The Impact of the Minimum Interprofessional Wage Increase on Flexible Remuneration
As the Minimum Interprofessional Wage (SMI) in Spain reaches 1,080 euros gross monthly in 14 payments, questions arise regarding its significance and the implications for concepts like Flexible Remuneration for both workers and companies. Let’s shed light on the impact of the new SMI on employees’ paychecks and, consequently, their purchasing power.
Table of Contents
- 1. Minimum Interprofessional Wage & Flexible Remuneration
- 2. Direct Relationship between Both
- 3. Rise in the Minimum Interprofessional Wage
1. Minimum Interprofessional Wage & Flexible Remuneration
Before diving in, let’s clarify some concepts for those who might be a bit lost.
- What is the SMI?
The SMI is the minimum amount, in terms of compensation, that a worker must receive from their employer. The government annually determines this amount through a decree, considering factors such as consultations with unions and businesses and the current economic context.
The SMI applies to various types of workers, including permanent, temporary, and domestic employees. In 2003, it was 15.04 euros per day. Today, it stands at 33.33 euros per day, generally.
- What is Flexible Remuneration?
Flexible Compensation is a form of non-monetary remuneration, materializing in goods or services that supplement the regular paycheck. Employees can allocate part of their gross salary to the consumption of specific products or services, enjoying them at a price lower than market rates. By paying them from their gross salary, employees gain total or partial tax exemption, helping them avoid or reduce Income Tax (IRPF) on these items.
2. Direct Relationship between Both
Flexible Remuneration falls under the category of in-kind remuneration, enjoying significant tax exemptions. When the SMI increases, two fundamental requirements come into play for employees to benefit from a Flexible Remuneration plan:
– In-kind salary, received through a personalized Flexible Remuneration plan, must not exceed 30% of the employee’s total annual compensation.
– The cash remuneration, i.e., the regular paycheck, cannot be less than the SMI. In 2023, an employee’s cash salary would need to be at least 1,080 euros gross monthly in 14 payments to enjoy the benefits of Flexible Remuneration.
In this context, professionals with tighter budgets may face challenges affording more expensive in-kind remuneration concepts, potentially exceeding the 30%. For instance, high-level training could pose difficulties. In such cases, a higher SMI facilitates the worker’s spending capacity, allowing for more significant investments in tailored quality training within the established 30% limit, optimizing tax savings.
3. Rise in the Minimum Interprofessional Wage
2023 has begun with a somewhat challenging economic situation, exacerbated by the pandemic’s economic challenges and the repercussions of the conflict in Ukraine. Adding to this mix is the increase in the MIW and its implications.
The Council of Ministers approved the last variation last year, raising the SMI to 1,000 euros gross monthly after reaching an agreement with the CCOO and UGT unions. This agreement is outlined in the Royal Decree 152/2022, of February 22, which establishes the amounts effective from January 1, 2022.
These new values represent a 3.63% increase compared to those projected in the Royal Decree 817/2021, of September 28, setting the minimum wage for 2021. While organizations like Cepyme and the Bank of Spain argue that this hike contributes to a slowdown in job creation due to labor costs, unions and the central government view it as a tool to address inequality, the gender gap, and labor poverty, improving the salaries of a significant percentage of employed individuals.
This increase is considered necessary to approach the European average, boost domestic consumption, contributions (benefits and pensions), motivation, productivity, and consequently, stimulate economic recovery.
However, controversy surrounds this decision, fueled by differing expert opinions for and against it.