Organisation of working time accounts after The German Minimum Wage Act comes into force
The German Minimum Wage Act (Mindestlohngesetz – MiLoG) will be effective as of 1 January 2015. According to Sec. 1(1) and (2) of the German Minimum Wage Act, employees are from this date onwards entitled to pay in an amount of at least the minimum wage. Once this legislation applies, the minimum wage is EUR 8.50 per hour. Although the requirement of a minimum wage “per hour” does not preclude flexible working time, from 1 January 2015 companies will, however, likewise have to observe new rules when using working time models based on working time accounts. The background to this is as follows:
Due date of minimum wage
Pursuant to Sec. 2(1) sentence 1, no. 1 of the German Minimum Wage Act, the employer is obliged to pay the minimum wage on the agreed due date for all hours actually worked. According to Sec. 2(1) sentence 1, no. 2 of the German Minimum Wage Act, the minimum wage is due for payment at the latest on the last banking day of the month which follows the month in which the work was performed. The payment of the minimum wage later than on the date specified in Sec. 2(1) no. 2 of the German Minimum Wage Act constitutes an administrative offence which is subject to a fine (Sections 20, 21(1) no. 9 of the German Minimum Wage Act). Fines of up to EUR 500,000 can be imposed and – for many companies much worse – they can be excluded from being awarded public contracts (Sec. 19 of the German Minimum Wage Act). Only working time accounts make any flexibility with respect to the due date of wage payments possible.
Flexible working time with working time accounts
Sec. 2(2) of the German Minimum Wage Act allows working hours beyond the contractually agreed working time to be credited to a working time account which has to be agreed in writing. These working hours are then to be compensated at the latest within twelve calendar months after their monthly recording with paid time off work or payment of the minimum wage. This does not apply if the claim to the minimum wage for the hours worked has been met by payment of the fixed wage. In this case, overtime can also be transferred to a working time account for longer than twelve months, i.e. the compensation period can be longer than twelve months. If the fixed monthly income on the other hand is below the minimum wage, the compensation period of twelve months applies.
In practice, this means that it has to be established in each case whether the gross monthly income actually paid and creditable in accordance with the German Minimum Wage Act at least meets the minimum wage claim with respect to the hours actually worked by the employee. Anyone who wants to be on the safe side, is advised to set up “double-entry bookkeeping” for this purpose, which makes it possible to check and evidence (to the customs authorities) that the requirements of the German Minimum Wage Act have been met.
This can also make sense because the German Minimum Wage Act further provides that the hours credited to working time accounts may not in each case exceed fifty per cent of the contractually agreed working hours (Section 2(2) sentence 3 of the German Minimum Wage Act). If the employment relationship is terminated, the employer must compensate the working hours credited to the working time account at the latest in the calendar month which following the termination of the employment relationship (Section 2(2) sentence 2 of the German Minimum Wage Act).
Setting-off of plus and minus hours on the working time account
“Flexi-time accounts” in particular cause difficulties in this context with respect to the issue of whether and how plus and minus hours on such working time accounts can be balanced in order to meet the requirements of Section 2(2) of the German Minimum Wage Act. It needs to be differentiated here whether a month with plus hours is followed by a month with minus hours or a month with minus hours is followed by a month with plus hours:
The wording of Section 2(2) sentence 1 of the German Minimum Wage Act requires that plus hours accrued in a particular month must be compensated within a period of twelve months. The wording of this statutory provision therefore requires a future-oriented approach.
Example: Plus hours worked in February 2015 have to be compensated with paid time off work or the payment of the minimum wage in the period from the end of February 2015 to the end of February 2016. Any minus hours accrued in January 2015 cannot be taken into consideration for this compensation. The setting-off of plus and minus hours is not provided for by the German Minimum Wage Act as a fulfilment option – at least not explicitly.
It is not currently possible to predict whether the case law of the labour courts will adopt such a strict understanding of this statutory provision. Companies are at any rate well advised to avoid negative balances on working time accounts where possible.
Determination of the compensation period based on seasonal fluctuations
At companies whose business activities and therefore the working hours of employees are subject to seasonal fluctuations, it makes sense to choose a compensation period which takes such typical fluctuations into account. Although Section 2(2) sentence 1 of the German Minimum Wage Act requires a rolling compensation mechanism (compensation review at the end of each month for the preceding twelve months), this legislation does not, however, rule out the establishment of a static compensation period. Pursuant to Section 2(2) sentence 1 of the German Minimum Wage Act, the compensation only has to take place at the latest twelve months after the monthly recording of overtime hours. Compensation before expiry of the twelve months therefore also remains possible. Where a higher number of working hours are accrued, for example in the travel industry during the summer months May, June, July and August, it would appear to make sense to establish a twelve-month compensation period which begins in May and runs until the end of April in the following year. The advantage of this approach is that the industry-specific higher working hours first of all generate plus hours (during summer months), which are then followed by minus hours (during winter months). Since the German Minimum Wage Act will be effective as of 1 January 2015, if such a compensation period is used, any minus hours in the months January to April 2015 which do not follow plus hours will have to be written off.
This has to be taken into account when establishing static compensation periods. In this respect, companies whose regulations to date provide for static compensation periods, will have to work towards an adjustment in the short term in order to prevent this effect.
Any questions? Please contact: Dr. Patrick Mückl
Practice Group: Employment & Pensions