It is just a few weeks since the minimum wage was introduced in Germany, but it is already becoming quite clear that its implementation in practice cannot be taken for granted. Scarcely a day goes by without the media reporting new minimum wage breaches. Online, meanwhile, law firms openly offer counselling on how to sidestep the statute. And, every day, on the hotline set up by the German Trade Union Federation (DGB) and the Federal Ministry of Labour and Social Affairs (BMAS), hundreds of employees tell of the sometimes highly devious attempts being made to do them out of the minimum wage.

Back in the autumn of last year, in a study commissioned by the Labour Ministry of North Rhine-Westphalia, the Hans Böckler Foundation’s Institute of Economic and Social Research (WSI) was already asking questions about the preconditions for successful implementation. It examined examples from other European countries (France, the UK and the Netherlands), as well as German experiences with regional and sectoral minimum wages, which have existed for quite some time.  Basically, it identified five factors for success:

1. A precise and manageable definition of the minimum wage;

2. Clear, checkable provisions on the relationship between the minimum wage and working time;

3. The existence of efficient monitoring institutions and processes;

4. Effective instruments for wage-earners to get their minimum wage entitlements applied;

5. The broadest possible social acceptance, including by large sections of business.

Definition of the term “minimum wage”

One of the greatest weaknesses of the German Minimum Wage Act (MiLoG) is that it does not include any precise definition. This fact had already drawn criticism during the legislative process – for example, from the Bundesrat (upper house of parliament), which explicitly called upon the Federal Government to clarify “which components of wages are to be counted as part of hourly remuneration”, as “the lack of concretization creates the risk that the minimum wage could be undermined”. The Federal Government, on the other hand, took the view that the term “minimum wage” had already been sufficiently clarified by the case law of the European Court of Justice (ECJ) and the Federal Labour Court (BAG), so that no further clarification was needed. However, a look at the current legal debate makes it clear that the meaning of “minimum wage” has by no means been conclusively settled in every respect by the jurisprudence.

The basic principle confirmed by both BAG and ECJ case law is that the only payments that may be included in the calculation of the minimum wage are those that recompense the contractually agreed standard performance. So any bonuses for additional performance by the employee must be paid as extras. Among these are, for instance, bonuses for unsocial hours (e.g. overtime, Sundays and public holidays, night work or shift work) or for particular working conditions (e.g. dirty-work bonuses or danger money). Nor can account be taken of reimbursements, capital-building benefits or company pension contributions, as these are not intended to recompense standard performance. Finally, tips should not be included either, as they are voluntary payments by third parties and are not, therefore, part of remuneration.

On the other hand, all payments that serve to recompense standard performance should be taken into account in the minimum wage. Alongside the basic, this may include bonuses that are not tied to any special tasks or conditions. Also covered are collectively bargained one-off payments in lieu of increases in negotiated basic rates. Finally, there are a number of remuneration components on which no generally agreed legal view has been reached. This applies in particular to the payment of Christmas and holiday bonuses. The Federal Government’s position is that these should be included if they were irrevocably paid out to the employee, while the Bundesrat insists that they should not generally be taken into account. Meanwhile, the labour court in Berlin has decided at first instance that these bonuses cannot be used to calculate the minimum wage, but there is still the possibility that a higher labour court instance might reverse this judgement.

Relationship between the minimum wage and working time

Experience in other European countries indicates that incorrect recording of working time is one of the most widespread ways of sidestepping the minimum wage. This has been confirmed by the customs service’s own monitoring of sectoral minimum wages in Germany. Overall, three main avoidance techniques may be identified here: 

1. Many firms oblige employees to perform unpaid additional work, and this can mean that pay per hour actually worked is below the minimum wage.

2. Many sectors have no set working times. Here, payment is based rather on a predetermined work output and therefore follows the piecework principle.

3. A third possible way of avoiding the minimum wage is to incorrectly remunerate special working time, such as standby, on-call, travelling and waiting times.

In the Minimum Wage Act (Section 1, paragraph 1), the minimum is first of all defined as pay per hour. The explanatory memorandum attached to the law further clarifies that, in the case of piecework agreements, it will be a requirement in future “that the minimum wage should be reached for the hours worked”. To prevent abuses when arranging and calculating work times, the Act (in Section 17) requires firms to record the start, end and length of employees’ daily working time and retain these records for at least two years.

However, the duty to record working time is not a general one. It applies only to certain sectors and employee groups. These include marginally employed people, who are assumed to be at greater risk of not enjoying the minimum wage, as even today the proportion of low-paid workers is higher among “mini-job” holders than in any other group of employees. The duty to record also applies to those sectors that, according to the Illicit Employment Prevention Act, are particularly susceptible to illegal employment practices.

Monitoring the minimum wage

If the Minimum Wage Act is to be implemented effectively, proper monitoring is essential. Germany has long had a well-developed system for ensuring the application of legal and collectively bargained employment conditions. The most important monitoring authority in this regard is the Illicit Employment Financial Inspectorate (FKS), which is part of the customs service. Under the Illicit Employment Prevention Act, the FKS is tasked with prosecuting cases of illegal employment. To that end, it has been provided with extensive investigatory powers, enabling comprehensive checks on firms.

In addition, pension funds regularly carry out workplace checks, and these also look at compliance with the minimum wage. However, pension funds only examine the employers’ own documentation and, if suspicions arise, pass this information on to the FKS. Furthermore, in the case of public procurement, either the offices issuing the tenders or the federal states’ own monitoring authorities carry out checks.