It’s all over the news – a minimum wage proposal of 12zł per hour. It’s low by Western European standards, but by local standards from around 10.67 it’s a chunky 12.5% upgrade. At this stage it’s just a proposal, and it doesn’t apply to all contract types.This being an opinion piece, here’s the opinion: there is a risk of being the “last straw” for foreign corporates. Or at least, it’s a little too soon. Poland has raised the minimum wage almost every year since 1995, back then it was 260zł a month. Now, it’s 1750zł a month.
If we calculate based on the HR standard 168 hours a month, the new proposal in monthly terms is a raise to 2016zł per month.
There is a risk that some small or startup businesses simply can’t afford it. When New Zealand raised it’s minimum wage last year, there was a comprehensive study into the actual number of jobs that would be lost based on different levels of increase. Incidentally, NZ has an employers’ tax of 0% – more on employers’ tax later.
You could argue that, what better time to increase minimum wage, than in a time of prosperity. But there is a greater risk, it’s worth taking a moment to consider where the prosperity has come from, and how foreign companies made the decision to come to Poland.
No more EU dough, bro
Let’s face up to a tough fact. Most of the foreign corporations that have set up here, did so because of money: it directly saved them money, or, they had access to EU funding to save them money. In spite of being relatively good spenders of the funding, Poland received its – probably last – EU funding injection in 2014 for the 2014-2020 period of 285 billion złoty. It’s possible, but unlikely we will see more.
Where will EU funds go next? Romania? Bulgaria?
The Dell scenario
Ireland used to be the EU’s wunderkind. Dell, Intel, EMC, countless US mega-corps were setting up there, enjoying favourable financial conditions, as a stepping stone into EU trade. Then, in 2009, Dell found more favourable conditions in Poland. An accountant pulled out a spreadsheet, crunched the numbers, and goodbye Limerick, hello Poland.
Fast forward to right now. Dell are here, Intel are here, and plenty of other corporations. Many have leveraged EU funding, and relatively low wages to maintain profit. Unfortunately for Poland, there are two far, far cheaper neighbours just to the South, and should they get EU funding to allow (as Poland had) subsidies on construction and startup, where is the tipping point that the accountants find somewhere else financially more attractive?
Less favourable hiring conditions
It’s invisible to most employees, but there is a ton of extra cost on top of salaries that employers have to pay.
Considering the already scandalous amounts of employers’ tax (disguised under the name ZUS) at 80%+ of salary, I would not be surprised if many foreign companies are not already actively looking into costs of other EU countries.
I am told about complex combined salary schemes involving bonuses, dividends, and partial cash payouts being commonplace, to avoid the cost to employers and try and get more money into the hands of employees.
Hey government – how about throwing employers a bone – a reduction in that employers’ ZUS/tax to offset the minimum wage increase.
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It’s hearsay but, I was also once told that US networking giant Cisco engaged the Polish government in discussion about ZUS – effectively employer’s tax – to see if there was any possible reduction. The answer was no, and they abandoned plans for a huge expansion of their operations in Poland. It’s hard to know for sure, this sort of decision is not often publicised.
Raising the minimum wage – low costs being the whole reason multinationals are here – could push the bottom line on the spreadsheet closer to the “worth bailing out” mark.
It’s a competition
Think foreign companies won’t drop you like a ton of bricks if there was a better deal in Romania or Bulgaria? 2009 was not that long ago. Dell only came here because Poland was a better deal at the time. In 2009 when Dell came, minumum wage was 1276zł a month.
With this latest news, news we covered in July that salaries are due to rise, news just this week that 1 in 3 companies cannot find staff (in Polish), and an end in sight to EU funding, it seems less and less tasty for a foreign corporation to come here.
Poland has to compete with other Eastern European countries for foreign investment, and has lost a number of these “competitions”, including just recently losing a billion-pound deal with Jaguar going to Slovakia. Even the proudest Pole can see that these companies could not care less about Polish culture; it’s all about the money. Which is fair enough, money is usually why they exist in the first place.
Poland has done an excellent job getting this far, don’t blow it now.