Employers may have noticed this month that the Minister for Business and Employment, Ged Nash, has been issued a report by the new Low Pay Commission (LPC) which has recommended that the Government introduce a €0.50 increase to the national minimum wage. Such a rise would see the national minimum wage hourly rate increase from €8.65 to €9.15, meaning a gross annual increase of €1,040 per year for a 40 hour per week worker.
Key Factors behind the Proposed Increase
The LPC has summarised the following key factors as justifying their proposal to increase the national minimum wage:
- “The Irish economy is recovering though the recovery is somewhat patchy and uneven and it still faces risks particularly in the external environment.
- Unemployment remains high but has declined particularly over the past year.
- The number of people in employment is increasing.
- Competitiveness has improved, partly due to exchange rate movements, and it is important that this trend is maintained.
- While inflation has been relatively low, the minimum wage has effectively remained at its current level for the last 8 years.
- The available evidence suggests that moderate increases in the minimum wage will not lead to significant loss of jobs.
Proposed Changes to PRSI and USC
The LPC has also recommended the following in respect of PRSI and USC:
- The effect of a change in the minimum wage on hours worked may be more marked, particularly if the anomalous rate structure in the PRSI system is not tackled.
- A moderate increase in the current minimum wage rate without an adjustment in employer PRSI will have a major impact, particularly on small business costs
- It is of critical importance to enterprise development that the design of both the tax and PRSI systems creates the right conditions for job creation, including the incentives (from both employer and employee perspectives) for employees to work additional hours and to increase pay where appropriate.”
The View from Peninsula
Peninsula Business Services is very disappointed to hear that this increase has been recommended to the Minister, albeit not entirely surprised. It is our view that this increase is extremely premature in terms of Ireland’s current economic position and recovery.
Indeed, it is only four years since the previous Government reduced the minimum wage to €7.65 in light of prevailing economic circumstances. Since then the minimum wage has been increased back to €8.65 and with figures from the Central Statistics Office indicating that the cost of living is still below 2008 levels (at which point the NMW was €8.65) it seems difficult to comprehend why this increase is deemed necessary or justifiable now.
It would seem that the significant push from employee bodies to increase the NMW to meet the “
living wage” level has potentially had an effect in this debate. Indeed, Patricia King and Gerry Light, members of the LPC, had called for an increase of €2.85 to €11.50 per hour, the perceieved living wage. It has always been Peninsula’s view that the ability of employee’s to earn the “
living wage” or “
cost of living” is a matter for the Government to resolve (i.e. through lower taxes, lower costs of public services like transport, health etc.) and not the concern of employers through higher minimum wages.
So What Happens Now?
Whilst Minister Ged Nash does not have to accept the LPC proposal to increase the NMW, it would seem any rejection or variation of the proposal by the Minister would be extremely unlikely considering he has previously stated his desire to progressively increase the NMW.
Should Minister Nash approve the increase, then it is as yet unclear as to when this will be introduced. No doubt such a measure will be announced in keeping with Budget 2016 and there is no confirmed date as to when this will occur. The LPC report only refers to the introduction of the increase on one occasion, stating that it is the “
opinion” of three members of the LPC that the increaser should not be introduced before “
the second quarter of 2016”. Presumably the second quarter relates to the calendar year as opposed to the financial year, which would mean an April 2016 date.
Employers are encouraged to assess and audit their budgets for 2016 in light of a potential increase of €0.50 to the NMW. Obviously, any employee earning below €9.15 would need to be revised upwards. This will allow for employers to plan for any associated wage increases. If employers feel that they are unable to pay any such increased NMW then do be mindful that there is an ability to apply to the Labour Court for a temporary exemption from doing so under existing legislation. Alternatively, employers may need to seek pay cuts from those earning above any new NMW level, reduce employee hours, increase prices, consider redundancies, etc.
If you have any queries in respect of the above article then please contact our 24 Hour Advice Service on 01 855 50 50.
