Chapter 4: Who should be getting minimum wages

4.2 Who is an Employee?

The legal definition of an employee

By definition, minimum wages usually only directly apply to employees (wage earners), although there are some exceptions (see section 4.4). The term “employee” is used in both legal texts and statistical analyses – even though there is no international legal definition of an employee. Countries use different definitions and no uniform standard exists.

To prevent abuses, the ILO Employment Relationship Recommendation, 2006 (No. 198), provides non-binding guidance on criteria to be used to determine the existence of an employment relationship.

The Recommendation suggests that:
  • 4(a) National policy should at least include measures to provide guidance for the parties concerned, in particular employers and workers, on effectively establishing the existence of an employment relationship and on the distinction between employed and self-employed workers.
It explains that:
  • 13. Members should consider the possibility of defining in their laws and regulations, or by other means, specific indicators of the existence of an employment relationship. Those indicators might include:
(a) the fact that the work: is carried out according to the instructions and under the control of another party; involves the integration of the worker in the organization of the enterprise; is performed solely or mainly for the benefit of another person; must be carried out personally by the worker; is carried out within specific working hours or at a workplace specified or agreed by the party requesting the work; is of a particular duration and has a certain continuity; requires the worker's availability; or involves the provision of tools, materials and machinery by the party requesting the work;

(b) periodic payment of remuneration to the worker; the fact that such remuneration constitutes the worker's sole or principal source of income; provision of payment in kind, such as food, lodging or transport; recognition of entitlements such as weekly rest and annual holidays; payment by the party requesting the work for travel undertaken by the worker in order to carry out the work; or absence of financial risk for the worker.

Statistical estimates of the share of employees

In developed economies, it is estimated that wage earners represent around 90 per cent of total employment. By contrast, in developing and emerging economies employees can represent as little as 30 per cent of total employment – sometimes even less.1

The share of employees in total employment has important implications for gauging who is covered by minimum wage provisions. As minimum wages only apply to employees, if they represent only a minority of workers, these protections only apply to them.

Figure 1. below shows the statistical relationship between wage employment, the labour force and the total population as a whole, illustrated by the case of Brazil in 2009. Employees (those who earn a wage) are only one subgroup among those employed. Self-employed workers do not earn a wage – they earn income from self-employment.

If there were 100 people in Brazil, about 70 (69.8 to be exact) would be in the labour force. Of those 70 people, about six would be unemployed (8.3 per cent) and 64 (91.7 per cent) would be employed. Of the 64 employed persons, about 42 would be wage earners (66.4 per cent), while the remaining 22 (33.6 per cent) would be self-employed.

Figure 1. Relationship between wage employment, the labour force and the total population. (Brazil, 2009)

Note: In 2013, the International Conference of Labour Statisticians (ICLS) changed the definition of employment, the non-active population and the active population (see sources for more detailed information). Employment includes all sectors of the economy, including the public sector, at the national level.
Key Indicators of the Labour Market (KILM); Resolution concerning statistics of work, employment and labour underutilization, adopted by the 19th ICLS (2013); Resolution concerning statistics of the economically active population, employment, unemployment and underemployment, adopted by the 13th ICLS (1982).

1 ILO Global Wage Report 2014/15