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Cyprus

29 September 2017

Cyprus: upcoming reintroduction of the Cost of Living Allowance

Following a Labour Ministry proposal, Trade union and employers’ organisations, in Cyprus, have signed an agreement that will lead to the reintroduction of the payment of the Cost of Living Allowance (CoLA). The CoLA system had been terminated as part of the austerity measures that were introduced in the bailout. The COLA will be paid in the private sector from 1 January 2018 for a three-year transitional period. It has been agreed to use this transitional period for discussions to create a more permanent arrangement.

In 2012, public sector workers (central government and semi-governmental organisations) were confronted, with a freeze of the automatic salary indexation, the so-called Cost of Living Allowance (CoLA). The freeze, which continues until 2018, is one of the consequences of the bailout agreement between the government and its international lenders. A 2015 memorandum of understanding, extended the wages freeze to the private sector. According to the memorandum, a tripartite agreement pursued with social partners by Q4 in 2015 had to ensure that a reformed wage indexation system applicable to the public sector (with lower frequency of adjustment, suspension at times of recession and partial indexation) was also adopted by the private sector, when the period of CoLA suspension ended. However, in recent years, the duration has been prolonged.

The Cost of Living Adjustment agreement, goes back to 1944, it was always used as a basis for pay increases. Traditionally, the system was the result of an agreement between the employer organisations and the trade unions. In order to calculate the CoLA, the wages of all employees covered by collective agreements were readjusted every 12 months (on 1 January) on the basis of the percentage change in the Consumer Price Index over the preceding 12 months period. This Index was calculated by the Statistical Service of Cyprus on the basis of a basket of goods.

The new agreement will lead to a three-year transition period (2018-2020) that offers the social partners the possibility to continue their discussions. As of 1 January 2018, the Cost of Living Allowance will be added to the salary once a year, provided the economy shows growth in the second and third quarters of the previous year.

The CoLA indexation will be incorporated into basic salaries and consists of 50% of the annual increase in the Consumer Price Index. In the event of deflation or if conditions for its payment are not met, it will be frozen and resumed later from the last point of reference. In these cases, salaries will not be reduced. This is an important outcome for the trade unions. They declared that by accepting the transitional agreement, the unions could reject the employers’ claim for wage deductions due to the negative inflation recorded in previous years. The unions also see this compromise as a step forward in the fight against efforts to abolish the system.

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