Germany: Minimum Wage – The Clock Is Ticking

Last Updated: 14 October 2014
Article by   Orrick

The introduction of minimum wage moves inexorably closer. From 1 January 2015 on the new provisions apply, which are regarded the most controversial project of the grand coalition, and will lead to significant changes. Particularly Emerging Companies that typically employ students, graduates, or interns are affected by the changes and must ensure compliance with the new minimum wage regulations. Even the name of the amending law is bulky. The same is unfortunately also true for the new provisions, which are sometimes difficult to understand. The "Law for the regulation of a general minimum wage" (minimum wage law – MiLoG) will change business processes in many Germany companies fundamentally.

How expensive is it going to be? – Calculating the minimum wage

From 1 January 2015 on there will initially be a minimum wage of € 8.50 gross per hour. However in practice the calculation regarding the compliance with the new minimum wage regulations can be complicated despite this alleged simple principle.

At first, employers must be aware that they have to offer salary adjustment agreements with effect from 1 January 2015 to workers who are currently paid less than the minimum wage and who have the right to receive the minimum wage. Should this be omitted the employee is still entitled to demand minimum wage. This entitlement cannot forfeit over time and is solely subject to the three-year statutory period of limitation.

The minimum remuneration of an employee who is entitled to minimum wage is calculated according to the following formula:

Sum of actual working hours per month x € 8.50

It becomes more difficult, if the employee receives irregular remuneration components such as supplementary allowances or special one-time payments. Can these be allocated to months of activity in order to reach minimum wage? The consideration of these compensation components is not explicitly regulated by law. However, due to the official justification it can be assumed that these surcharges (such as for overtime) are not to be taken into account when calculating minimum wage. The same applies for a refund of travel expenses, clothing or anniversary payments. Accordingly supplementary grants such as a 13th monthly salary or a Christmas bonus are also not to be allocated. Thus these forms of payment do not help to achieve minimum wage during the rest of the year. Legal certainty however will not be reached in this area until the first court decisions have taken place. For employers it is therefore advisable to be rather cautious as not to inadvertently fall below minimum wage.

To whom does minimum wage apply?

The government wanted to create a generally applicable law with few exceptions. However, during the legislative process the number of exclusions steadily increased and thus also markedly amplified the complexity of the law.

Basically the law applies to all "employees" in Germany. Trainees are thus excluded, as they are not "employees" within the meaning of the law. The same goes for volunteers. An exception has also been made with regard to age. The new provisions do not apply to underage persons, unless they already have completed vocational training. A minor having a typical "holiday job" can thus continue to receive remuneration below the minimum wage.

Internships without minimum wage – only until the end of studies

Of high importance for Emerging Companies is the question of how interns and students are to be paid in the future. The relevant provisions are unfortunately anything but easy to understand. The regulations on interns will be of particular importance in practice. In principle these are entitled to receive minimum wage in the future as well. However, there are many exceptions an employer should know. Crucial in this context is the government´s conscious choice to grant exemptions for internships only before or during vocational training or university education (for details, see below). Internships that are conducted after vocational training or university education on the other hand, are subject to minimum wage. The hitherto typically unpaid internship (or internship that involves minor payment) after one's final degree will therefore cease to exist on 1 January 2015. In the future, minimum wage will have to be paid from day one on. Also in cases of Bachelor-graduates who want to bridge the time until the beginning of their master studies minimum wage will have to be paid. Internships are therefore likely to be offered to students who - under certain circumstances - are not entitled to receive minimum wage. It is thus not without reason that the new provisions are also known as a trap for graduates.

Interns – What kind of exceptions are applicable?

On the other hand the law provides also for exceptions for interns.

Required internships for example, i.e. internships that are compulsory by school, university or vocational training regulations, are exempt from minimum wage. Not covered by the minimum wage regulations are therefore all internships that are prescribed mandatory for completing or pursuing studies.

Furthermore, no minimum wage is to be paid if an internship for a period of up to three months is undertaken for orientation in respect of vocational training or studies. Consequently, the internship does not necessarily need to be compulsory for the admission to the course of training or study. It does, however, require a recognizable reference to the desired training or desired course of study. The maximum time limit of three months is of importance. Should the internship last longer, minimum wage has to be paid after three months.

Ultimately, voluntary internships of up to three months that accompany professional or university education are exempted from minimum wage. These internships may only take place once. This means, that an employer may not repeatedly opt for a three-month minimum wage free internship. However it appears to be permissible to divide the three-month period.

Caution – an intern is not necessarily an intern!

As mentioned, the above described exemptions apply to "interns". The law therefore provides for the first time a statutory definition of the term. If the requirements of the statutory definition are not met, a person is not qualified as an intern in the sense of the definition, even if the contract refers to an "intern". The activity as an intern is supposed to grant practical knowledge and experience for a specific occupation. If the intern is therefore used in areas that are not related to the desired occupation, there is a certain risk that he would then legally have to be qualified as a "normal" employee, who is subject to minimum wage. This is likely to occur unrecognized.

Thus employers should always keep the following statutory definition in mind when hiring interns:

"Regardless of the appellation in the underlying legal relationship a trainee undergoes for a limited period of time and according to the actual design and implementation of the contract a certain operating activity to acquire practical knowledge and experience in preparation for an occupation without this activity being a vocational training within the meaning of the law or an equivalent practical training."

Other student activities

Student who work outside the illustrated exemptions for a company are in principle subject to minimum wage. The typical working ("Werkstudent") student who finances his studies by working in a company is therefore entitled to receive minimum wage. This does not apply if the above outlined requirements for a study related internship are met.

Minor employment

Also marginally employed persons ("€ 450 - jobs" or "mini-jobs") are entitled to receive minimum wage, unless one of the above illustrated exceptions applies. Given the minimum wage of € 8.50, marginally employed persons may in future work no more than 53 hours per month. Otherwise they exceed the € 450 limit and the privileges in regard to social security would cease to apply.

Conclusion

The introduction of minimum wage presents companies with considerable challenges. Especially when signing "internship agreements" it is advisable to scrutinize whether the "intern" is subject to minimum wage despite its appellation. Otherwise one might face painful administrative fines or employee claims for payment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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