According to Sections 1(1) and (2) of the new Minimum Wage Act: "Every worker has the right to be paid by his employer a remuneration at least equivalent to the minimum wage. As of 1 January 2015, the gross minimum wage shall be €8.50 per hour".
The act has been in force since January 1 2015.
Every worker in Germany is entitled to the minimum wage. This applies regardless of whether the employer is domiciled in Germany or abroad (Section 20 of the act). Workers employed by foreign undertakings in Germany are also entitled to the minimum wage.
In principle, interns are also entitled to the minimum wage. However, the act contains many exceptions to this rule, including:
- individuals doing compulsory practical training based on the laws governing education in schools, training regulations or laws governing higher education (Section 22(1) No 1);
- individuals doing practical training for up to three months as orientation for vocational training or the commencement of university studies (No 2); and
- individuals doing voluntary practical training for up to three months associated with vocational training or university studies (No 3).
The act does not apply to:
- voluntary (honorary) workers;
- young persons under 18 years of age who have not completed vocational training; and
- employees who have been previously unemployed for a long period within the first six months of their employment.
According to Section 1(1) of the act, the minimum wage of €8.50 per hour must be paid. The act provides no information on which remuneration components are to be counted against the minimum wage. In particular, it is debated whether remuneration components that are not paid on a regular monthly basis should be taken into account when calculating the minimum wage, including:
- Christmas bonuses;
- summer bonuses; and
- 13-month salaries.
According to the prevailing view, other benefits and allowances paid for company or social security reasons should not be taken into account when calculating the minimum wage, including:
- capital accumulation benefits;
- contributions to company pension plans;
- anniversary bonuses and awards; and
- benefits in kind (eg, food or fuel vouchers).
The minimum wage must be paid on the contractually stipulated due date or the last bank working day of the following month at the latest. However, the act provides for an exception for working-time accounts agreed in writing (Section 2(2)(1)). According to this provision, hours worked beyond contractually stipulated working hours can be recorded in a working-time account. In this case, the paid wage may be lower than the minimum wage. The time credits must be balanced within 12 months of their monthly recording. Hours credited to working-time accounts may not exceed 50% of the contractual working hours. Section 2(2)(1) applies to all employees to the extent that their minimum wage is affected. Where the salary level is such that, even if hours are credited to a working-time account, the monthly paid salary is in keeping with the minimum wage, the working time account can be maintained without the statutory restrictions under the act. However, there is much debate in this regard.
The statutory minimum wage is mandatory. Agreements that provide for wages below the minimum wage or that restrict or exclude the assertion of entitlement to the minimum wage are void (Section 3 of the act). A waiver is possible only by way of in-court settlement. General statutes of limitation apply.
Section 13 of the act provides for a principal's liability. According to this provision, any principal which commissions others to perform work or provide services is entitled to the minimum wage. This means that a contractor that engages other undertakings as providers of work or services (subcontractors) is liable for payment of the minimum wage owed by the subcontractor to its employees. It is doubtful whether such far-reaching liability is intended.
Section 13 of the Minimum Wage Act refers to Section 14 of the Act on the Posting of Workers. According to case law, Section 14 of the Act on the Posting of Workers provides for the liability only of the general contractor, and not for each contractor (principal). It remains to be seen how the liability under Section 13 of the Minimum Wage Act will develop. However, in light of the act's wording, it cannot be ruled out that the liability will be interpreted as a general liability of the contractor or principal.
Breach of the obligation to pay the minimum wage has various legal consequences.
Payment of customary remuneration
It can be concluded from Section 3 of the Minimum Wage Act that other provisions in an employment contract will remain valid despite agreements in violation of the act. In case of doubt, employers will owe remuneration customarily paid in the comparable work sector – often a higher wage under a collective bargaining agreement.
Penalties under administrative law and criminal law
Compliance with the minimum wage obligation and other employer obligations under the act is overseen by the customs service agencies. Violations of the act are administrative offences. Anyone that intentionally or negligently does not pay the owed minimum wage or does not pay it in due time will face a fine of up to €500,000. The same fine will apply to any principal which involves or admits a subcontractor while the principal is aware (by intention or negligence) of the fact that the subcontractor does not pay the minimum wage or does not pay it in due time. Anyone that breaches its obligations to tolerate or cooperate in an investigation or fails to satisfy documentation duties risks a fine of up to €30,000. Legal representatives (eg, managing directors, board members or other governing bodies) and other representatives (eg, operations managers or holders of registered general commercial powers of representation) which manage the operation in whole or in part will be liable.
If a fine of at least €2,500 is imposed, there is also a risk of exclusion from the award of public contracts "for a reasonable period of time until (the bidder has) been able to prove (its) restored reliability" (Section 19 of the act). Finally, even criminal penalties can be imposed. Among other things, an employer can be held criminally liable for withholding and misappropriating payment for work performed (Section 266a of the Criminal Code) if, as a result of undercutting the minimum wage, the social security contributions and wage taxes that were paid were too low.
The new Minimum Wage Act leads to a need for action in company practice. First, it must be examined whether the minimum wage is paid to workers employed in Germany. It is also advisable for contractors and principals to protect themselves against liability pursuant to Section 13 of the act as far as possible by way of an appropriate contractual structure. In contracts with subcontractors, subcontractors may need to provide for their independent obligation to pay the minimum wage. In addition, employers should reserve the right to have recourse to subcontractors, oversee them and impose comprehensive obligations to provide information on them. Moreover, employers could insist on an indemnification provision, according to which the subcontractor bears sole liability in the internal relationship with the employer (inter partes) in contracts with subcontractors.
Employers should also exclude the remuneration to which the Minimum Wage Act applies from contractual exclusion and forfeiture clauses, since the minimum wage cannot be waived by contract, so that a forfeiture of claims not asserted in writing within a certain preclusion period will apply only to salary components exceeding the minimum wage.
Finally, employers must ensure compliance with the comprehensive documentation obligations provided for in certain cases (Section 17 of the act). Employers must produce records for employees holding mini-jobs and employees working in the industrial or economic sector specified in Section 2a of the Act to Combat Clandestine Employment. The time when work commences and ends and the duration of daily working hours must be recorded. Employers must produce these records by the end of the seventh day following that on which the work was performed and records must be kept for at least two years.
For further information on this topic please contact Bjoern Gaul, Daniel Ludwig, Oliver Ramcke or Bernd Roock at CMS Hasche Sigle by telephone (+49 40 376 30 305), fax (+49 40 376 30 405 05) or email (firstname.lastname@example.org, email@example.com, firstname.lastname@example.org or email@example.com). The CMS Hasche Sigle website can be accessed at www.cms-hs.com.
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