Retroactive SMI Increase and Its Payroll Implications for US & Canada Audiences

No time to read?
Get a summary

The government plans to approve a revaluation of the interprofessional minimum wage (SMI) for this Tuesday, increasing the current gross from 1,000 euros to 1,080 euros (paid in 14 installments). The change affects about 2.5 million workers and will require thousands of companies nationwide to adjust their payroll systems to comply with the new rule.

The raise will be retroactive to January 1, 2023, meaning human resources departments must issue a supplemental payment to affected workers. With the delay in the process last month, several practical questions arise: how should this payment be made, when must it be paid, and how do bonuses interact with the new SMI? This article covers the essential details of the measure.

What does it mean for the increase to be retroactive?

The government postponed the reassessment due to internal disagreements. The measure, published in the State Official Bulletin after a period of review, contemplates applying the new amount of 1,080 euros with retroactive effect from January 1. Practically, workers should have already received at least 1,080 euros on last month’s payroll. Since the update was not known when last month’s payroll was prepared, many companies will need to adjust payments for a one-month delay.

How should companies pay the pending “paguilla”?

Two main approaches exist. One option is to pay the worker the new gross amount as part of the regular salary and then issue a separate payment to bridge the difference to 1,080 euros. The exact figure represents the amount by which the current salary falls short of the 1,080-euro level. The other common approach is to issue a one-off bonus in the February payroll that directly reduces outstanding payables. This one-time payment is non-recurring, as only one month remains to settle the retroactive amount.

When should the late payment be made?

In 2020, the minimum wage increase was retroactively approved and charged in February. Since then, negotiations among the government, employers, and unions have often extended the timeline. The royal decree did not clearly specify a payment date for January’s retroactive amount, and unions at the time interpreted that the payment should appear on the February payroll. Agencies and human resources departments typically have enough leeway to include it within that period.

This year, although the reform is legally effective as of February 14, companies can still include the retroactive payment in their February payroll. Payroll cycles often close around the 15th of the month, though many payrolls process through the 20th to ensure the worker receives the payment on the last working day of the month. If a company fails to adjust January’s wages, an employee may pursue a legal remedy. A formal demand is often the preliminary step before a possible lawsuit if an employer refuses to comply.

Can bonuses be counted toward reaching the minimum wage?

Recent jurisprudence from the Supreme Court has clarified that the SMI is the minimum amount a worker must receive. A full-time employee this year must earn at least 1,080 euros gross per month if paid in 14 installments, or 1,260 euros gross in 12 installments. It is illegal to receive less than the minimum, even if a collective agreement would otherwise allow it.

However, the minimum wage is not the same as the base salary. The 1,080-euro target can be achieved in several ways: it can be the base salary, or the base may be lower with the difference made up through allowances or bonuses. Some of these bonuses, such as seniority or specialization bonuses, may be considered absorbable to reach the SMI according to court decisions.

Illustrating this, suppose a worker earns 1,050 euros gross monthly (14 payments) with 1,000 euros as base salary and 50 euros as a specialty allowance. With the new 1,080-euro limit, the company may simply increase the base salary to 1,030 euros, bringing the total to 1,080 euros when combined with the existing 50-euro allowance. The company may alternatively raise the base salary to 1,080 euros to fully reflect the SMI on the payroll, but it is not mandatory, and the employee cannot demand a higher base if the employer prefers the first method.

What happens if part of an employee’s pay is in kind?

In such cases, the employee must be paid in monetary terms for the full SMI amount. It is permissible to offer in-kind benefits, such as transportation or meal vouchers, but these cannot be used to substitute or reduce the monetary SMI. The payslip must clearly show the cash portion corresponding to the SMI, with any in-kind benefits disclosed separately. In-kind components cannot be used to replace or offset part of the cash minimum.

No time to read?
Get a summary
Previous Article

Erzin’s Seismic Resilience and Building Standards

Next Article

Russia's automotive electronics: localization, plans, and mass production prospects