In Belgium, most employees’ salaries evolve in line with the cost of living: when prices increase, wages follow thanks to automatic indexation. As part of the fiscal budget agreement reached last week, the federal government intends to intervene in this mechanism in 2026 and 2028.
The goal: Cap the gross salary subject to automatic cost-of-living increases at €4,000, and limit indexation of the employee’s salary above that threshold to a fixed figure. To ensure parity between private and public sector employees, the cost-of-living increase cap would itself be limited to the first 2% of any indexation increase.
This measure may seem simple, but it is in practice far more complex:
- A fundamental challenge: there is no uniform indexation system
In the private sector, most employees’ salaries are adjusted based on a percentage linked to inflation and the rising cost of living. Depending on the industry, indexation is done (semi-)annually, quarterly or even (bi-)monthly.
By contrast, in the public sector, civil servants’ pay is indexed by a fixed 2% whenever the so-called pivot index is reached.
- The measure benefits companies by limiting the increase in wage costs
While employers can keep half of the savings, the government has indicated that half of this gain must be paid back to the State, through social security contributions. Will this obligation be permanent or limited to one year? If permanent, complex calculations will be faced for years to come.
- Many questions remain unanswered:
What happens in sectors where salaries are indexed multiple times a year? Will the cap only apply to the first indexation adjustment or also to subsequent adjustments.
Will salary components other than fixed salary be included when determining the €4,000 threshold? If bonuses and other variable benefits are excluded, two employees with the same overall income could be treated differently simply because of their pay structure...
What is the impact on holiday pay, year-end bonuses, and pensions? These benefits are tied to gross base salary. Slower growth of the base salary will automatically affect these rights year after year due to the cumulative effect of indexation.
What about part-time workers? Two opposing views exist: some think that indexation should apply to actual gross pay without converting to full-time equivalent, while others believe that the cap should be applied on employees’ full-time equivalent salary.
Will legislation be prepared and passed on time, before indexation of most private-sector employees in January 2026? At Littler, we are closely monitoring these developments.