Statutory minimum wage in Germany: the concept and initial practical experiences
By Prof. Robert von Steinau-Steinrück
After controversial and lengthy political debates, a nationwide statutory minimum wage was introduced on January 1, 2015, by the Minimum Wage Act (MiLoG). As a result of the act, a general gross minimum wage of €8.50 per hour worked applies throughout Germany.
In 2014, not long before the statutory minimum wage was introduced, the pay for 5.5 million jobs in the country was lower than the new gross minimum wage of €8.50 per hour worked. A total of 4.0 million jobs (10.7% of all jobs) are now covered by the Minimum Wage Act. For the remaining 1.5 million jobs, however, the act includes exceptions (see below).
During the transition period through December 31, 2017, collective agreements that provide for lower hourly wages continue to apply if they have been declared generally binding or if their application has been extended by statutory instrument according to the Posted Workers Law (AEntG) or the Act Regulating the Commercial Leasing of Employees (AÜG). From 2018 onward, the minimum wage will be generally binding. Pursuant to
Section 22, MiLoG, the statutory minimum wage does not apply to the long-term unemployed during the first six months of a new employment relationship or to interns, children and adolescents who have not completed any vocational training. Interns are exempted under certain conditions, for example when completing an internship that is mandatory due to an education regulation or within the framework of a cooperative educational program that is regulated by law, or if the internship lasts for up to three months and serves as orientation for vocational training or is carried out in combination with it. For newspaper deliverers, the legislation also stipulates a transitional period: in this case through the end of 2016. A minimum-wage commission will check the specific amount of the minimum wage at regular intervals, with the initial review set to take place on June 30, 2016, and to take effect on January 1, 2017. If necessary, the amount will be adjusted and subsequently prescribed by statutory instrument. An equal number of employer and employee representatives as well as neutral experts from academia will be involved in this process. The Minimum Wage Commission has decided that it will use the monthly index of agreed hourly earnings, excluding extra payments, as the basis for the first adjustment to the statutory minimum wage to take effect on January 1, 2017.
Exception: seasonal workers
The minimum wage is an hourly gross wage that, because of the mandatory nature of Sections 1 and 20, MiLoG, must be calculated and disbursed as a monetary consideration. Any remuneration in the form of payments in kind, that is, as benefits provided by the employer by way of consideration for the performance of work in a form other than money, is not permitted. The sole exception to this principle concerns the remuneration of seasonal workers to the extent that their room and board may count towards the minimum wage.
A look at the details
The minimum wage cannot be waived. Pursuant to Section 3, MiLoG, agreements providing for wages below the minimum wage or restricting or excluding the right to claim the minimum wage are invalid in this regard. Allowances or supplements paid by the employer are considered elements of the minimum wage if their payment does not change the ratio between a worker’s output and the remuneration he or she re-ceives for that output. For example, an allowance identified in the employment contract of a worker posted from abroad as the difference between the wage paid in his or her home country and the minimum wage due in Germany, the country of posting, could be taken into account. One-off payments like a Christmas bonus can only be recognized for the period in which they are due (pursuant to Section 2 , clause 2, MiLoG) and paid (pro rata where appropriate) and then only under the condition that they have been paid irrevocably to the worker. On the other hand, payments that are conditional, for example for working at particular times (for instance, overtime, Sunday, holiday or night work) or work subject to difficult or dangerous conditions (for example, dirt allowances, danger allowances), cannot be taken into account.
The minimum wage is to be paid on the due date as agreed, but not later than on the last bank working day of the month following the month in which the relevant work was performed. An employer’s principle obligation pursuant to Section 20, MiLoG, includes payment of the minimum wage by the last bank working day (in Frankfurt am Main) of the month following the month in which the work was performed, at the latest, not though payment on the agreed due date. If flexible working hours have been agreed on, specific provisions need to be observed. Foreign-domiciled employers can make use of flexible working hours under the same conditions as German employers.
MiLoG also imposes on the employer an obligation to keep and retain records if the company employs minijobbers, employees from any of the industries (construction, restaurant, hotel, industrial cleaning and forestry) listed in Section 2a of the German Illegal Employment Act (SchwarzArbG) or temporary workers. The employer must record the commencement, end and duration of the employees’ actual daily working hours. The records must be prepared by no later than the end of the seventh day following the day on which the work was performed and be retained by the employer or the temping agency for a minimum period of two years, starting with preparation of the records. Delegating the task of keeping records to the employee is permitted. To simplify the documentation requirement, the German Federal Ministry of Finance issued the German Minimum Wage Recording Ordinance (MiLoAufzV). It stipulates that employers employing workers who solely perform mobile activities and are not subject to provisions regarding specific daily working hours and may allocate daily working hours as they deem fit, only have to record the duration of the work (not its commencement and end). Pursuant to Section 1 of the Ordinance on Minimum Wage Documentation Obligations (MiLoDokV), recording obligations pursuant to the Minimum Wage Act (commencement, end and duration of work each day) do not apply to employees whose sustained gross pay exceeds €2,958 a month or whose sustained gross regular monthly pay exceeds €2,000 provided the employer can submit evidence of such payment for the last full 12 months (disregarding any times where there was no entitlement to pay).
To enforce and secure the minimum wage, Section 13, MiLoG, stipulates by way of a reference to the provisions in the German Posted Workers Act (Section 14 1, AentG) that a principal ordering works or services will be liable in the event that a subcontractor fails to pay the minimum wage to its employees. The principal is treated like a guarantor who has waived the defense of failure to pursue remedies. The Act does not provide an option for the principal to exonerate itself, so the principal should hedge against such risks by making an appropriate contractual agreement with the subcontractor.