What will happen?
Germany will introduce a statutory minimum wage of EUR 8.50 per hour, effective January 1, 2015. Minimum wages are already in place in some industries; for the first time in Germany, however, the new minimum wage will cover almost every employment relationship. Only very limited transitional provisions may allow employers to remunerate employees below the minimum wage, with exceptions for special groups such as the long-term unemployed, apprentices and trainees.

What does this mean?
Most importantly, employers will have to ensure that all eligible employees receive at least the statutory minimum wage of EUR 8.50 per hour; failure to do so will allow employees to claim the minimum wage in court. Furthermore, failure can give rise to administrative fines and may result in a temporary exclusion of the employer from public procurement proceedings.

Determining whether the minimum wage is being paid can turn out to be more difficult than it appears at first glance.

First of all, the Minimum Wage Act does not specify which benefits may be considered as fulfilling the minimum wage; special allowances, such as a hardship or a car allowance, for example, may not be taken into account. Whether one-time payments, such as a Christmas or holiday bonus, may be considered will be subject to the respective arrangement.

Furthermore, the Minimum Wage Act includes a specific, but rather unclear, provision regarding working time accounts. Working time accounts are a common tool in Germany to handle workload fluctuations by setting off employees’ additional, extra-time hours to supplement reduced hours. Pursuant to the Minimum Wage Act, the handling of working time accounts has been regulated: e.g., within the scope of the Minimum Wage Act, additional-hour accounts now have to be settled after 12 months. Such a limitation is new for the handling of working time accounts.

It is not clear if the employee’s entire working time account will be affected or whether the employer will have to maintain two separate working time accounts for an employee (one “normal” and one “special” minimum wage working time account).

Paying minimum wage is, however, not the only obligation pursuant to the Minimum Wage Act; the Act further burdens employers with documentation and reporting duties, especially to simplify compliance monitoring and inspections by public authorities.

These duties apply regardless of the remuneration the respective employees receive and especially concern two types of employers:

1. employers with business within the scope of the Act to Combat Illegal Employment (Schwarzarbeitsbekämpfungsgesetz) (“Combat Illegal Employment Act”); i.e., building; restaurant and hotel; passenger transportation; forwarding and transport industry, as well as associated industries; carnival business; forestry; commercial cleaning; companies involved in the setting up and dismantling process during exhibitions and trade fairs; the meat industry; and
2. employers with so-called “marginally employed workers” (geringfügig Beschäftigte). In particular, such employers are obligated to prepare records within seven days of every working day regarding daily working time, including workday beginning and end for every affected employee. The employer must store such records for at least two years. Furthermore, such employers must hold for up to two years, within Germany and in German, all documents relevant to a possible minimum wage-related inspection by a competent state authority.

Employers in a business area which is in scope of the Combat Illegal Employment Act and who have their seat outside of Germany are burdened with additional obligations, including providing to the state authority, prior to the performance of any service or work, a written application with essential information, including, inter alia, the names of German employees and where in Germany Minimum Wage Act-relevant documentation is kept, available for inspection, in addition to those requirements previously mentioned. Similar reporting and documentation duties apply to employers who provide temporary agency workers.

Furthermore, the employer’s joint-liability for third-party compliance with the Minimum Wage Act is noteworthy. If an employer hires another company to provide services on its behalf, that employer will be directly liable if such other company does not pay its employees the minimum wage; thus, an employer may be subject to minimum-wage claims by third-party employees. This liability means, effectively, an employer bears insolvency risk regarding third parties’ minimum-wage payments. Certain limitations regarding the scope of the liability established for an according provision by case law will most likely apply.

What should we do?
Employers who currently pay their employees a fixed remuneration below EUR 8.50 per hour should consider adjustments and verify their compliance with Minimum Wage Act obligations.

Additionally, employers who pay their employees slightly more than EUR 8.50 per hour, employers who make use of working time accounts, employers with business that is in scope of the Combat Illegal Employment Act, as well as employers who employ so-called “marginal employees” should verify their Minimum Wage Act compliance.
Again, the mere payment of a wage higher than EUR 8.50 per hour does not exempt an employer from Minimum Wage Act compliance and the attendant recordkeeping duties. Due to the publicity of the introduction of the minimum wage, we assume that public attention will focus on wage enforcement; potential negative publicity surrounding noncompliance recommends strict adherence.

How the Minimum Wage Act will play out, and how the courts will interpret many of the ambiguous provisions included in the Act over the longer term, remains to be seen.