The German Parliament recently adopted the new Minimum Wage Act (Mindestlohngesetz – MiLoG), fulfilling one of the fundamental conditions of the 2013 Great Coalition Treaty. The legislative process took only 8 months and it appears that legal certainty was less important than speed for the implementation of the statutory minimum wage in Germany.  This article provides an overview of the MiLoG, in particular with regard to problems with calculating the minimum wage, exceptions regarding minimum wage legislation and sanctions for violations.

Implementation of the Minimum Wage Act

The MiLoG came into force on 16 August 2014 and aims to provide (almost) all employees with a minimum rate based on an hourly wage of €8.50. It is likely that the MiLoG will be adapted further on 1 January 2017.  Existing minimum wage provisions (such as those already included in employment contracts) may not need alteration, provided that the current wording allows for the automatic increases envisaged by the MiLoG.

Problems with calculating the minimum wage

The calculation of minimum wages on an hourly basis does not exclude the possibility of employers agreeing other calculation methods (e.g. piecework rate, weekly, monthly or annual remuneration). However, in these cases MiLoG provides that an alternative calculation based on the hours worked must be carried out by the later of (i) the due date of the remuneration or (ii) the end of the month following the work performance.  Further, where statutory minimum wage would be higher than remuneration calculated on an agreed alternative basis, employers must make up and pay the difference to employees, irrespective of that agreement.  When calculating the statutory minimum wage, statutory entitlements (such as holiday or sickness absence pay) are included.  Refunds of expenses and damages / compensation do not have to be included in the calculation. It is still not clear to what extent non-cash benefits have to be considered. However, lump sum payments, such as one-off bonus payments, are generally not included when calculating the minimum wage and/or assessing whether the minimum wage has been paid, but may be considered where such arrangements are not strictly one-off. There is to some extent limited flexibility for working-time accounts and credit balance accounts.

Waiver of the right to the minimum wage

Agreements imposing restrictions on statutory minimum wage entitlements will be deemed invalid. Employees may waive their entitlements only by way of a court settlement agreement.  Forfeiture is prohibited, and forfeiture provisions shall be deemed not applicable.

Permanent exceptions

MiLoG provides for exceptions for compulsory traineeship, voluntary traineeship lasting up to three months, qualification modules, preparation for vocational training, employees aged under 18 and without vocational qualifications, apprentices and volunteers.  Individuals who remain unemployed for more than one year do not have any minimum wage entitlements during the first six months of their new employment.

Temporary exceptions

Until 31 December 2016 employers will be allowed – on the basis of a collective bargaining agreement – to pay a lower wage where the collective bargaining agreement is binding for all employers and applicable for the employees in question.  Until 31 December 2017, employers will be allowed to pay a wage of €8.50 per hour.  The same principles apply for other regulations; for example, a reduced minimum wage will apply to newspaper delivery staff until the end of 2016, and then the €8.50 per hour minimum wage will apply from 2017 onwards.

Sanctions

MiLoG provides a wide inspection and controlling power for customs authorities as well as imposing various co-operation obligations on employers. Non-payment of the minimum wage may be sanctioned by a fine of up to €500,000. A large number of further violations in relation to documentation and employer obligations are also subject to fines.  Employers who are fined €2,500 or more will be excluded from tendering opportunities and invitations to bid from customers for a “reasonable period of time”.

Practical tips and concerns

The new German Minimum Wage Act not only leaves many questions unanswered; it also introduces numerous new compliance obligations, and by association risks for employers, for which legal advice will need to be taken. Where employers are unclear as to whether current remuneration meets the new minimum wage requirements, we would advise that a detailed review of the remuneration model should be carried out. In particular, employers should note that remuneration of a full time employee at around €1,400 per month risks violating the statutory minimum wage requirement. Furthermore, employers should review and continue to monitor future reporting and other obligations.