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Legal Advice

New Minimum Wage Brings New Pitfalls

Since January 1, 2015, there has been a generally applicable statutory minimum wage in Germany. Since then almost every employee of legal age has a mandatory right against his employer to a gross payment of at least €8.50 per hour. The statute provides that this minimum wage will be reviewed regularly and adjusted if appropriate (and by "adjusted" they mean "increased"). The initial adjustment is to take effect as of January 1, 2017.

Underage wor­kers are exempt from the sta­tutory mini­mum wage unless they have com­p­le­ted their voca­tio­nal trai­ning; redu­ced rates apply to vol­un­tary posi­ti­ons. Trainees are not requi­red to be paid a mini­mum wage. Howe­ver, not only full-time and part-time emp­loyees are entit­led to the mini­mum wage, but so are tem­porary wor­kers, mar­gi­nal part-time wor­kers, sea­so­nal wor­kers and - with a few excep­ti­ons - interns. This means that not just a few indu­s­tries are affec­ted by the sta­tutory mini­mum wage - almost every com­pany is.

New Minimum Wage Brings New Pitfalls© Thinkstock

And the new law doesn't just require emp­loy­ers to pay a mini­mum wage. It also estab­lis­hes a series of other requi­re­ments, such as when wages and sala­ries must be paid, namely no later than the last ban­king day of the month fol­lo­wing the period in which the work was per­for­med, alt­hough where emp­loy­ment agree­ments pro­vide for ear­lier pay­ment, they obviously take pre­ce­dence.

Only pro­per times­heet sys­tems that have been agreed to in wri­ting enjoy cer­tain pro­tec­tion. They remain per­mis­si­ble such that the com­pen­sa­tion of overtime may to a cer­tain extent be post­po­ned by making an entry in the times­heet.

But that is not the only rea­son why the emp­loyer's self-moni­to­ring is time-con­su­ming. If, for example, the emp­loy­ment agree­ment pro­vi­des for a fixed wage of less than €8.50 per hour, then an ana­ly­sis must be per­for­med to deter­mine whe­ther the mini­mum wage is rea­ched by adding other wage com­pon­ents to the hourly rate.

Lump-sum wage agree­ments, such as in the form of a monthly salary, are even more com­plex to eva­luate. If the monthly salary is not cle­arly hig­her than the mini­mum wage, care must be taken, parti­cu­larly in cases where emp­loyees work varia­ble hours. In many cases it will not be pos­si­ble to avoid sha­dow cal­cu­la­ti­ons on the basis of the mini­mum wage, which will result in inc­rea­sed admi­ni­s­t­ra­tive expense. This app­lies parti­cu­larly to tem­porary emp­loyees, but also to emp­loyees with a rela­ti­vely low base salary and fre­qu­ent overtime.

The cur­rent dis­cus­sion of the mini­mum wage record-kee­ping requi­re­ments must be seen against this back­drop. In cer­tain indu­s­tries records of the actual work per­for­med must be kept for all emp­loyees who receive a monthly salary of up to €2,958. These include the con­struc­tion indu­s­try, hotels and restau­rants and the tru­cking and rela­ted logistics indu­s­try.

The repor­ting obli­ga­ti­ons apply to all emp­loy­ers with respect to their mar­gi­nal part-time wor­kers and their short-term emp­loyees. In all of these cases the begin­ning, end and dura­tion of the daily wor­king time must be recor­ded wit­hin a week after the work is per­for­med and the records must be kept for at least two years.

There are rea­sons to pay close atten­tion to mar­gi­nal part-time emp­loy­ment rela­ti­onships any­way. These often involve wor­king times of around 15 hours a week. That results in 60 to 65 hours wor­ked per month; mul­ti­p­lied by the mini­mum wage, a gross amo­unt of €510 to €552.50 would have to be paid, i.e., more than the €450 limit for mar­gi­nal part-time work. If the emp­loyee demands to be paid the mini­mum wage, then not only must the emp­loyer pay the dif­fe­rence in arrears, but the emp­loy­ment rela­ti­onship retroac­ti­vely loses its sta­tus as mar­gi­nal. Back taxes and social secu­rity pay­ments will have to be paid, most of them by the emp­loyer.

Given the limit on mar­gi­nal part-time emp­loy­ment, an emp­loyee enga­ged in mar­gi­nal part-time work should now not work more than around 52.9 hours per month. The wor­king hours pro­vi­si­ons of exis­ting emp­loy­ment agree­ments with per­sons enga­ged in mar­gi­nal part-time emp­loy­ment should be revie­wed, along with any pro­vi­si­ons regar­ding overtime.

Finally, a deci­sion to out­source indi­vi­dual tasks to sub­con­trac­tors is not wit­hout its pro­b­lems. For example, the emp­loyer can be requi­red to pay the mini­mum wage by the emp­loyee of its sub­con­trac­tor if the sub­con­trac­tor fails to meet this obli­ga­tion. Alt­hough the emp­loyer in such situa­ti­ons has a claim against the sub­con­trac­tor, there are bound to be costly dis­pu­tes and if the sub­con­trac­tor beco­mes insol­vent, the claim will ulti­ma­tely be worth­less.

The bot­tom line is this: Every com­pany - and also every asso­cia­tion and pri­vate indi­vi­dual with emp­loyees - must review their com­p­li­ance with the mini­mum wage requi­re­ments. Vio­la­ti­ons can result not only in back-pay obli­ga­ti­ons, but in many cases con­sti­tute admi­ni­s­t­ra­tive offen­ses sub­ject to sig­ni­fi­cant mone­tary penal­ties. It is also pos­si­ble that vio­la­tors will be exclu­ded from parti­ci­pa­tion in pub­lic ten­ders. And that is some­t­hing eve­r­yone wants to avoid.

Michael Huth, Attor­ney and Spe­cia­list Attor­ney for Labor Law at Ebner Stolz in Ham­burg

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