Changes to the guaranteed and minimum wage, which took place in the Czech Republic in July 2024, are intended to ensure an adequate minimum wage for the entire EU. This can help close the income gap between men and women, but it carries the risk of higher costs, Klára Cowan, Group Payroll Director of ASB Groups, writes below.
Recently, there has been a significant change in the labor laws in the Czech Republic. An amendment to the Labor Code came into effect on August 1 of this year, which, among other things, abolished the system of guaranteed wages in the private sector.
Only the minimum monthly wage will remain, which is 18,900 CZK this year, and it should rise to 20,600 CZK next year. The average salary in Czechia has now reached CZK 43,941 per month.
We can find out whether the system of guaranteed wages is a standard when we look, for example, at the situation in the other V4 countries. The System of Guaranteed Wages applies only in Slovakia. In Poland, a similar legal arrangement operates as the one now in the Czech Republic, Hungary does not have a guaranteed wage for various professions at all.
In Slovakia, the Minimum Wage Act defines a guaranteed wage based on the demands of the given profession for individual positions. Given that the guaranteed wages are not specifically stated for individual positions, it is necessary to learn the individual salary classes that are given by law.
For example, a workplace defined as the first level of work difficulty means the performance of auxiliary, preparatory or handling work according to precise procedures and instructions, binding manuals or orders from superiors. On the contrary, work at the sixth level of difficulty involves solving tasks in an unusual way with unspecified outputs and with a high degree of responsibility for damage that entails extensive social consequences. This applies, for example, to healthcare or the areas of managing complex systems.
This means that the Slovak law does not specify exactly how much people can earn as a minimum within the guaranteed wage, but the employer must follow the salary tables when determining their wages. The minimum monthly wage in Slovakia is €750.00, the average monthly wage is 1,430.00.
There is no such thing as a guaranteed wage in Poland. Only certain professions in the public sector, such as teachers, health workers, budget employees, and others have a guaranteed wage with a set minimum. This wage differs from the official minimum applied to private companies in all sectors. Employees of the public sphere also include judges, prosecutors, soldiers, policemen, professional firefighters, prison service workers, etc.
In the case of teachers, the minimum rates of the basic monthly salary in Poland are different. It is PLN 5,057 for a beginner teacher and PLN 5,915 for a certified qualified teacher. In this way, it matches the legal regulation that was recently approved in the Czech Republic. The minimum monthly wage is PLN 4,300, the average monthly wage is PLN 8,047.37.
A special feature of Hungarian labor law is the dual minimum wage system. This is a minimum wage for people with basic education and a guaranteed wage for skilled workers. Full-time workers must be paid the minimum wage or the guaranteed minimum wage for skilled workers. There is no other guaranteed wage system in Hungary that is tied to specific professions. The minimum monthly salary is HUF 266,800. The guaranteed monthly minimum wage for qualified workers is HUF 326,000. The average monthly salary is HUF 645,300.
As can be seen, the system of guaranteed wages is not consistent in the Visegrad countries. The Czech Republic has the second highest average wage and at the same time the second highest minimum wage among member countries. The first place in both cases belongs to Poland.
The changes that took place in the Czech legislation during the summer (i.e. the abolition of the guaranteed wage in the private sector and a new mechanism for the valorization of the minimum wage, which should compensate for the mentioned abolition), are based on the Directive in the European Union. It has a clear objective: to ensure an adequate minimum wage for all workers in the EU, which should contribute to reducing working poverty, promote fair pay and strengthen collective bargaining.
The implementation of these standards can bring many benefits, such as increasing economic stability and improving income equality. An important aspect is also the directive’s potential to contribute to equalizing pay between men and women, as women often work in low-income sectors and are thus more vulnerable to wage inequality.
On the other hand, there are naturally also disadvantages in the form of increased labor costs, especially for small and medium-sized enterprises, which can lead to a reduction in employment or the transfer of production to other countries. The uniform nature of the directive, which is applicable for all EU Member States, may not factor in the significant economic differences between them. What constitutes a reasonable minimum wage in one country may not be sustainable in another and may instead lead to economic imbalances. If businesses pass on increased labor costs to consumers, the prices of goods and services may rise, which will naturally lead to inflation. This could subsequently reduce the purchasing power of the very workers that the directive is supposed to protect.
Implementation of this directive will be challenging. It may increase the pressure on public finances in countries with significant social programs, which should not endanger our CEE region. Overall, this directive represents a significant step towards ensuring fair wages and reducing poverty, but its implementation is a delicate balancing act where the benefits must outweigh the potential economic risks, which may ultimately affect everyone from businesses to their employees. However, only the future can reveal how the whole situation will develop and what positive or negative impacts it will bring.
