimum wage operation will lead to a total cost item for employers and government of around € 11.2 billion.
The advice to employers is clear: “It is a good idea for them to identify the financial risks quickly. Doing nothing certainly means that the operating result will come under pressure,” says Brenninkmeijer.
The blow is less hard for the government. After all, the increased AOW costs have already been included in the Budget Day calculations.