Equal pay in Germany: Amended requirements for international assignments and extended protection for posted employees

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On 30 July 2020, the deadline for transposing the revised Posting of Workers Directive (EU) 2018/957 expired. Since then, the principle of Equal Pay applies to all workers posted within the Member States. Under certain conditions, remuneration must be equivalent to that of local employees.
In Germany, the regulations of the revised Directive are implemented in the amended Posted Workers Act (Arbeitnehmer-Entsendegesetz – AEntG) which came into force on 30 July 2020, making considerable changes to the posting regime in Germany. Regulations in other EU Member States may differ in detail from those in Germany.

Key aspects
The original Posting of Workers Directive 96/71/EC provided that mandatory minimum working conditions, such as minimum wages, must be observed in the host country in case of a posting within the EU.
With the Enforcement Directive (EU) 2014/67, registration obligations were introduced as a monitoring instrument. Even though greater transparency has been established, the Directives did not provide a level playing field for posted workers within the European Union.

The revised Posting of Workers Directive (EU) 2018/957 will now come closer to achieving the objective of equal pay for equal work. The Directive aims to protect the rights of posted workers, prevent social dumping and seek to ensure a level playing field. Further, it aims to foster the free provision of services between Member States – ­although these more rigid regulations may seem to have a controversial effect to this purpose at first.

What is new?
The Directive (EU) 2018/957 extends the working conditions to be observed in the respective host Member State. Thus, comparable working conditions rather than minimum working conditions must be guaranteed to posted workers, also known as “Equal Pay Principle”.
Given the fact that the application of such rules to international road transport would entail legal difficulties due to the highly mobile nature of work, sector-specific regulations are planned for this sector. The corresponding Directive (EU) 2020/1057 was published on 15 July 2020, laying down specific rules for posted drivers in this sector.
Consequently, companies will have to become familiar with applicable local laws and generally binding collective bargaining agreements which apply to their international assignments.

Implementation in Germany
On 30 July 2020, the amended AEntG came into force which extends the catalogue of applicable working conditions to posted employees. The essential changes concern inter alia the applicability of generally binding collective bargaining agreements for posted employees in all sectors, the mandatory payment obligation of overtime rates, bonuses for hazardous work as well as benefits in kind and extended working conditions for long-term postings. Previously, generally binding collective bargaining agreements were limited to the construction sector.
Currently, federal generally binding collective bargaining agreements are in place in the following sectors:
– Construction industry
– Cleaning services
– (Coal) mining industry
– Laundry services for commercial clients
– Waste industry including road cleaning and winter services/road clearance
– Training services pursuant to Social Security Act
– Meat processing industry
– Nursing care

Additional, regional generally binding collective bargaining agreements may be relevant in case of long-term postings. If no generally binding collective bargaining agreement applies to the posting, mandatory working conditions, such as minimum wage, maximum working hours and minimum annual leave, must still be observed.
The applicable working conditions to be observed are controlled by means of the existing EU registration obligations with the competent authority.

Remuneration
The AEntG extends applicable regulation with regard to the target remuneration for posted employees. By replacing the term “minimum wage rates” with “remuneration” in Sec. 2 (1) No. 1, the AEntG ensures that posted employees will in future be entitled not only to minimum wage rates pursuant to the Minimum Wage Act (Mindestlohngesetz, MiLoG), but the same remuneration as local employees.
For comparability, the total remuneration must be considered, which consists of the following components:

  • Base salary
  • Any remuneration components which are granted depending on the type of work, qualification, and/or the professional expertise and experience of the employees as well as the region,
  • Any other allowances, supplements such as overtime allowance or benefits-in-kind.

Regarding the remuneration components, the amended Sec. 5 AEntG clarifies that minimum rates defined in collective bargaining agreements which make a distinction depending on type of activity, qualification and regional differences. However, it stipulates a limitation to three wage levels and does not cover entire pay scales.
A closer look is necessary with regard to allowances. According to Sec. 2b (1) AEntG, payments received by the employer for board, lodging, travel or accommodation cannot be offset against the remuneration to the posted employee. In order to avoid a circumvention of this regulation, Germany has laid down a new rule under which conditions posting allowances can be recognized as remuneration. It stipulates an irrebuttable presumption for allowances whose purpose is not clearly specified. In these cases, it is presumed that the posting allowance is intended to reimburse the employee for expenses and will thus not be considered as part of the remuneration. Functional allowances or allowances granted for higher-value tasks are to be regarded as accountable. Allowances which compensate for costs incurred in connection with the posting, such as tax compensation allowances, rent allowances or cost-of-living allowances, are not eligible. Sending companies should therefore define precisely the purpose of the allowances granted.
As regards accountability, it is also of the utmost importance for sending companies to comply with mandatory allowances in the host Member State. In this context, the AEntG stipulates that posted employees in Germany are not only entitled to reimbursement of board, lodging, accommodation and costs which are incurred in connection with the posting, but also to overtime bonuses. These regulations will, however, not apply, if the law applicable to the employment contract is more favorable (principle of favorability).

Long-term postings
Long-term postings will be subject to extended employee protection. Corresponding to Article 3 of the Directive (EU) 2018/957, all working conditions applicable at the place of employment by law, regulation or administrative provision and generally binding collective bargaining agreement must be guaranteed to the posted employee after the expiry of a twelve-month period. This period can once be extended up to 12 months. Effective as of now, regional generally binding collective bargaining agreements must also be considered. Working conditions in this sense are in particular:
the entitlement to continued remuneration on public holidays,
parental leave,
nursing care time off and
reimbursement of expenses and tortious liability.
However, the above listed rights are limited to the labor law entitlement and do not include any entitlements regarding continued payments which are based on social security regulations.

Exemptions
Besides the general exemption for the road transport sector, Sec. 24 AEntG explicitly introduces exemptions from the regulations for selected activities. Exemptions are foreseen inter alia for short meetings or attending of trade fairs if they are performed only to a minor extent.

Consequences
Challenges for companies are twofold: on the one hand companies need to ensure that postings are identified and registered prior to the commencement of work. This in turn brings about the necessity to collect a great variety of data depending on the respective host country. This increases the administrative burden resulting from the notification and record keeping obligations and can create an obstacle – especially in case of ad hoc trips.
On the other hand, companies are specifically challenged as regards assessing local legal requirements which must be considered to ensure comparable working conditions – keeping in mind the great variety of legal obligations and number of collective bargaining agreements within all Member States. Besides the necessity to identify all provisions which must be observed, the employer must keep in mind the different legal regime depending on short-term postings up to 12 months (or extended 18 months) and long-term postings. It will therefore be of particular importance to review assignment policies and compensation structures. A close look at posting allowances, their intention and their accountability, is inevitable.
Next to this, a great variety of universally applicable collective bargaining agreements exist. As demanded by the Enforcement Directive (EU) 2014/67, Member States are requested to publish information required to enable companies to comply with all mandatory working conditions. It remains to be seen which information will be provided as well as its depths and helpfulness in order to enable companies to conduct a legal assessment in a foreign jurisdiction and ensure compliance for their international assignments.

sschreurs1@kpmg-law.com

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