German Minimum Wage Act – Endless Bureaucracy?
> February 2015
The German Minimum Wage Act (MiLoG) came into force on 1st January 2015. However, what initially appeared to safeguard a minimum wage level, especially for those in precarious employment, has turned out to be a bureaucratic monster.
Since 1st January 2015, the MiLoG has obliged employers to pay a minimum (gross) wage of EUR 8.50 per hour. The main argument in support of the introduction of a minimum wage is the improvement of the income situation in the low-wage sector. And, even though the effect of minimum wages on the employment level is disputed, the introduction of the minimum wage is considered as being socially fair by a large majority of the population (Roland Bieräugel, Oliver Nüchter, Alfons Schmid in WSI Mitteilungen, Forschung Aktuell 1/2010, S. 50 ff.).However, the effects on the employers are much more onerous than just having to pay attention to make sure that a (gross) minimum wage of EUR 8.50 per hour is paid. The implementation of MiLoG and of the ordinances connected with it has created comprehensive documentation requirements and liabilities. These are not only valid for employers within the Federal Republic of Germany but also for foreign employers, such as e.g. forwarding companies, whose foreign employees are in Germany for only a short period or who even only pass through the Federal Republic of Germany.
You should consider the following aspects with regard to MiLoG:
1. Minimum wage and its calculation
According to MiLoG, every employee aged 18 and above has an irrevocable claim to the payment of the statutory minimum wage. From 1st January 2015, the statutory minimum wage is EUR 8.50 (gross) per hour. In this respect, the calculation of the minimum wage per working hour is particularly difficult since there are a large number of different compensation models.
In as far as fixed compensation is paid on a monthly basis for a fixed number of weekly or monthly working hours, the hourly rate can be calculated easily. And if pure hourly rates are agreed, compliance with the minimum wage requirements should also not pose any problems.
However, things will become more difficult if the parties to the contract have agreed mixed compensation consisting of fixed compensation and a variable share. The monthly due date of the minimum wage which is also provided for under MiLoG constitutes the decisive criterion under consideration of variable compensation shares. Therefore, those compensations which are not subject to a monthly due date, or which are paid subject to the proviso of later settlement or cancellation are not considered to be for the calculation of the minimum wage.
Consequently, quarterly or half-yearly commission fee payments cannot be considered in the calculation of the minimum wage to be paid on a monthly basis. The same also applies with regard to commission fees which are paid on a monthly basis but which permit offsetting in subsequent months. Moreover, tips or out-of-pocket expenses and travel expense allowances cannot be taken into account. In this case, employment contracts need to be changed as quickly as possible.
2. Documentation requirements
The so-called Ordinance on Minimum Wage Documentation Requirements constitutes one of the excesses which are required to ensure compliance with MiLoG. According to Art. 17 Paragraph 1 of MiLoG, employers from industries covered by the Act to Combat Clandestine Employment have to fulfil comprehensive documentation requirements. These industries e.g. include the following:
+ the construction industry,
+ the restaurant and hotel industry,
+ the passenger transportation industry,
+ the forwarding, transport and logistics industries associated with these and
+ the industrial cleaning industry.
In all of these industries, the beginning, the end and the duration of the employee’s daily working time per week has to be recorded and retained for, at least, two weeks. Only employment contracts with employees who earn more than EUR 2,958.00 (gross) per month are exempt from these comprehensive documentation requirements.
In this context, the minimum wage and the minimum wage documentation requirements do not only apply to German employees but also to foreign employees in as far as the latter are employed in Germany. According to the current interpretation by the competent Federal Ministry of Labour and Social Affairs, employment refers to any kind of activity which is connected with a performance required under the employment contract. This means that foreign employees who are only employed temporarily in Germany are also entitled to the minimum wage even if German labour law is not applicable to these employees.
This also applies to the forwarding and transport industries in as far as the freight movement begins or ends in Germany. According to the current interpretation by the Federal Ministry of Labour and Social Affairs, transit traffic in Germany is also governed by MiLoG. In this respect, the federal government has taken the massive criticism from abroad into account. The application of MiLoG for foreign truck drivers in pure transit traffic has, therefore, been suspended for the time being. This also applies to documentation requirements.
3. Piercing the corporate veil in contracts for work and services and personnel leasing
According to Art. 13 of MiLoG, a liability according to Art. 14 of the German Posted Workers Act (AentG) is also established with regard to the minimum wage pursuant to MiLoG. According to this, entrepreneurs who commission another entrepreneur to provide work or services shall be liable for compliance with MiLoG at the company which carries out the contract for work or services. The same also applies with regard to the relationship between the supplier and the hirer according to the German Employee Leasing Act.
In these legal relationships the client has to take special care to ensure that the contractor pays its employees the statutory minimum wage of EUR 8.50 (gross) per hour. The question of whether the client can be released from this obligation through a unilateral confirmation by the contractor that it complies with the provisions of MiLoG is controversial. According to the statutory provisions, the client shall only be exempt from this liability if he is able to prove that he was not aware of the fact that the statutory minimum wage was undercut. However, such proof is only possible if the client paid special attention to compliance with the minimum wage requirements at the contractor. In this respect, it is recommended to carefully select the contracting partner and to agree contractual rights of inspection and review at the contractor’s for the client - particularly if the contractor has a bad or dubious reputation.
4. Summary
The explanations provided above show that the mere payment of the minimum wage of EUR 8.50 (gross) per hour for a company’s own employees is not sufficient. The MiLoG goes far beyond just introducing rules for the introduction of a minimum wage - this has consequences in the field of documentation requirements and inspection duties as well as in questions of liability which should not be underestimated.
