Negative indexation at the beginning of 2010

The probability that nearly half a million employees of the Belgian private sector will see their wages decrease from the beginning of next year is very high.

Belgium has an indexation system that adjusts salaries in line with the evolution of the price of consumer goods in order to preserve the purchasing power of workers. This system differs from one sector to another. The reason for this is that the practical methods of indexation are regulated by Collective labour agreements which are only applicable to one particular sector of professional activity. Thus, certain sectors apply an indexation to a fixed date (often on 1 January) or at regular intervals (every quarter, for example) whereas, in other sectors, the indexation occurs when a certain threshold (the famous “index pivot”) is crossed.

The recent forecasts of inflation established by the Federal Planning Bureau, the economic think tank of the Belgian federal government, confirms that a large number of joint committees, which apply an indexation system on an annual basis and account for approximately 40% of the private sector, will experience a negative salary indexation during the first weeks of 2010. On the whole, no less than fifty sectors will have to adapt salaries to the index at the beginning of next year.

In principle, negative indexation must be applied. It goes without saying that the Belgian trade unions do not view this wage reduction very favourably. Nonetheless, they will not oppose any application of the negative indexation. Over the last 45 years, the automatic indexation has almost always led to salary increases and thus preserved the purchasing power of employees in the Belgian private sector. They do not want to jeopardise this system.

It is possible to undo the negative consequences of the automatic indexation by not reducing the employees’ salaries this year. However, if an employer wishes to avoid the fact that a possible positive indexation in 2011 would have to be calculated on this non-reduced salary, it is absolutely crucial that the correct formulation is used in the agreements (collective or individual depending on the joint committee applicable to the employer) that govern the indexation. This will avoid any nasty surprises in 2011.