Wages in Hospitality: Minimum Amounts Agreed, with Tips and ‘Under-the-Table’ Payments Covering the Difference

All legal and natural persons engaged in hospitality activities in Croatia are required to increase wages for their employees starting from May 1, 2024. This obligation arises from the decision of the Minister of Labor, who has extended the application of the Hospitality Collective Agreement to all workers and employers operating in the fields of accommodation provision and food preparation and serving. Before making the decision on the extended application, the Minister of Labor conducted an inquiry into whether there is a public interest in extending the Collective Agreement, which included gathering information about the number and structure of employers to whom he intended to extend the agreement, data on the number of employees they have, and consulting with employer representatives to whom he intended to extend it.

Applicable to Agency Workers

According to the Hospitality Collective Agreement, the wage of a hospitality worker consists of the base salary for the job they perform, a seniority allowance, an allowance for work in special conditions, and an allowance for work in conditions heavier than usual. The base salary depends on the complexity of the jobs and the normal working conditions at the worker’s workplace. In the annex to the Collective Agreement, wages are classified into four groups based on these criteria, and a minimum monthly base salary is set for each: for simple jobs (e.g., jobs of a maid, porter, and other similar jobs) 840 euros gross; for less demanding jobs (e.g., jobs of a helper waiter, helper cook, helper receptionist, helper pastry chef, and other similar auxiliary jobs) 850 euros gross; for more demanding jobs (jobs of a waiter, cook, pastry chef, receptionist, and other similar jobs) 880 euros gross; and for very demanding jobs (e.g., specialist waiter, specialist cook, and other similar specialist jobs) 980 euros gross. These are the minimum wage amounts in hospitality that will be monitored by the State Inspectorate starting from May 1, 2024.

According to the Minimum Wage Act, wages determined by a collective agreement whose application has been extended to persons who did not participate in its conclusion are considered minimum wages in that activity, and non-payment of such determined wages is sanctioned as an offense for which a monetary fine of 13,272.28 euros is prescribed for each worker to whom the employer has not paid the amount of wages determined by the extended Collective Agreement. The obligation to pay such determined wages also applies to agency workers who work for hospitality employers as assigned through employment agencies.

Everything Depends on the Employer

The minimum wage at the state level, prescribed by the Regulation of the Government of the Republic of Croatia, has already been increased to 840 euros gross since January 1, 2024, so hospitality employers were already obliged to apply it as the lowest price of labor before this extension. The Hospitality Collective Agreement now only confirms this and introduces small increases for jobs of higher complexity. Considering that, according to DZS data, the average gross wage in Croatia for February 2024 was 1,710 euros, and the median was 1,400 euros, it is easy to see that the agreed wages in the hospitality sector are extremely low. These are minimum wages, but employers can determine higher amounts in their work regulations and collective agreements at the level of payment. Hospitality employers organized as companies and craftsmen who employ up to nineteen workers do not have a work regulation and have fulfilled their legal obligation if they pay the worker a wage as determined by the extended Hospitality Collective Agreement. It is easy to see that according to this agreement, starting from the wage for May, which will be paid in June, the wage for very demanding jobs amounts to only 57 percent of the average wage that was paid in Croatia for February 2024, as the shortest month of the year.

Solutions Without a Future

A worker in hospitality also has the right to an allowance of 0.5 percent for each completed year of service, the right to an increase in wages for hours worked on Sundays and holidays by 50 percent, for night work an increase of 30 percent, and overtime must be paid 50 percent more compared to the regular hourly wage. The payment of these allowances is also monitored by the labor inspection.

It is hard to escape the impression that the wage payment strategy in Croatian hospitality is based on a combination of relatively low gross wages that are practically replaced by non-taxable income, tips that are non-taxable up to 3,360 euros per year, and above that amount are fiscally cheaper than wages as they are exempt from contributions, non-taxable cash allowances for meals, non-taxable performance bonuses, non-taxable annual bonuses, and ‘under-the-table’ payments.

Due to the laws of supply and demand in the labor market, non-taxable income and ‘under-the-table’ payments will cover the difference between wages and actual income, but the pension base and income related to illness and the use of parental rights will still be determined based on income considered wages. In the long term, this is not a desirable direction and will not contribute to retaining Croatian workers in Croatia.