The European Commission has proposed that workers posted from one European Union country to work in another should be entitled to the same pay as local employees, not just the host country’s minimum wage.
The proposal aims to revise a 1996 law that has sparked controversy in western Europe in the past as the 28-nation EU struggles to reconcile the freedom to offer services across the bloc with stark differences in income and levels of social protection among its members.
An average hour of work costs an employer 40.30 euros ($A59.45) in Denmark and 39.10 euros in Belgium, but only 3.80 euros in Bulgaria, 4.60 euros in Romania or 8.40 euros in Poland, according to Eurostat data for 2014, the most recent available.
A construction firm from Latvia, where the average hourly labour cost is 6.60 euros, can, therefore, pay much more than that to its Latvian employees to carry out a contract in Sweden, where the hourly cost is 37.40 euros, and still remain competitive compared to Swedish companies.
"From now on, all the rules on remuneration that are applied generally to local workers will also have to be granted to posted workers," the Commission said. It did not address the issue of work paid cash in hand.
To become law, the proposal requires majority support from EU governments and the backing of the European Parliament. It is likely to meet opposition from low-wage central and east European countries.
"Remuneration will not only include the minimum rates of pay, but also other elements such as bonuses or allowances where applicable," the Commission said in a statement.
The EU executive and some high-wage countries say the proposed change would tackle "social dumping", or what they see as unfair competition from low-wage countries.
The Commission proposal would make good on a 2014 pledge by its head, Jean-Claude Juncker.
But the heavyweight Bruegel economic think-tank, which often makes recommendations to EU finance ministers, said on its website: "Higher competition leads to efficiency and productivity gains and lower input prices. The effect is unambiguously positive for low-wage countries".
It added: "If a version of the 'same pay at the same place' principle is introduced, European firms would become less competitive globally, due to less competition and the associated efficiency losses."
The logical next step would be to introduce tariffs on goods imported from EU countries with lower wages, it said.
Under current legislation, a company is not obliged to pay a posted worker more than the minimum rate of pay set by the host country. The Commission wants to change that.
"This can create wage differences between posted and local workers and potentially lead to unfair competition between companies. This means that posted workers are often remunerated less than other workers for the same job," the Commission said.
BusinessEurope, representing firms from 34 countries, said current law was good enough and changes would cause uncertainty.
"We disagree fundamentally with the European Commission's view that amending the 1996 posting of workers directive is necessary to ensure fair competition in the single market," the group's director general, Markus Beyrer, said.
But the European Trade Union Confederation (ETUC) says the Commission proposal does not go far enough.
"President Juncker promised equal pay for equal work and has delivered it with a significant loophole," said Luca Visentini, ETUC General Secretary.
"It is equal pay that many posted workers will never get."