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Clocking in for work. Virginia Carrasco
Reduced working hours and minimum wage increase could cost companies in Spain around 25 billion euros
Economy

Reduced working hours and minimum wage increase could cost companies in Spain around 25 billion euros

The Spanish government plans to reduce the working week to 37.5 hours and increase the minimum wage by 50 euros a month

Thursday, 16 January 2025, 10:36

Business costs in Spain will soar with the two initiatives planned by the Spanish government this year: the reduction to the working week to 37.5 hours and the new increase in the minimum wage to 1,184 euros per month over 14 payments, up to 50 euros per month more than at present. They will have to pay out some 25 billion euros more if both measures come into force, according to estimates made by Spain's leading employers' association (CEOE).

The bulk of this sharp increase in workforce costs will be the result of cutting the working day by two and a half hours, meaning a direct cost of between 21 and 23 billion euros, according to an internal report by CEOE. Another study carried out by Cepyme also estimates that a further 30.6 billion euros in costs would have to be added for the economic activity that would cease to be produced as a result of cutting working hours.

For its part, a new minimum wage increase of 50 euros per month, which is what central government is proposing this week to trade unions and employers, will raise the minimum cost per full-time worker by almost 1,000 euros, which is why the CEOE earlier this week described it as "unaffordable". If we take into account that the expert report estimates that there are 2.7 million people earning less than this amount, then companies - and also families who have hired a domestic worker or carer - will have to spend 2.7 billion euros more this year to update their salaries.

This would mean that the cost of having a full-time worker will increase to 1,816 euros per month. This is the minimum monthly wage cost that a company would have to face if, as all indications suggest, the minimum wage (SMI is the Spanish acronym) is raised by 4.41% as, in addition to paying the new wage increase, it will also have to face an increase in its social security contributions.

Furthermore, the cost could be more than 1,900 euros per month if the company has to pay the maximum rate for occupational accidents and diseases. As a result the total cost for an employee on the lowest salary will range from 21,792 euros to 22,845 euros in 2025, almost 1,000 euros more per year than at present. Compared to the price of having a worker on the minimum wage in 2022, this is 3,500 euros more. Companies will have to pay a salary of 16,576 euros a year to their employee and pay between 5,216 euros and 6,269 euros for their social security contributions.

Up to 40% under review

The sharp rise in the minimum wage in recent years - almost 60% since PM Pedro Sánchez came to power if this new increase is approved - is causing many collective agreements to have lower wages than the SMI. What is more, approximately one in three agreements will have to update their lowest salaries this year to bring them into line with the new minimum wage, according to an internal trade union report by UGT with data from all sectoral agreements published in 2024. Eurostat even raises this percentage to 40%, according to the report drawn up by the committee of experts.

Still, the main trigger to forcing all such agreements to be reopened for discussion and resolution is if the working day is finally reduced to 37.5 hours, a measure that will force a cut in hours for some 12 million workers, according to central government's own calculations. Some 54% of these agreements have weekly working hours of between 38.5 and 39.5, while another 25% are in the 37.5 to 38.5 hour bracket. For this reason CEOE president Antonio Garamendi has warned that this measure "would open up all collective agreements at once" due to the strong impact it will have on companies and that they would only accept it if it is done within the scope of negotiations between employers and trade unions.

On Monday, the Ministry of Labour in Madrid once again invited employers to make an effort to join in an agreement to reduce working hours and another for the new increase in the SMI, something that at present seems impossible. The CEOE has ruled out any pact - including any photo opportunity - with Yolanda Díaz who heads up this ministry.

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surinenglish Reduced working hours and minimum wage increase could cost companies in Spain around 25 billion euros