Egypt has approved a new monthly minimum wage of LE700 (US$120) for the private sector effective January, giving rise to questions as to how the rate will be enforced in a job market unused to such regulation.

"The National Council for Wages (NCW) has set up a 'complaints committee' which will be in charge of looking into workers and companies' grievances," says Ashraf El-Araby, advisor to Fayza Aboul Naga, minister of planning and international cooperation and head of the NCW.

The complaints committee will have the authority to exempt companies that present sufficient proof they cannot pay their employees the new rate. It will also have the power to punish firms which fail to adhere to pay employees wages that meet or exceed the new baseline.

On Thursday, the NWC approved a long-awaited minimum wage for the private sector to be implemented on January 2012.

An ‘exigent circumstances allowance’ would be added to those who earn less than LE700 until their pre-tax gross salary -- not their take-home amount -- reaches the minimum rate.

In 2008, the average monthly wage in the private sector reached LE567 for males and LE444 for females according to state statistics agency CAPMAS. The law, however, did not force private sector employers to raise their employees' wages.

Many have criticised the new regulation, claiming the increase will not affect the insurable salary of employees, which will lead to a big disparity between wages and pensions.

"We cannot solve all problems with just one decision. To adjust insurable salaries with regards to total salaries, the Social Insurance Law must be amended and in-depth studies must take place to avoid having large deficits in social insurance funds," El-Araby says. 

Employers are required by Egyptian law to pay almost double what employees pay as social insurance, which is calculated at 40 per cent of basic salary. The employer will put in 26 per cent, while the employees themselves will pay 14 per cent.

Another fear is that the new minimum wage might encourage informal employment in lower-level jobs. Informal employment in the private sector already includes up to 75 per cent of total labourers.

"It is not the NCW's responsibility to solve the problem of contracts. Those who are currently employed with contracts will benefit from the minimum wage. The ministry of manpower is in charge of regulating the contracts issues," El-Araby says.

The International Labor Organisation (ILO) suggested in its 2009 wage report that an effective way to implement minimum wages without many problems is effecting “well-tailored, awareness-raising campaigns, in cooperation with employers’ and workers’ organizations”.

Ahram Online was not informed of any such activities accompanying the implementation of Egypt’s new minimum wage.

The new rate will be applied across Egypt and will not vary by geographical area or industry. When the new rate was being discussed some business groups had suggested a variable rate instead of a universal rate to reflect regional differences and work environments.

"We consider that this is the minimum that any working person should receive in Egypt regardless of his position. Variations [to increase the rate] could be undertaken by individual industries as they might see suitable,” the minister's advisor said.

The rate of LE700 was set to match the new minimum wage paid to government employees government starting July 2011.

"This is an initial step, I think many improvement could be implemented at a later stage,” El-Araby adds.