Understanding Automatic Wage Indexation in Belgium
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The January 2023 wage indexation is historically high with a rate of 11.03%. By comparison, in January 2022, the wage indexation for private sector employees was 3.58%.
Automatic wage indexation in Belgium is in place to ensure that employees maintain their purchasing power in line with inflation (which reached over 12% in October 2022). Automatic wage indexation refers to the annual adjustment of minimum wages and pay levels in line with the cost of living.
Standard of living
The aim of automatic wage indexation is to provide a stable and predictable wage structure for employees and to ensure that they can maintain their standard of living when the cost of living increases. Providing a stable wage structure can also help to reduce wage inequality and ensure that all employees are able to meet their basic needs.
It’s also important to note that automatic wage indexation in Belgium is somewhat unique compared to our neighbouring countries. While some other European countries have similar practices, the specific details and implementation of automatic indexation can vary considerably from country to country.
Calculating the indexation
The percentage of automatic wage indexation in Belgium is calculated on the basis of the evolution of the cost of living, measured by the consumer price index (CPI). The CPI is a measure of the average change over time in the prices consumers pay for a basket of goods and services.
To calculate the automatic wage indexation percentage, the change in the CPI over a given period, usually one year, is determined. This change in the CPI is then used to determine the percentage by which wages should be adjusted to maintain the purchasing power of employees.
Note that this depends on the joint commissions we are in. For CP 200, it is on an annual basis, but for other CPs it varies.
Impact on companies
In this context, all the sectors surveyed expect a drop in profitability over the next six months, explained FEB chief economist Edward Roosens to the Belga agency. Companies that have not yet passed on inflation to their sales prices will be forced to do so, pushing inflation and the price-wage spiral (higher prices lead to higher wages, which lead to higher prices and so on) further into the background. It is indeed a vicious circle, if we raise our selling prices, we become less competitive on the international market, which is a problem for our small open economy.
The role of HR
The impact of this automatic indexing on HR procedures can be significant, particularly in the area of recruitment. Here are some key points to consider:
- Budgeting: Companies need to budget for annual salary increases resulting from automatic indexation. This can impact their ability to offer competitive salaries to new employees, which can affect their recruitment efforts.
- Salary expectations: Applicants in Belgium are likely to expect some level of automatic indexation as part of their pay package. This means that companies must take this expectation into account when making offers to new employees and be prepared to offer a comprehensive and competitive compensation package.
- Cost of living adjustments: In order to attract the best talent, companies may need to take into account the cost of living in different parts of the country and offer salaries that reflect these differences. Automatic indexation can help ensure that employees are able to maintain their purchasing power, even if they relocate to a more expensive region.
- Collective agreements: Companies should be aware of the impact of automatic indexation on their collective agreements. In some cases, these agreements may specify the level of wage increases to which employees are entitled each year, so it is important to ensure that these agreements are updated to reflect the latest automatic indexation.
By considering these factors, companies can ensure that they are well-prepared to recruit the best talent and maintain a competitive compensation package for their employees.
Purchasing power
Automatic wage indexation is a crucial aspect of the Belgian employment landscape, reflecting the need to maintain the purchasing power of employees and to ensure the stability and predictability of wage structures.
The percentage of automatic wage indexation is calculated on the basis of changes in the consumer price index and can vary according to specific employment conditions, the industry or sector in which employees work and the policies of their employer.
Conclusion
For HR professionals, automatic salary indexation has important implications for all HR processes, particularly in the area of recruitment. HR professionals need to be aware of the specific conditions of automatic salary indexation to ensure that they offer competitive compensation packages that meet the needs of the organisation and its employees.
In particular, they need to consider the frequency of automatic salary indexation, the calculation of the indexation percentage and the specific requirements and conditions of the industry or sector they are recruiting from.
By being informed and proactive in their approach to automatic salary indexation, HR professionals can help ensure that organisations are able to attract and retain the best talent, and offer employees fair and competitive compensation packages that meet their needs.
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