On January 1, 2015, Germany’s Minimum Wage Law, or Mindestlohngesetz, will take effect. Under this first-ever national minimum wage law, almost any employee in Germany—including contract employees, as well as employees of employers based outside the country regardless of the choice of law of their contracts—will be entitled to a minimum wage of €8.50 per hour. The social security obligations will be calculated accordingly. In addition, the minimum wage must be paid, at the latest, by the end of the month following the month in which the work was performed. Fines of up to €500,000 may be levied on employers that make reduced or delayed wage payments; unpaid or underpaid social security contributions may even result in criminal liability. Further, any agreement or employee’s waiver (except for a court settlement) that limits or excludes the minimum pay entitlement is null and void. An employee who is paid less than the minimum wage will be entitled to a remuneration that is deemed to be usual for the sector/job position (and will normally be higher than the minimum pay).
The Minimum Wage Law especially affects employers in the low-wage sectors of the economy and minor employment forms (i.e. €450-jobs, short-term employment). Under the new law, widespread employment on the basis of a monthly wage of €450 without any particular working time specification, pursuant to the still-applicable provisions, must be limited to a maximum of 52.9 working hours per month in the future.
To ensure compliance with the Minimum Wage Law, employers should review the existing remuneration levels and terms of their employees’ contracts while applying the following test:
Does the Minimum Wage Law apply?
The most relevant groups exempted from the minimum wage law are (1) independent contractors, (2) apprentices, (3) previously long-term unemployed persons in the first six months of their return to employment, (4) employees under 18 years old without any completed professional education, and (5) trainees. For trainees, the traineeship must be a mandatory part of their curriculum, beneficial for the current education, or serve to select a future educational discipline. In the latter two cases, the traineeship must be limited to up to 3 months. However, this time limitation applies to traineeships with the same employer.
By contrast, student employees (Werkstundenten) and graduates in internship programs must be paid at least the statutory minimum wage.
As to employees covered by collective bargaining agreements, the following rules will apply. Higher minimum wage requirements in collective bargaining agreements supersede the Minimum Wage Law. Lower minimum wage requirements established in collective bargaining agreements pursuant to the German Posted Workers Law (e.g., for commercial cleaning services, security services, and health care services) will remain in force during a transition period until the end of 2016.
How is the minimum wage calculated?
The Minimum Wage Law provides for a minimum amount in pay per hour, but does not specify whether the minimum wage should include further remuneration elements (e.g., bonuses, sales provisions, allowances, holiday and Christmas pay, etc.) in addition to the base salary.
According to current court practice in Germany and the European Union, only elements of remuneration that do not alter the relationship between the service provided by the employee and the consideration that the employee receives in return can be taken into account when calculating the minimum wage. Thus, any revocable benefits as well as allowances for overtime, shift work, work during holidays, and special expenditures should not be considered in the minimum wage.
Which contractual terms should be closely reviewed?
- Review and, if applicable, adapt the remuneration and working time provisions in the employment contracts to ensure the attainment of the minimum wage level. A careful drafting is necessary if the remuneration consists of a base salary below the minimum wage level and a variable element (e.g., a sales provision), and in cases of minor employment. Further, piece wages should be transferred into time wages to avoid any conflict with the new Minimum Wage Law. Be also aware of co-determination rights of a works council in case of necessary changes in the remuneration structure.
- As the minimum wage entitlement is mandatory, amend preclusion period clauses in employment contracts to exclude any claims arising from the minimum wage entitlement. This recommendation also applies in cases of full-settlement clauses in mutual termination agreements.
- In the case of €450 jobs, as well as short-term employment as well as full-time jobs in selected industries (e.g. catering and hotel industry, passenger transportation and logistics industry, building sector etc.), ensure that the requested paperwork (e.g., written terms and conditions of employment, working time records, remuneration lists, holiday schemes, etc.) is on hand in case of authority’s control. The Minimum Wage Law requires the employer to record the beginning, end, and duration of the daily working time and to retain these records for at least two years. As the aforementioned selected industries are also subject to the recording obligations of the new Law (e.g. hotel industry), employees with trusted based working time must record now their working times which is in contradiction with this concept of flexible working time. Any disregard of these obligations may trigger fines of up to €30,000.
- Ensure that the terms and conditions of contract employees comply with the minimum wage level due to the potential for liability under the Minimum Wage Law. It has become a popular practice for employers in Germany to request from contractors a bank guarantee in order to minimize the risks from applicable statutory liabilities as the one in hand.