Germany introduces its first minimum wage

Minimum wage laws currently apply in 21 of the 28 member states of the European Union. On 1 January 2015, Germany will become number 22. The German Minimum Wage Act will require employers across all industry sectors to pay employees at least €8.50 gross per hour. Fines of up to half a million Euro can be imposed for non-compliance.

Unfortunately, the new German rules aren’t straightforward. Here are five key points that businesses must get to grips with before the New Year.

Who benefits and who pays?

All employees will benefit, although there are exceptions, such as trainees and volunteers, the long-term unemployed, and children / adolescents who have not completed professional training. Interns can be exempt if their internship meets certain specified requirements.

Employers across all industries are subject to the rules, although full implementation will be delayed in certain sectors until 31 December 2017. Employers based outside of Germany are also impacted. They must pay the minimum wage to any “Germany-based” employees, even where the employment contract is not subject to German law.

When must it be paid?

On the last banking day of the month following the month in which the work was carried out. Note particularly that where an employee is paid above the minimal rate, but the payment is not due until a later date, the employer must pay out earlier than usual in order to comply.

How do you measure the minimum wage?

Weekly, monthly or yearly salaries are permissible, provided the money the employee receives for the hours worked equals at least the minimum wage. There is no prescribed reference period for determining compliance. The parties can agree on one provided it doesn’t exceed two months.

When calculating the minimum wage, statutory entitlements (such as holiday or sickness absence pay) are included. There is uncertainty, however, about whether an employer may include variable pay components and/or special one-off payments to help fulfil the entitlement to the minimum wage. In the opinion of the legislator, allowances and supplements cannot be taken into consideration, and seasonal bonuses should only be considered if paid proportionately each month and without reserving the right to revoke their payment. It remains to be seen what position the courts will take on this. In the meantime, employers should take care not to inadvertently fall below minimum wage.

Illegal contracts

Contracts for payments below the minimum wage are illegal, and therefore void. It is only possible to waive the right to arrears of the minimum wage on the basis of court approval; out-of-court waivers are invalid.

Liability for third-party compliance

Where an employer retains another company to provide services on its behalf, that employer will be directly liable if the service company does not pay its employees the minimum wage. This could in theory mean that an employer bears an insolvency risk regarding the service company’s minimum wage payments. An employer should ensure that the contract for service includes provisions protecting it from third-party employee claims.

Action

Employers with employees in Germany are well advised to confirm before 1 January 2015 that:
• their own compensation rates meet the requirements of the Minimum Wage Act.
• where work is contracted out to a third party service company the employer requires the contractor to confirm that the contractor meets the requirements of the Minimum Wage Act.