Price increases and wage indexation: what is the link?

It is almost impossible to overlook this information. All prices, most importantly energy prices, are rising significantly and as a result, inflation is peaking. What is the impact of this inflation on workers' pay? What indexation mechanism applies and are employers obliged to apply this indexation?

Inflation and timing of indexation

The Planning Bureau calculates the extent of inflation each month and on this basis the smoothed health index. This index is the basis for the calculation of most wage indexation mechanisms. In the public sector, this mechanism is fixed by law. In the private sector, there is not ONE mechanism but several indexation mechanisms, which differ from one sector to another depending on the collective bargaining agreements (CBAs) that are concluded.

Among the different methods, two main families of indexation mechanisms can be distinguished.  On the one hand, there are certain sectors that have an indexation on a fixed date. In this situation, the moment of indexation is known in advance, but not its extent. As the date approaches, the percentage of indexation can be estimated more precisely. An example is the Joint Committee 200, which has many workers. In this sector, wage indexation always takes place in January. In joint committee 222 (paper and cardboard processing) there are two indexations per year: in January and in July. In the construction sector there are more indexations, as wages are adjusted at the beginning of each quarter.

On the other hand, there are sectors that are indexed every time the increase in the smoothed health index reaches a certain percentage. This is called exceeding the pivot index. The timing of the indexation will therefore depend on inflation. The higher the inflation, the more frequent the indexations. Although the timing of indexation is variable, the percentage is always the same. Often, indexation will take place at the same time as the indexation of civil servants' wages, but not always. The sector of manual and non-manual workers in education applies this type of mechanism.

Do sectors that have several indexations per year actually have higher indexation? No, whether indexation takes place once a year on a fixed date or whenever the pivot index is exceeded, the indexation percentage is the same in the long term. However, in sectors with more frequent indexation, workers benefit from indexation earlier and their wages keep more pace with inflation.

There is also a minority of sectors that have not entered into a collective bargaining agreement regarding wage indexation. This is the situation, for example, in the airport management sector, which employs around a thousand people in Belgium.

Indexation of all wages?

The timing of the indexation of wages therefore differs from one Joint Committee to another, but so do the wages to which indexation applies. Since there is no cross-sectoral obligation to index wages, not all real wages are necessarily indexed.

In addition to sectors where no indexation is laid down, there are also sectors where only scale wages are indexed. Workers who are paid according to the sectoral scale have their wages increased according to the mechanism provided. For workers whose wages exceed the sectoral minima, the employer in these sectors has no obligation to index real wages. This is the case for example in the auxiliary sector for manual workers (JC 100).

In addition to the indexation of real or scale wages, there are other methods of indexation. For example, in the construction sector, scale wages are increased according to the evolution of the smoothed health index. For real wages, which are higher than the sectoral minima, the increase in the scale wage for the given category is added. For real wages, therefore, an absolute amount is added and no percentage increase is applied.

If the sector has not laid down an indexation or only an indexation of the scale wages, the employer can also voluntarily decide to increase all the real wages paid in his company. 

Obligation to index wages? 

Depending on the standard that provides for indexation, the employer must index or not index the wages of workers. Where the relevant sectoral CBA provides for indexation of all wages and does not provide for exceptions, the employer cannot deviate from this obligation. Where the sector provides for indexation of only some wages, the employer must index these but has some freedom regarding other pay. However, the employer must respect any company collective bargaining agreements that may have been concluded and may amend them under certain conditions. This is the application of the principle of hierarchy of standards.

Employers who find that indexation puts their company at risk can always consider changing other elements of pay that are not provided for at sector level. This is then a matter for internal company negotiation.

A recent bill in the Chamber envisages the introduction of a supplementary indexation mechanism for workers in joint committees that have not established a method of wage indexation, should the employer itself not have done so. However, the number of workers who would be covered by this supplementary mechanism is quite limited.

Source:

Law of 1 March 1977 organising a scheme of linking certain expenses in the public sector to the consumer price index of the Kingdom, Belgian Official Gazette of 12 March 1977.

Bill of 12 September 2022 guaranteeing the application of the automatic indexation mechanism for all workers, Doc 55/2873.