#ElSalvador 🇸🇻 #BDS_Article: Minimum Wage Adjustment: Key Considerations for Business Management

Mandatory Review of the Minimum Wage 

Article 159 of the Labor Code establishes that the minimum wage must be reviewed at least every three years by the National Minimum Wage Council (CNSM in Spanish), a tripartite body composed of representatives from the employer, worker, and government sectors.

Within this framework, the approved adjustment raises the monthly minimum wage to US$408.80 in the industry, commerce, and services sectors, and to US$402.32 in the textile maquila sector. These new amounts seek to protect workers' purchasing power in the face of fluctuations in the cost of living. For businesses—particularly those with tight salary structures or a large number of employees earning the minimum wage or amounts close to it—this requires a thorough review of their financial and operational planning.

Ripple Effect on Higher Wages

Although current legislation does not require automatic increases to wages above the minimum amount, many organizations implement staggered adjustments to their internal pay scales as part of equity and human talent management strategies. Failure to appropriately review the salaries of those previously earning slightly more than the minimum could result in employee dissatisfaction or increased turnover.

In this regard, the increase in the minimum wage may trigger a ripple effect across the wage structure. It is therefore advisable to conduct a comprehensive review of the salary structure to ensure the consistency and competitiveness of the compensation model.

Legal and Tax Implications 

The increase in the minimum wage has implications in various areas, including:

· Labor benefits: The new wage serves as the basis for calculating entitlements such as vacation pay, year-end bonuses (aguinaldos), and public holidays, which entails an adjustment in labor costs.

· Severance pay: The law establishes caps for certain termination payments based on multiples of the minimum wage; therefore, the new wage impacts these obligations.

· Social security and pension fund contributions: Employer contributions to the Salvadoran Social Security Institute (ISSS) and Pension Fund Administrators (AFPs in Spanish) are also calculated based on salary and will consequently increase.

· Administrative fines: Some labor fines are linked to the daily minimum wage, so its update also affects the amount of these penalties.

Recommendations for Employers

In light of this new context, it is advisable for employers to adopt a proactive approach. Recommended measures include:

· Assessing the overall salary structure, considering not only the minimum wage but also mid-level and intermediate salaries, to ensure internal consistency and sustainability.

· Adjusting budgets and financial forecasts to account for the impact of the new labor conditions on operational costs.

· Training Human Resources and administrative staff on the regulatory changes to ensure the correct implementation and minimize legal risks.

· Strengthening internal communication by clearly explaining the scope of the wage adjustment to maintain a positive and collaborative organizational environment.

· Reflecting the new minimum wage in payroll, ensuring compliance with the published decree, which helps avoid findings during potential labor inspections.

The minimum wage increase has an impact that goes beyond the direct benefit to workers earning the base wage. Its significance extends to various levels of the organizational structure, operating costs, and companies’ legal obligations.

Therefore, it is essential that employers adopt a strategic approach aligned with current regulations to address these changes responsibly and sustainably.