Germany: Statutory minimum wage as of 1 January 2015

The new German Minimum Wage Act (the "Act") provides for a statutory gross minimum wage of EUR 8.50 per hour as of 1 January 2015. The new legislation will affect all companies, even if they already pay their staff well over the hourly minimum. This is because the statutory minimum wage is a component part of every wage paid. If it is paid late or not at all, it constitutes an administrative offence which may carry a fine of up to EUR 500,000.00. Failure to comply with the new legislation could also render a company criminally liable for not remitting social insurance contributions and/or withholding payment for work. Companies who have been fined EUR 2,500.00 or over may also be barred from bidding for public contracts.

To help ensure that your company is not at risk we have summarized below what we regard as the key points of the new legislation.

Which elements of overall pay count as minimum wage?

It is currently not entirely clear which elements of an employee's pay count towards the statutory minimum wage of EUR 8.50 per hour. If, for example, the minimum wage is only achieved by taking account of the employee's Christmas pay/13th salary then the minimum wage requirements are not met because part of the salary is deemed "too late", i.e. because it is not paid within the period prescribed by the Act. In cases where "minimum wage problems" could arise we strongly recommend checking in each individual case whether the elements which are to contribute to the minimum wage actually meet the legal requirements.

Is it necessary to change the timing of wage payments?

Under the new legislation the minimum wage for all hours worked in a given month must normally be paid by the last bank working day of the following month. If any of the employees are only paid the minimum wage by including other pay components, such as commission, the timing of the salary payments should be altered to ensure that at least the minimum wage is credited to the employee's account by the prescribed date.

What are the implications for working time accounts?

Where a company operates working time accounts, overtime does not have to be paid out. Hours worked over and above the number stipulated in the contract can be credited to the working time account. This presupposes (1) that the working time account is agreed in writing and (2) that overtime is settled within 12 calendar months of the month in which it was worked either by time off in lieu or by a monetary payment. Furthermore, no more than 50% of the agreed working hours may be credited to the working time account in any given month.

Whether or not this is of relevance depends on how much the employee concerned earns. If the gross monthly salary paid on a regular basis is already at a level which covers the minimum pay for all hours worked then no action needs to be taken. If it is not covered, then action of some sort is needed.

What about sub-contractors?

A company needs to exercise caution when it contracts work or services out to sub-contractors because in principle the company is liable for ensuring that its sub-contractor and the sub-contractors of its sub-contractor pay the statutory minimum wage - irrespective of whether the company is at fault. Whether such subcontractors are registered in Germany or abroad is of no relevance. It is therefore vital that the company selects its sub-contractors carefully and obtains their contractual assurance that they do pay the minimum wage. The company should also ensure that its sub-contractors grant it contractual rights to inspect their books and that it has a contractual right to veto their sub-contractors.

Are there any additional documentation duties?

Extensive documentation duties apply to all employees who work in sectors which have a poor record on good employment practice, i.e. the construction trade, transport/logistics/haulage, hotels and catering business, public transportation, commercial cleaning, meat industry, fairs and amusement parks, forestry, trade fairs/exhibitions.

What about international employers with registered offices abroad?

Employers and temporary employment agencies registered outside of Germany are also subject to special registration duties vis-à-vis the customs authorities for employees who they employ in Germany in addition to their documentation duties. In particular, they must give an assurance that they pay their employees the minimum wage.

Is payment of minimum wage mandatory?

Payment of the statutory minimum wage cannot be waived by contract. The Act states that an exception can only be made subject to a court settlement. Agreements which fall short of the statutory wage or which restrict or exclude it are void "in that respect".

If you have any queries on these or any other issues associated with the introduction of the statutory minimum wage, please do not hesitate to contact us.