he entrance to the Ministry of Finance in Beirut. (Credit: Philippe Hage Boutros/L'Orient-Le Jour)
In the face of the national currency’s collapse, Lebanon’s caretaker government recently made the decision to raise the minimum monthly wage to LL9 million.
This decision is to be implemented in two stages and carries retroactive effects, although only for a short period. The decision, however, fails to consider the situation of companies that have already increased their employees’ wages.
Nadim Daher, a chartered accountant and treasurer of the Lebanese Business Leaders Association (RDCL), provides insights into the implications of the new measure.
Two decrees to increase minimum wage
Back in December, Najib Mikati’s caretaker cabinet moved to increase the minimum monthly wage from LL2.6 million to LL4.5 million.
Then in early 2023, the cabinet issued two decrees to raise the minimum wage to a new total of LL9 million.
The first decree — No. 11226, which came into effect on April 26 — raised the salary by an additional LL4.5 million.
“Except that the cabinet seemed to have forgotten that the previous increase, which raised the minimum wage from LL2.6 million to LL4.5 million and was announced in December 2022, had never been applied,” Daher said.
Consequently, the April 26 decree only brought the minimum wage to LL7.1 million.
The cabinet then proceeded to pass a second decree — No. 11343, which came into effect on June 8 — to address the remaining LL 1.9 million.
“This results in a cumulative increase of LL6.4 million (equivalent to less than $100 dollars, based on the current market rate of LL93,000 to the dollar),” Daher added.
A retroactive increase
The LL6.4 million increase was expected to be implemented from the date of the decree’s publication, which was June 8.
However, in a June 12 decision, the National Social Security Fund (NSSF) declared otherwise, stating that the LL6.4 million increase in the monthly minimum wage should be applied retroactively from April 26— the date when the first decree came into effect.
According to Daher, the retroactive nature of the measure poses a challenge for companies, as it takes effect just a few days before the end of April.
As a result, companies will need to adjust their April accounts by prorating the increase for the remaining working days of that month and consider the impact on May, without including subsequent months in the calculation.
Additional contributions and taxes
“The overwhelming majority of the private sector has long since revalued its employees’ wages to levels generally higher than the minimum wage, even if each company has done so at its own pace,” said Daher.
“Therefore, this increase can be seen as an advance payment by employers vis-a-vis the high cost of living, which can be deducted from any government-mandated increases,” he added.
This principle of deductibility was implemented when the minimum wage was last adjusted in 2012. Ironically, this was also under a government led by Mikati.
“The government did not take into account that the official rate, which is used to calculate the amounts from which social security contributions and payroll tax are deducted, is still LL15,000 to the dollar,” Daher explained.
For example, an employee who was only paid the minimum wage before the crisis— i.e.LL675,000, or $450 at the old official rate of LL1,507.5 to the dollar.
Faced with a plummeting national currency, the employer decides to pay the employee $300 in fresh dollars, which today represents LL27.9 million at the parallel market rate.
But as far as the tax authorities are concerned, the company is only declaring LL4.5 million, since the official rate has been increased to LL15,000 to the dollar.
Prior to formalizing the decrees, the increase in the minimum wage, this amount of LL4.5 million was used as the basis for calculating the social security contributions due to the NSSF and the tax on salaries paid by employers and employees.
“At the end of the day, raising the minimum wage is just a way of raising taxes to increase revenue for a state that is not functioning [and] has still not embarked on any reform process, and for an equally dysfunctional NSSF,” said Daher.
He pointed out that the NSSF’s decision was published a weekend after its director general announced an increase in reimbursements for nearly 700 medicines. These benefits have been considerably reduced as a result of the crisis.