The minimum wage increased – a decision with a boomerang effect for the whole economy

As from 1 January 2022, the minimum gross basic salary per country guaranteed in the payment, provided for in Article 164(1) of Law No 53/2003 – Labor Code, republished, as amended and supplemented later, shall be set in cash, not including bonuses and other additions, at the amount of lei 2.550 per month, for a normal working hours on average of 167,333 hours per month representing 15,239 lei/hour.

The measure ordered by HG 1.071/4.10.2021 and published in the Official Gazette no. 950/5.10.2021 means an actual increase of the gross minimum wage by 250 lei, that is 10,86% as compared to the present level.

The government’s decision was not a surprise to the private companies, many of them included in the staff spending budget for 2022, a raise which we will find immediately in the price of products and services.

Predictable was also the disappearance of the income differentiation between low-education and high-education employees. The trend has been clear since the last increase in the minimum wage. It is clear that this approach will directly lead to an increase in the number of employment contracts at the level of the minimum wage.

In companies that do not have the resources to increase wages now between 2.300 and 2.550, at least by 10,86%, the impact on employees falling within this range will be to reduce income and consequently to reduce purchasing power.

A long string of other effects are triggered by this increase. Thus:

• increased social contributions for supplementary insurance in the social security and health insurance system;
• increased base for the calculation of CAS and CASS for self-employed or intellectual property rights;
• the increase in the ceiling according to which persons who obtain extra-wage income have obligation to pay CAS and CASS for estimated revenue in 2022;
• increased contribution for disabled people as it relates to the minimum wage

In conclusion, the consequences of the government’s decision on the private environment and on employees are not negligible, and as we are used to, will make life more difficult and will reduce development opportunities on all levels.