After remaining unchanged for 13 years, Kosovo’s minimum wage will increase starting October 1, 2024. From that date, employers must pay employees a minimum of 350 euros gross per month. While the increase has been welcomed, as it has long been a public demand, the process leading up to it has sparked confusion and public debate.
The law that enabled the minimum wage increase in Kosovo came into effect on August 23, 2024, one year after being approved by the Assembly of Kosovo. This law — the Law on Amending and Supplementing the Laws that Determine the Amount of the Minimum Wage, Procedures on Setting of Minimum Wage and Tax Rates on Annual Personal Income — does not set the minimum wage. Instead, it regulates the process for determining the minimum wage and other related benefits, such as social schemes, which are related to the minimum wage.
Initially, in 2022, the government proposed a minimum wage of 264 euros, but this law had to be approved first to implement it. Although the law was passed by the Assembly of Kosovo in July 2023, the opposition party, Alliance for the Future of Kosovo (AAK), challenged it in the Constitutional Court, claiming it was unconstitutional. Nearly a year later, at the end of June this year, the Constitutional Court ruled that the law is in accordance with the constitution.
This led to the law coming into effect on August 23, 2024. Five days later, August 28, the government decided to raise the minimum wage to 350 euros, effective October 1, 2024. The new law also adjusted tax rates, reducing the amount of tax paid by employers and employees.
Over the past decade, every national election has seen competing parties include promises to raise the minimum wage in their campaigns. This pledge was also central to Vetëvendosje’s (VV) election platform and later became a key part of their governing program.
However, the government’s decision to raise the minimum wage to 350 euros just a few months before the elections, without consulting businesses or unions, has been criticized as arbitrary and potentially illegal. Additionally, the sudden announcement by the Tax Administration of Kosovo (TAK) about changes to tax scales created confusion in public discussions. K2.0 clarifies the main implications of these changes.
Why hasn’t the minimum wage increased since 2011?
Until August 23, 2024, Kosovo had the lowest minimum wage in the Balkans and one of the lowest in Europe. At 130 euros per month for employees under 35 and 170 euros for those over 35, the minimum wage had not been raised since 2011. When it was set 13 years ago, it was in line with neighboring countries such as Albania (136 euros), Serbia (212 euros) and Bulgaria (122 euros). However, while the minimum wages of these countries increased over the years, Kosovo’s minimum wage remained unchanged.
Around 90% of countries worldwide have a minimum wage. An increase in the minimum wage primarily benefits employees with lower qualifications and the most marginalized groups in society.
Although politicians and governments have consistently agreed on the need to raise the minimum wage, none have been able to achieve it. However, this may not have been entirely within the control of Kosovo’s decision-making institutions.
The minimum wage has also been tied to financial assistance for certain groups receiving support from the state budget such as war veterans, blind individuals, quadriplegics and paraplegics. For example, the previous law stipulated that monthly allowances for veterans could not be lower than the minimum wage. This meant that any increase in the minimum wage would also lead to a rise in the financial aid provided to these groups, further burdening the state budget. However, this provision changed in 2017, when an amendment to the Law on War Veterans removed this article, though the connection remained valid until the category of war veterans.
The new law does not set the minimum wage but paves the way for amending and supplementing laws that determine benefit amounts related to the minimum wage, the procedure for setting the minimum wage and tax rates on annual personal income.
The new law allows Kosovo’s government to increase the minimum wage without consulting interested parties. Prior to this law, setting the minimum wage required consultation with the ESC, which includes representatives from employers, employees and government institutions. The ESC is supposed to meet annually to assess the economic situation and propose a new minimum wage. However, its proposals were consistently ignored by past governments. Under the new law, if the ESC fails to make a proposal, the government can unilaterally set the minimum wage. The only requirement is that the government informs the ESC of its decision.
Excluding the ESC in setting the minimum wage has been criticized for undermining the social dialogue between workers, employers and the government. That dialogue is required by the ILO’s Minimum Wage Fixing Conventions.
According to the ILO convention, governments must fully consult and where possible, allow the direct and equal involvement of social partners when determining the minimum wage. The convention further states that consultations should take place through open social dialogue before decisions are made by public authorities. This process helps create effective policies, increases their acceptance and implementation, and contributes to social and industrial peace and stability by minimizing misunderstandings and tensions.
In its verdict, the Constitutional Court also stated that although this convention is not necessarily applicable in Kosovo, it may influence the consultation or decision-making process between employers’ organizations, workers and the government when proposing the minimum wage amount.
Contrary to what the new law states, the government’s decision to raise the minimum wage from 264 to 350 euros did not result from the ESC’s failure to submit a proposal, but occurred even though the government was not required to submit one. The council has been non-functional for a year, and unions claim they were not informed in advance about the planned wage increase. This arbitrary government decision could make the minimum wage unsustainable in the long term. It is unclear whether the government conducted preliminary analyses to determine if a 350-euro minimum wage is affordable for businesses. This lack of planning could lead to increased informality in the labor market.
Who does the minimum wage increase affect?
According to the government of Kosovo, there are 105,000 employees in the country who earn less than 350 euros gross per month. Starting October 1, 2024, all employers will be required to pay their employees a minimum salary of 350 euros gross. An analysis by the GAP Institute estimates that around 117,000 employees will be impacted by this wage increase, primarily in sectors such as financial activity/financial intermediation, gastronomy and construction. The analysis also suggests that employers will collectively pay an additional 12 million euros per month to meet the new minimum wage.
This could improve the well-being of lower-income citizens. However, it may also lead to an increase in informal employment. Businesses that cannot afford to pay all workers the minimum wage might decide to pay workers in cash or to avoid formal contracts. This could worsen the situation for the very people the wage increase is intended to help.
According to Article 57 of the Labor Law, the main factors that must be considered when setting the minimum wage are the cost of living, the unemployment rate, the overall situation in the labor market and the country’s competitiveness and productivity.
However, there is no recent public data on whether 350 euros gross can cover the costs of monthly expenses. The Kosovo Agency of Statistics has not updated data on monthly expenses since 2017, when it was 125 euros. With rising prices in recent years, the lack of official data makes it difficult to assess how the minimum wage might mitigate the increased cost of living. The government has not explained how it arrived at the figure of 350 euros.
The publication titled “A living wage for workers in Kosova: Striving for a basic but decent livelihood,” by the Musine Kokalari social policy institute offers the first estimates of a living wage in Kosovo. It defines a living wage as one that ensures that workers and their families can afford a basic but decent standard of living.
According to the analysis, a family of four needs a monthly income of 1,295 euros gross (1,152 euros net) to afford a basic but decent life in Kosovo. In rural areas, this amount starts at 1,224 euros gross (1,091 euros net), while in urban areas, it rises to 1,394 euros gross (1,236 euros net).
For an adult living alone, the monthly income required for a basic and decent life is 816 euros gross (720 euros net). However, this amount can vary, ranging from 762 euros gross (674 euros net) in some areas to 880 euros gross (775 euros net) in others.
The analysis reveals a significant gap between current minimum wages and the estimated living wage, indicating that many minimum wage workers struggle to cover basic needs. Despite the proposed increases, the new minimum wage will still fall short of meeting the cost of living.
Based on this analysis, the new minimum wage of 350 euros gross is 466 euros less than what an adult living alone needs to cover expenses such as rent, food, clothing, health care and transportation.
An increase of 6.8 euros does not benefit either the citizens or the state budget
The law that came into effect on August 23, 2024 also changed the income tax rate. Previously, wages were taxed as follows:
- 0% for income up to 80 euros per month
- 4% or 6.8 euros for income up to 250 euros per month
- 8% for income from 251 to 450 euros per month
- 10% for income over 450 euros per month
The Tax Administration of Kosovo (TAK) announced that with the change in tax rates, there will be no tax on salaries up to 250 euros per month — previously, this amount was 80 euros.
According to the new law, salaries will be taxed as follows:
- 0% for income up to 250 euros per month
- 8% for income from 251 to 450 euros per month
- 10% for income over 450 euros per month
TAK announced that the tax declaration and payment for August 2024 salaries will be calculated according to the new tax scales. The change in tax rates and the late announcement by TAK have sparked reactions, particularly from the business community. Lulzim Rafuna, the President of Kosovo Chamber of Commerce stated that his sector was neither consulted nor informed about the government’s decisions regarding the increase in the minimum wage to 350 euros or the changes in income tax. Instead, businesses found out about these changes through the media. According to Rafuna, this lack of advance notice complicates businesses’ ability to adapt and comply with the new requirements.
Meanwhile, this government decision has been called ineffective in practical terms. According to public criticism, the increase of 6.8 euros per month does not address any significant problems faced by citizens. Additionally, this decision is expected to reduce the state budget by 27 million euros per year, which could have been directed toward improving public services.
Kosovo also has one of the lowest income tax rates in the region, with a progressive system ranging from 0% to 10%. This is lower than the flat rate of 10% used in Serbia, as well as the 9% rates in Montenegro and Bosnia and Herzegovina. Additionally, it is lower than the progressive rates in Albania (0% to 23%), North Macedonia (up to 18%) and Croatia.
Even when considering the combined amount of income tax and social security contributions — which include pensions, health insurance, unemployment insurance and disability — the income tax burden in Kosovo remains one of the lowest in the Western Balkans. Currently, only pension contributions are required in the country (5% from employers and 5% from employees). While some citizens voluntarily pay for private health insurance, there is no mandatory coverage of health, unemployment and disability insurance as it is in other countries in the region.
This significantly reduces the overall income tax burden in Kosovo compared to other countries in the region, where social security contributions can account for a substantial percentage of gross income.
Will the minimum wage be exempt from tax?
It is still unclear whether the minimum wage will be exempt from tax as promised. According to earlier statements by Minister of Finance Hekuran Murati, the minimum wage was to be exempt from taxation. On August 28, 2024, he stated that with the change in tax rates, the minimum wage would be tax-exempt. However, on that day, the minimum wage was still 264 euros, not the 350 euros that was set the following day, August 29.
Based on the tax changes, the minimum wage will not be fully exempt from tax but the first 100 euros over 250 euros will be taxed.
Feature Image: K2.0
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