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Minimum wage from 1 January 2015 – Part I

On 1 January 2015 the Minimum Wage Act (Mindestlohngesetz, MiLoG) will come into force and introduce the first nationwide minimum wage for all sectors in Germany. On this occasion, we will provide you with a two-part overview covering relevant questions.

Who is entitled to the Minimum Wage?
All employees who are employed in Germany are entitled to the minimum wage. According to sec. 20 of the Minimum Wage Act it does not matter whether the employer is located inside or outside Germany.

The Minimum Wage Act provides in sec. 22 exemptions only for the following groups:

  • Interns, but only under the specific conditions provided in sec. 22 of the Minimum Wage Act (e.g. if they are completing an internship which is mandatory for their school education, vocational training or higher education or any other education program regulated by law);
  • Children and young persons under 18 without a completed vocational training;
  • Trainees;
  • Volunteers; and
  • Persons who have been long-term unemployed, but only during the first six months of employment.
    The law contains transitional provisions for certain collective bargaining agreements, newspaper delivery persons and seasonal workers (sec. 23 of the Minimum Wage Act).

What is the “minimum wage”?
The Law provides in sec. 1 para 2 for a minimum wage in the amount of (currently) EUR 8.50 per hour (GBP 7.11; USD 11.55), nothing more and nothing less. It is to be expected that this very short regulation will cause several problems regarding the calculation of the minimum wage in practice, for example:

  • The law does not regulate whether it is possible to take an average in order to calculate the hourly remuneration of the employee. This will become important, for example, if an employee works overtime.
  • The Minimum Wage Act also does not regulate which parts of the employee’s remuneration qualify as part of the minimum wage and which parts have to be paid in addition to the minimum wage. The explanatory statement of the Minimum Wage Act indicates that remuneration which is intended to compensate the contractual performance of the employee will count towards the minimum wage. In contrast, remuneration that is paid for additional performance (eg for overtime work, night work or shifts) will not count towards the minimum wage. However, since this distinction has not been included in the law, it is up to the labour courts to develop principles for the calculation of the minimum wage.
  • Another practical problem arises for payments that are generally not paid on a monthly basis but quarterly or annually (ie Christmas pay). According to sec. 2 of the Minimum Wage Act, the employer is obliged to pay the minimum wage at the agreed due date, but at the latest on the last bank working day (Frankfurt am Main) of the month following the month during which the work was carried out. Accordingly, any parts of the employee’s remuneration may only be counted against the minimum wage if the employee receives the payment or a pro rata amount irrevocably on the due date.
  • A similar problem will occur, for example, if targets for commission payments are agreed quarterly and the commission is paid quarterly. One solution to this problem may be that the employee receives monthly advance payments on a pro-rata basis to comply with the minimum wage and these are set off against a later commission payment if the employee earns more than the minimum wage.
  • Piecework pay remains possible, but the amount of the minimum wage for each hour needs to be guaranteed.

Whatever the answer to these questions, employers will have to adjust existing agreements in order to comply with the minimum wage, or, at least, to avoid the possibility that remuneration which would otherwise count towards the minimum wage does not do so because it is paid after the due date.