The logic behind different minimum wage systems

Learn more about minimum wage rates by enterprise size

Differentiation of minimum wages by enterprise size may seem attractive, but also has practical difficulties. When based on the number of employees, should an enterprise hire an additional worker, and thus move into a higher minimum wage category, this may increase its labour costs well beyond the cost of that additional worker. The employer may therefore decide to avoid hiring the new worker by either increasing overtime or opting for a precarious contractual form that would not require an official declaration of a change in enterprise size.

This could also provide an incentive for larger enterprises to create smaller satellite enterprises in order to benefit from lower minimum wages. To accommodate the potentially lower capacity of small and medium enterprises to pay and to mitigate the effect that a separate minimum wage rate might engender, some countries have instituted a gradual approach. This approach introduces a lower minimum wage initially, but gradually increases over time until it equals the general, or national, minimum wage in place.