How high inflation will affect the salaries of high-ranking executives

By Dimitris Katsaganis

High inflation this year is a driver of changes in the salaries of high-ranking executives of large companies. This is because from 2023 the adjustment of the maximum insurable salaries based on the inflation of the previous year, ie 2022, “thaws”.

Given that this year, due to the worsening energy crisis in Ukraine and its aftermath, the forecasts for the consumer price index are constantly revised upwards, this will lead to a correspondingly high increase in the maximum wage ceiling on time contributions will be imposed, leading to a reduction in the net salaries of high-paid business executives.

It is recalled that, with a law passed by the government in February 2020, the amount of the maximum insurable earnings of employees was disconnected from the amount of the current minimum wage, was linked to the course of inflation for the period 2023-2024 and at the same time “froze” for 2020-2022. For the period from 2025, it is projected to be linked to the course of total wages.

The level at which the maximum insurable earnings were “frozen” for 3 years (2020-2022) was 6,500 euros / month. This is because, according to a law of the previous government, they were set at 10 times the minimum wage. Thus, as the minimum wage from February 2019 amounted to 650 euros gross (compared to 586 euros that was from February 2012 to January 2019), the maximum insurable earnings amounted to 6,500 euros.

Under the law of the current government (which repealed the law of the previous one), the increase of the minimum wage on January 1, 2022 to 663 euros left unchanged the level of maximum insurable earnings at 6,500 euros. That is, this did not increase to 6,663 euros (10 times 663 euros). The same will happen in view of the increase of the minimum wage to 713 euros on May 1, 2022. In other words, the maximum insurable earnings will not increase to 7,130 euros on May 1, 2022 and will remain again at 6,500 euros.

This “freezing” of the ceiling on gross earnings on which the insurable earnings are imposed will stop, however, on December 31, 2022. From January 1, 2023, this ceiling will be adjusted – and in particular significantly increased. leading to a reduction in the net salaries of very high-paid executives of large companies.

The law and the provisions

As provided by law, the maximum insurable earnings are adjusted “from 1 January 2023 to 31 December 2024 per year by a declaration of the Minister of Labor and Social Affairs, at the rate of change of the average annual general consumer price index of the previous year. of the above percentage, the amount of insurable earnings remains at the level of the previous year “.

For example, according to the latest official forecasts, ie those of the report of the Governor of the Bank of Greece, Mr. Giannis Stournaras, inflation this year is expected to be 5.2% (which is close to the latest forecasts of the Ministry of Finance). ).

If the relevant forecasts are verified, then the maximum insurable earnings in 2023 should increase by 5.2%. This means that they should amount to 6,838 euros, compared to 6,500 euros.

Given that the contributions of the insured, after their imminent reduction (in favor of the supplementary) from June 1, 2022 by 0.25%, will amount to 13.95%, the net earnings of those who are paid more than 6,838 euros / month will undergo a certain reduction.

Example

Even a high-ranking executive of a large company is paid a gross salary of 7,000 euros / month. From June 1, 2022 (ie after the new reduction of the contributions of the insured) and as the existing limit of maximum insurable salaries (6,500 euros / month) continues to apply, he will receive a net of 6,093 euros / month. This is because contributions (insured) of 13.95% up to the amount of 6,500 euros will be imposed (with the result that 5,593 euros remain net), while for the remaining 500 euros (up to 7,000 euros) no contributions will be imposed and so on. , will collect them net.

From January 1, 2023, however, if the scenarios for inflation in 2022 of 5.2% are confirmed and, thus, the maximum insurable earnings reach 6,838 euros, his net earnings will fall to 5,884 euros. This is because he will pay contributions (insured) up to the amount of 6,838 euros (and not 6,500 euros), while he will save only 162 euros (and not 500 euros). Thus, his net earnings will amount to 6,046 euros (5,884 euros from the insurable part and 162 euros from the uninsured).

Therefore, there will be a reduction of 47 euros / month or 0.77% (6,093 – 6,046 euros) and 658 euros on an annual basis.

From the increase of the maximum insurable salaries, however, the cost of the contributions for the employers will also increase, as their contributions (22.15% from June 1) will be imposed from January 2023 on a higher basis. Thus, based on the above example, with a maximum insurable salary of 6,500 euros, the employer contributions will amount to 1,439 euros / month, while, with (possible) maximum insurable earnings of 6,838 euros from January 2023, they will amount to 1,514 euros / month. Therefore, there will be an increase of 75 euros / month and 1,050 euros on an annual basis.