Montenegrin retailer Tobacco S Press has projected that the government’s proposed Euro Model wage reform could lead to an increase in its annual labor costs by at least €3.3 million. As a result, the company has indicated the potential closure of approximately 150 outlets and the loss of around 350 jobs.
This estimate represents one of the first comprehensive corporate assessments regarding the impact of the reform, which is scheduled for implementation on January 1, 2027. The Euro Model proposes minimum net monthly wages of €1,000, €1,250, and €1,400, contingent on employee qualification levels, along with modifications to payroll taxation and social contributions.
Tobacco S Press’s calculation assumes that it maintains its current workforce and sales network. The company reported a net profit of roughly €324,000 in the previous year, indicating that the projected additional labor costs could be nearly ten times its recent profit.
The estimates provided by Tobacco S Press are based on its own calculations rather than an independent evaluation of the proposed legislation, which has yet to be fully costed or publicly disclosed. The retailer expressed that sustaining its existing structure under the proposed wage model may not be economically viable, raising concerns about the risk of closing at least 150 locations and cutting around 350 jobs.
This situation intensifies an ongoing discussion primarily focused on broader concerns raised by employers. The Montenegrin Employers Federation has advocated for a delay and reduction of the reform, emphasizing the need for detailed assessments of total labor costs prior to making staffing and investment decisions for 2027.
Employers are also requesting a phased implementation of the changes. In contrast, government officials contend that adjustments to taxes and contributions could mitigate some of the increases in net salaries, thereby supporting household income without placing the full financial burden on businesses.
However, employers argue that the overall gross cost remains ambiguous. This distinction is particularly significant for low-margin sectors such as retail. Companies operating extensive networks of small outlets typically have a high employee-to-revenue ratio and limited capacity to enhance productivity at each location.
Even minor increases in labor costs can drastically affect the financial viability of marginal stores. Tobacco S Press’s projections suggest that these reforms may catalyze further consolidation within such sectors.
In response to rising payroll expenses, companies might opt to close less profitable locations, automate certain functions, or reorganize staff instead of absorbing the increased costs across their existing networks. The effects are likely to vary; stores with higher sales volumes may manage additional labor costs more effectively compared to those operating on thinner margins.
Another possible reaction among retailers could be raising prices; however, competitive pressures and consumer purchasing power may restrict how much additional cost can be transferred to customers.
The reform could also influence wage structures above the minimum level. If lower-paid workers receive significant statutory pay increases, employers may need to raise salaries for supervisors and experienced staff to maintain salary differentials. This could result in a more substantial overall payroll impact than indicated by the number of employees directly earning minimum wage.
The government has noted that the broader Euro Model could potentially affect over 250,000 employees. Nonetheless, its fiscal and economic implications have not been comprehensively assessed by Montenegro’s key international economic partners.
The European Commission has stated it requires formal proposals and government forecasts before evaluating the measures, while the World Bank is currently analyzing their potential ramifications on Montenegro’s medium-term macro-fiscal framework. This scenario places additional pressure on the government to disclose detailed calculations at both company and sector levels prior to implementation.
Tobacco S Press’s estimate does not necessarily imply that other businesses will incur similar costs; however, it highlights possible decisions companies might face if tax offsets prove inadequate: reducing store numbers, cutting staff levels, or increasing prices.
The central question for Montenegro’s labor market transcends merely raising net wages. The effectiveness of this reform hinges on whether businesses can sustain these wage increases without significantly reducing employment or investment enough to negate benefits for workers who remain employed.
Tobacco S Press has quantified this risk as €3.3 million in additional annual labor costs against €324,000 in recent profit. The next challenge for the government will be demonstrating how final tax structure changes will affect this calculation.
