When a salary increase does not always increase actual pay
Whenever a new collective bargaining agreement is negotiated, or its salary tables are updated, the first reaction is usually straightforward. Many employees expect an effective improvement in their payslip. If the collective agreement increases wages, salaries should increase too. That is the simplest reading. It also tends to shape internal conversations, payroll queries and employee expectations.
Employment Law, however, rarely works in such a linear way. A company’s salary structure does not usually consist only of the basic salary set out in the collective agreement. In many organisations, collective salary tables coexist with personal allowances, position-based supplements, voluntary improvements, hiring salaries above the collective bargaining minimum, on-account salary items and supplements designed to attract or retain talent at specific moments in the market.
When companies fail to define that remuneration architecture properly, it can become a recurring source of conflict.
The question is practical and sensitive. If an employee already receives a salary above the collective agreement because the company granted an individual improvement, must that employee also benefit fully and automatically from a later collective bargaining increase? Or may the company offset and absorb that increase against the improvement it was already paying?
The answer depends on several factors. Companies must analyse the nature of the supplement, the individual and collective agreements in place, the purpose of the improvement and the limits arising from the principle of equality. Not every offset is valid. Yet not every salary difference creates a dual pay scale.
Why the T-Systems doctrine matters
The recent Supreme Court doctrine concerning the collective bargaining agreement of T-Systems ITC Iberia, S.A.U. offers useful guidance. It helps define an intermediate space: the situation of companies that pay certain employees above the collective bargaining minimum and later need to manage the impact of a collective increase without creating an unintended accumulation of salary improvements.
The debate is not minor. In sectors with intense competition for talent, especially technology, digital services, engineering, consulting and professional services, companies may need to agree entry salaries above the collective bargaining tables. They do so to recruit specific profiles at a specific moment in the market.
When a general collective bargaining increase then occurs, the company must decide whether to add that increase in full to salaries that already exceeded the applicable tables. Alternatively, it may consider whether the previous salary excess can absorb that increase.
The judgment confirms a relevant idea for business management. Collective bargaining may provide offsetting and absorption mechanisms where prior salary improvements exist. However, the measure must be justified, limited and unable to create permanent and unjustified remuneration differences.
Offsetting and absorption as a mechanism for salary balance
Salary offsetting and absorption is not an anomaly in the Spanish employment system. Article 26.5 of the Spanish Workers’ Statute provides for it. The mechanism operates when the salaries actually paid, considered as a whole and on an annual basis, are more favourable for employees than those established under the applicable statutory or collective bargaining framework.
The logic is relatively simple. If a company pays above what the collective agreement requires, it may prevent each collective bargaining increase from being automatically added to the actual salary. The key condition is that the salary actually received must continue to exceed the applicable minimum.
In that context, the voluntary improvement previously recognised operates as a space for absorption. The company still complies with the collective agreement. It does not ignore the collective increase. Instead, it prevents that increase from accumulating on top of remuneration that already exceeded the collective bargaining standard.
The legal risk of applying the mechanism too broadly
The existence of the mechanism does not mean that companies may apply it in any manner. Offsetting and absorption has traditionally been one of the most contentious areas of salary structure.
The debate usually focuses on the homogeneity of salary items, the clarity of the clauses, the origin of the improvement and its possible consolidation. It also involves the existence of more beneficial individual conditions and the scope of collective autonomy to allow absorption between items that do not respond to exactly the same purpose.
In business practice, the problem often starts with poor drafting. A company may use an individual improvement without defining it properly. A voluntary supplement may have originated as a hiring salary, a personal improvement, a talent retention measure, compensation for availability, recognition of performance, a market adjustment or a generic payroll item.
Years later, when the company seeks to absorb a collective bargaining increase, that initial lack of precision becomes a legal risk.
For that reason, the judgment should not be read as a general authorisation to neutralise any collective bargaining increase. Its value lies elsewhere. It confirms that, where the collective agreement expressly regulates a limited mechanism of offsetting and absorption against voluntary supplements linked to higher entry salaries, that formula may be compatible with the principle of equal pay. It also confirms that such a mechanism does not necessarily amount to a dual pay scale.
The T-Systems case: higher entry salaries and a challenged clause
The dispute arose from the fifth transitional provision of the collective bargaining agreement of T-Systems ITC Iberia, S.A.U. That clause allowed the company to offset and absorb the salary increase for 2023 against the Company Voluntary Supplement. It applied to employees hired during 2023 with entry salaries above the collective bargaining tables.
The measure did not affect the entire workforce. Nor did it affect any remuneration item indiscriminately. It applied to a specific group: employees hired during 2023 who had joined the company with salaries above the collective bargaining tables.
The supplement used for absorption was also an item provided for in the collective agreement itself. The agreement defined the Company Voluntary Supplement as additional remuneration arising from discretionary increases or hiring salaries above the collective agreement.
Why the clause was challenged
The USO trade union challenged the clause. It argued that the measure created a dual pay scale.
Its argument relied on a relevant fact. The measure specifically affected employees hired in 2023. From that perspective, the date of entry would operate as a differentiating factor and produce unequal remuneration treatment compared with other employees covered by the collective agreement.
The National Court dismissed the claim. The matter then reached the Supreme Court on appeal.
The centre of the discussion was not whether the company could pay salaries above the collective agreement. That point presented no particular difficulty. The key question was whether the company could neutralise the 2023 salary increase for employees who had already been hired that year above the collective bargaining tables.
In other words, the Court had to decide whether the clause constituted a prohibited dual pay scale or a legitimate mechanism of offsetting and absorption.
The relevant facts of the case
The facts help explain the scale of the dispute. In 2023, the company had hired 777 people with an average entry salary above the collective bargaining tables. Of these, 466 were affected by the offsetting and absorption mechanism.
The measure did not apply to employees with salaries below the collective agreement. It did not apply to employees strictly aligned with the collective agreement either. It applied to those who already received remuneration above the collective bargaining standard because of their recruitment in a specific market context.
Dual pay scales: a label that cannot be used automatically
The dual pay scale is a particularly sensitive concept in Employment Law. It arises when two groups of employees performing equivalent functions, or placed in substantially comparable situations, receive different remuneration treatment without an objective, reasonable and proportionate justification.
The date of entry has historically been one of the most problematic factors. It may consolidate permanent differences between existing and new employees without sufficient cause.
However, not every salary difference linked to the date of hiring automatically constitutes a dual pay scale. Business reality is more complex. Entry salaries may vary because of market conditions, scarcity of talent, individual negotiation, experience, professional profile, urgency of recruitment or specific conditions of the role.
Employment Law does not prohibit every difference. It prohibits unjustified, structural and discriminatory differences.
How the Supreme Court approached the distinction
This distinction is essential to understand the judgment. The Supreme Court rejected the idea that the challenged clause created two different remuneration regimes for groups of employees.
The case did not involve a permanent rule that established lower salaries for those who joined on a certain date. Nor did the clause prevent a group from accessing the collective bargaining tables or basic salary rights.
The clause operated on employees who already received salaries above the collective agreement. It allowed a specific increase to be absorbed against a voluntary supplement created precisely to reflect salary improvements of that nature.
The date of hiring appeared in the case, but it did not operate as an autonomous cause of salary reduction. It also did not function as a rule of remuneration segregation. It identified employees who had received higher entry salaries during a specific year.
The measure did not perpetuate downward inequality. It limited the accumulation of a collective bargaining improvement on salaries that were already above the relevant tables.
Equal pay and different economic effects
At this point, the judgment offers a relevant reading for companies with dynamic salary policies. Equal pay does not require all collective bargaining increases always to produce the same real economic impact on previously higher salaries.
Equal pay requires something different. It requires differences to respond to an objective reason. It also requires companies to avoid permanent systems of unequal treatment without justification.
The business purpose: correcting without reducing
One of the most important aspects of the ruling is its attention to the purpose of the measure. The clause did not aim to reduce salaries. It did not deprive certain employees of the minimum remuneration under the collective agreement. It also did not seek to establish a lower salary structure for those hired in 2023.
Its purpose was more specific. The company sought to prevent the collective bargaining increase for that year from being automatically added to entry salaries that had already been agreed above the tables. Those salaries responded to recruitment needs in a competitive market.
This nuance is decisive.
In companies operating in sectors with strong salary pressure, entry salaries do not always reflect a structural and homogeneous remuneration policy. Sometimes they respond to a specific situation: shortage of profiles, urgency of projects, competition between employers, the need to incorporate technical knowledge or market salary pressure.
If those higher salaries consolidate without any possibility of absorption, internal differences may grow. If those salaries also receive all later collective bargaining increases in full, the company may create gaps that are difficult to explain to employees already within the organisation.
Harmonisation as a legitimate aim
The challenged clause operated precisely on that tension. It did not eliminate the supplement. It did not reduce actual salary below the collective agreement. It did not open unlimited absorption for the future. It allowed the 2023 increase to be neutralised against a voluntary improvement that reflected higher hiring salaries.
From that perspective, the Supreme Court understood that the measure pursued a reasonable aim of remuneration harmonisation.
The word harmonisation matters. A company does not always offset and absorb for indiscriminate cost-saving purposes. It may also do so to prevent temporary salary differentials from expanding automatically and creating internal imbalances.
In those cases, offsetting and absorption can operate as a tool for salary organisation. The company must still use it within clear legal limits.
Time limitation as a legal safeguard
The Supreme Court validated a measure with one particularly relevant element: its time limitation. The clause was limited to the 2023 salary increase. It did not establish a permanent, open or indefinite rule for neutralising future collective bargaining increases.
That time limitation helped rule out the existence of a dynamic or structural dual pay scale.
In matters of equal pay, time matters. A specific circumstance may justify a one-off difference. An indefinite difference requires a much stronger justification.
When a measure extends indefinitely into the future, the risk increases. It may become a stable division within the workforce. When a measure is limited to a specific year and linked to an identifiable reason, its legal defence becomes stronger.
Defined contours for collective clauses
The judgment offers a clear lesson. When parties agree offsetting and absorption through collective bargaining, the clause must have defined contours.
The clause should make clear what the company offsets, against which item, for how long, in relation to which group and for what purpose. The more open the clause, the greater the risk of challenge. The more precise its scope, the easier it will be to defend it as something other than unjustified salary inequality.
This idea is especially important in company collective agreements and corporate remuneration policies. Collective bargaining may design sophisticated salary adjustment mechanisms, but it must do so with legal technique.
A transitional clause linked to a specific year and a specific supplement does not carry the same risk profile as a general clause authorising future absorptions without limit or explanation.
The Company Voluntary Supplement: why naming each concept matters
The case also highlights the importance of correctly defining voluntary supplements. The Company Voluntary Supplement was not an improvised concept. It was not external to the collective agreement either.
The agreement provided for it as a vehicle for additional remuneration arising from discretionary increases or hiring salaries above the collective agreement. That definition was fundamental. It justified the absorption of the collective bargaining increase against that supplement.
In many companies, voluntary supplements operate as a salary catch-all. They help complete offers, match market expectations, recognise individual differences, agree incorporations, adjust internal remuneration or avoid complex changes to the payroll structure.
That flexibility may be useful. It can also be dangerous when the concept lacks a clear regime.
Questions companies should answer before conflict arises
The same questions arise sooner or later. Is the supplement consolidated? Is it absorbable? Does it offset future increases? Does it remunerate a personal condition, a position, a result, availability, responsibility or simply an overall salary improvement?
Companies should also ask whether the supplement can be reduced, frozen or absorbed. They should identify whether it comes from an individual agreement or a collective provision. Finally, they should assess whether it is homogeneous in nature with the items against which absorption is intended.
The judgment reinforces the need to answer these questions before conflict arises.
If the company properly defines the voluntary supplement, it has a stronger basis for applying offsetting mechanisms. If the concept remains poorly defined, any attempt at absorption may look like a disguised reduction, a breach of a more beneficial condition or an unjustified alteration of the salary structure.
In remuneration matters, words matter. A poorly named supplement may become a consolidated cost. A well-drafted clause may preserve management flexibility without infringing rights.
Collective bargaining as a space for salary design
The judgment also reaffirms the value of collective bargaining as an instrument for remuneration organisation. In an increasingly complex employment environment, collective agreements do more than set minimum salaries.
They may design salary structures, regulate supplements, provide for absorption rules, establish transitional arrangements and articulate balancing mechanisms between groups.
The Supreme Court does not appear to distrust that capacity. On the contrary, it accepts that a collective agreement may authorise offsetting and absorption formulas where prior salary improvements exist and the measure is sufficiently justified.
Collective autonomy allows salary rules to adapt to the company’s reality. It may do so provided that the limits of equality, proportionality and non-discrimination remain intact.
The limits of collective bargaining
This does not mean that any collective bargaining clause is valid merely because the parties negotiated it. Collective bargaining is also subject to judicial review.
A court may declare void a clause that consolidates permanent differences without cause. The same may happen if a clause penalises a group because of its date of entry or unjustifiably prevents access to salary improvements.
However, where the clause responds to a legitimate purpose, is limited in time and operates on salaries above the collective agreement, its validity is much more defensible.
For companies, the message is clear. They should preferably address complex salary issues through collective bargaining. Those issues should not be resolved only through unilateral decisions or dispersed individual agreements.
The collective agreement may provide coverage, coherence and legitimacy to mechanisms that would be more vulnerable if applied without a collective basis.
What the judgment does not say
It is equally important to clarify what this judgment does not authorise. It does not allow companies to neutralise any collective bargaining increase with any supplement. It does not endorse indiscriminate absorptions. It does not permit permanent salary differences between employees performing the same work without justification.
It also does not turn voluntary supplements into an automatic tool for freezing salaries. Nor does it remove the need to analyse each remuneration structure case by case.
The validity of offsetting and absorption will depend on several elements. The actual salary must remain higher than the collective agreement salary as a whole and on an annual basis. The company must have a sufficient legal, collective or contractual basis. The affected items must be absorbable according to their nature or the applicable collective provision.
The measure must also respect more beneficial conditions. It must avoid discrimination. It must not create an unjustified dual pay scale.
Why labels are not enough
This point matters because general conclusions are often dangerous in salary matters. Two companies may use the same expression, such as voluntary supplement, for legally different realities.
In one company, the supplement may operate as an absorbable improvement. In another, it may have become consolidated by individual agreement or company practice.
One collective agreement may expressly authorise absorption. Another may remain silent or even limit it. The label does not decide the case. The content does.
For that reason, companies should read the judgment as confirmation of criteria, not as a universal licence. Its usefulness lies in showing when offsetting and absorption may pass the equality review.
That will usually require four elements. The mechanism should operate on salaries above the collective agreement. It must apply against a supplement defined for that purpose. The measure should be temporally limited. It should also rely on a reasonable business justification.
Practical impact for companies
The ruling is particularly relevant for companies that use entry salaries above the collective agreement, voluntary supplements or remuneration items paid on account of the collective agreement.
In markets where attracting talent requires exceeding the collective bargaining tables, the company must make a strategic decision. It must decide whether those improvements are truly additional and untouchable. Alternatively, those improvements may form part of a global salary capable of future absorption.
The company should not improvise that decision when the collective bargaining increase arrives. It should anticipate it from the hiring stage. The offer letter or contract should reflect the position where appropriate, align it with the collective agreement and apply it consistently in payroll.
The company should state clearly whether an improvement is absorbable. It should also regulate whether later increases will consolidate automatically. Where it uses a voluntary supplement, the company should explain its purpose.
Hiring policies and internal equity
Companies should also review hiring policies. In contexts of high demand for talent, entry salaries may exceed those of employees already integrated into the company.
That situation may generate internal tensions and equality risks if the company fails to manage it properly. Offsetting and absorption may help prevent those differentials from expanding. However, they do not replace a coherent remuneration policy.
From a collective perspective, companies should pay particular attention to transitional clauses in collective agreements. These provisions often allow specific salary situations to be managed without altering the general structure.
A well-designed transitional clause may resolve a market issue in a specific year. A permanent and poorly delimited clause may generate an equality conflict.
Finally, the judgment invites companies to document the reason for salary differences. If a company pays more to certain profiles because of market reasons, difficulty in filling roles, experience or technical need, it should be able to explain that decision.
Equal pay does not require absolute uniformity. It requires rationality and traceability.
Higher salaries, collective bargaining increases and internal balance
Offsetting and absorption raise a classic tension between individual expectation and collective balance. For the employee, a collective bargaining increase may look like an improvement that should appear directly in the payslip.
For the company, the analysis may be different where that employee already earns above the salary tables. In that situation, the increase may be absorbed within a more favourable overall remuneration package.
Both perceptions coexist. They explain much of the litigation in this area.
The Supreme Court judgment in the T-Systems case does not deny the importance of collective bargaining increases. Nor does it weaken the principle of equal pay. It recognises that actual salary must be analysed as a whole. It also recognises that voluntary supplements may perform an adjustment function where they respond to salaries above the collective agreement.
In that framework, absorption does not necessarily imply inequality. It may avoid automatic accumulations that intensify existing differences.
The balance lies in the limits. The company cannot use offsetting to empty the collective agreement of content. Nor can it use that mechanism to prevent salary improvements indefinitely. It also cannot use it to consolidate first- and second-class groups.
However, where the collective framework allows it and the measure is justified, the company may neutralise specific increases against previously recognised individual improvements.
Ultimately, the ruling recalls something companies should keep firmly in mind. Salary policy is not built only by paying. Companies build it by defining why payment is made, how payment is made, under which concept payment is made and what consequences that payment will have in the future.
At Suárez de Vivero, we advise companies, international groups and HR departments on the design and review of salary structures, voluntary supplements, offsetting and absorption clauses, collective bargaining and the legal management of complex remuneration policies.
Frequently asked questions on salary offsetting and absorption
Can a company neutralise a collective bargaining increase with a voluntary supplement?
Yes. A company may do so where the salary actually paid, considered as a whole and on an annual basis, is higher than the collective bargaining salary. The law, the collective agreement or the applicable agreement must also allow absorption of the supplement. The company should analyse the nature of the supplement, its origin, its purpose and the limits arising from equal pay.
What is salary offsetting and absorption?
It is a mechanism that allows salary improvements already paid by the company to absorb later increases provided for in the collective agreement or another rule. The total salary received must remain more favourable than the applicable minimum. The purpose is to prevent prior improvements from accumulating automatically with each collective bargaining increase.
Can every individual improvement absorb a collective bargaining increase?
No. The answer depends on how the improvement is configured. Absorption will be more defensible if the supplement is expressly absorbable or intended to remunerate salaries above the collective agreement. If the supplement responds to a specific condition, a consolidated agreement or a non-compensable item, the company may face greater limits.
Can offsetting and absorption generate a dual pay scale?
Yes, it may do so if the company uses it to establish permanent and unjustified remuneration differences between comparable groups. However, not every salary difference is a dual pay scale. A measure may be valid where it is justified, temporary, operates on salaries above the collective agreement and does not create two structural salary regimes.
Why was the hiring date relevant in the T-Systems case?
The clause affected employees hired during 2023 with entry salaries above the collective bargaining tables. The Supreme Court understood that the date did not operate as a cause of salary discrimination. It served to identify a group that had already received higher salaries in a specific market context.
Why is the temporary nature of the measure important?
Time limitation reduces the risk that a court will consider the clause a permanent dual pay scale. In the case analysed, the offsetting was limited to the 2023 increase. That limit reinforced the idea that it was a one-off remuneration harmonisation measure, not a structural system of salary differentiation.
What should companies review in their voluntary supplements?
Companies should review their origin, purpose, wording, absorbable or consolidated nature, payroll treatment, connection with the collective agreement and consistency with the general remuneration policy. Poorly defined voluntary supplements may generate litigation when the company attempts to absorb future salary increases.
Is it preferable to regulate these matters in a collective agreement?
In many cases, yes. Collective bargaining may provide a stronger basis for regulating offsetting and absorption mechanisms, especially where they affect broad groups or complex remuneration situations. However, collective bargaining clauses must also respect equality, proportionality and the prohibition of discrimination.