National Minimum Wage 2019 and pay trends

The Low Pay Commission recommends increasing the National Minimum Wage to €9.80 per hour from 1 January 2019

The Low Pay Commission (LPC) has unanimously supported an increase in the National Minimum Wage (NMW) from €9.55 per hour in 2018 to €9.80 from 1 January 2019 for the experienced adult worker. This reflects an increase of 1% and has received Cabinet approval.

This is in the context where the Central Bank has projected an economic growth rate of 4.7% this year, and near full employment for 2019, with record 2.3m in work.

According to the Central Statistics Office (CSO), there has been a growth in average annual earnings of 2.0% in 2017, up to €37,646pa from €36,920pa in 2016, and greater than the 1.3% increase from 2015 to 2016.

Drivers

According to the LPC, the key factors influencing the decision to increase the NMW include:

  • Strong increase in employment As the Irish economy reaches close to full employment in 2019, the labour market will become tighter.
  • Strong recovery of the Irish economy According to the EU, the Irish economy will be the second fastest growing economy in the EU in 2018. This raises the risk of rising costs in some sectors of the economy.
  • Rising cost of housing, childcare and transportation While the outlook of the Irish economy appears positive, there are cost pressures in the area of housing, childcare and transportation.
  • Living wage The report refers to the living wage rising to €11.90 per hour. This is the rate to provide an adequate income to enable individuals to afford a socially acceptable minimum standard of living.
  • Growth spreading to other parts of Ireland Apart from Dublin, other areas in Ireland are gradually witnessing economic growth.
  • Brexit In preparing for its likely impact, Brexit was one of the key considerations for the NMW increase.
  • Increase in average weekly and hourly earnings

The impact of the increase in NMW

According to the LPC, the implication of NMW increase will necessitate an adjustment in employers’ PRSI rates. Employer’s PRSI is currently 8.6% on earnings up to €376 per week and 10.85% on entire earnings where earnings exceed €376 per week. There is a step-effect that is triggered at the point of change, whereby a slight increase in earnings to the employee will push Employer’s PRSI to the higher rate resulting in significantly higher cost to employers. The LPC is of the view that this issue has reached a critical juncture given the recommended increase in the NMW, and stresses the need for the Government to address this.

In practice under the new NMW of €9.80, once an employee works above 38 hours, the PRSI band will jump to the higher rate of 10.85%. This could happen for up to a third of those on the NMW and many more with relativities that keep them just above it. Whilst this signifies a small increase for employees, this represents an additional 2.25% PRSI cost for the employer. This will put further pressure on the cost and competitiveness of Irish businesses, particularly small businesses, and should be addressed by the Government in Budget 2019.

How does Ireland compare

While Ireland has the 4th highest minimum wage in EU, its monthly minimum wage ranked 6th when adjusted for purchasing power standards.

Read the full LPC 2018 report below

Read the CSO report on 2017 earnings

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