The increase of the minimum wage does not affect the automatic increase or decrease of other wages

Minimum wage increases may benefit minimum wage workers, but this increase is not automatically dictated as a wage increase for higher wage workers as well.

The first step in monitoring the effects of the minimum wage is to verify whether it raises wages. If not, then the minimum wage is not an effective wage level. If it happens, then the minimum wage should normally increase after the negotiation and signing of a new Individual Employment Contract (or Annex to the existing contract) the average wages and all this aims to reduce wage inequality compared to a situation where it is absent.

But this whole event does not happen immediately with the decision taken by the government increasing minimum wages from April 1, 2023, since to change the monthly salary, the steps and procedures that are mandatory to be implemented according to the Labor Code must first be respected.

With the increase in the minimum wage, the basis for calculating social and health insurance contributions increases for those who have not received a salary of 40,000 ALL per month.

While for all employees who receive a salary of 40,000 ALL/month or even higher than this monthly salary level (41 thousand ALL per month and above) they have a cost for tax on the salary the same as until now. So, no salary tax is paid more than what is currently paid in the most recent month that the monthly salary was received.

Even for social and health insurance, the monthly value of the calculated and payable contribution remains the same, since there are no changes in the contribution rates, which are still at the total rate of 27.9% of the gross salary (the rate is 11.2% for the employee and 15.7 % for the employer).

BUT, if it is decided after the government’s decision to increase the minimum wage, then it must be notified in advance by the employer and a communication should be opened between the union (where there is one) and the employer. This communication can also be an individual relationship between the employee and the employer (director), emphasizing that the current salary must be changed according to the current employment contract and the change must also clarify the legal basis that the employer refers to to change the salary.

For example, it is assumed that the employee’s current gross salary will increase from ALL 70,000/month to ALL 75,000/month.

With the gross salary of 70,000 ALL/month, 5,200 ALL tax on the salary/month and 11,690 ALL social and health insurance from the employer and 7,840 ALL social and health insurance, which the employer keeps from the employee’s gross salary, have been calculated and which should be paid to treasury.

So, on the gross salary of 70,000 ALL/month, 5,200 ALL of salary tax and 19,530 ALL social and health insurance (11,690 ALL + 7,840 ALL) are kept from this amount.

The net salary received by the employee is 56,960 ALL/month (5,200 ALL tax on salary and 7,840 ALL social security and health insurance have been deducted)

With the gross salary of ALL 75,000/month (increase of ALL 5,000/month) 5,850 ALL tax on the salary/month (650 ALL/month salary tax more) and 12,525 ALL social and health insurance from the employer are calculated and paid (835 ALL more is paid by the employer ) and 8,400 lek social and health insurance (560 lek more is paid by the employee), which is withheld from the employee by the employer from the gross salary of 75,000 lek/month.

On the gross salary of 75,000 ALL/month, 5,850 ALL of salary tax and 20,925 ALL social and health insurance (12,525 ALL + 8,400 ALL) are kept from this amount.

The net salary received by the employee is 60,750 ALL/month (5,200 ALL tax on the salary and 7,840 ALL social security and health insurance have been deducted)

For all other salaries that are considered as salaries in the example above or higher salaries, in any legal change it is necessary to look at how much the tax on the salary will increase, as well as how much the social and health insurance will increase for the part paid by the employee himself (which is 11.2% of the gross salary).

However, the increase in the minimum wage does not obligate an increase in other wages, if the parties do not agree to change the labor contract, or the gross payment and the net payment that they have agreed to pay each month.

In any other case, the notice to reduce the salary, due to the increase in the social security and health insurance payment of the increased minimum wage is not a reason/reference that is related to or can affect the reduction of the actual salary, except an informal reason to lower the current net salary.