Germany Lines Up Behind Minimum Wage: Companies face hefty penalties for noncompliance

Friday, May 1, 2015 - 13:41
Stephan Grauke
Mareike Pfeiffer
Johannes Allmendinger

Stephan Grauke

Mareike Pfeiffer

Johannes Allmendinger

Following the example of many other European countries including France and the UK, Germany introduced a general statutory minimum wage effective as of January 1, 2015. According to the Minimum Wage Act (Mindestlohngesetz, the Act), any employer, irrespective of whether domestic or foreign, is committed to pay to each employee employed within the territory of Germany a salary of currently at least EUR 8.50 gross per hour. Depending on the industry, employers are additionally subject to extensive recording and disclosure obligations. Furthermore, employers are in general liable for any of their subcontractors not complying with the provisions of the Act. Noncompliance with the provisions of the Minimum Wage Act generally constitutes an administrative offense which, subject to the circumstances of the individual case, may trigger a fine of up to EUR 500,000. In addition, employers who do not pay the statutory minimum wage may be excluded from public tenders for some time.

Background and Scope of the Act

The Act was implemented to take action against the spreading of low wages in certain sectors of the German economy. It generally applies to all individuals who are employed in Germany, irrespective of their nationality, residence and branch of industry. Only trainees, volunteers, certain previously long-term unemployed individuals, as well as certain individuals who have not completed professional training, are exempt from the Act. In certain industries (e.g., building cleaning industry, mining industry, postal services), transitional rules established by generally applicable collective bargaining agreements apply until December 31, 2017.

Companies having their seat outside Germany are, however, liable under the Act to the extent they employ individuals in Germany, even if the respective employment agreements expressly provide for another governing law. The German Ministry of Labor and Social Affairs indicated that the Minimum Wage Act shall also apply to employees regularly employed abroad with respect to any time he/she crosses the German border to perform employment services within the Germany territory. It remains to be seen whether this position will ultimately be upheld.

The Act generally only establishes a liability of the employer as a legal entity. There is an exposure, however, that under the German Act on Regulatory Offenses (Ordnungswidrigkeitengesetz) regulatory fines can be imposed on managers in case they failed to take adequate measures to prevent noncompliance with the Act. There is, however, no direct liability of shareholders as regards the implementation of the Act.

 Amount and Calculation of the Minimum Wage

The minimum wage amounts to EUR 8.50 gross per hour. As of January 1, 2017, increases will be possible upon the recommendation of a Minimum Wage Commission, which will be established for this purpose. The minimum wage is to be paid to the employee on the agreed date of payment, however, no later than on the last working day of the following month.

The requirement to pay a minimum wage at an hourly rate does not mean that employees must be compensated on an hourly basis. Weekly, monthly or yearly salaries are permissible to the extent the respective salary divided by the number of hours worked equals at least the statutory minimum wage.

Therefore, certain hours of overtime work, for example, do not have to be compensated to the extent the employee still earns a minimum of EUR 8.50 gross per hour on average.

In addition, the following payments must generally not be considered when calculating the statutory minimum wage:

  • special premiums that are paid to the employee in return for additional efforts (e.g., premiums for overtime work, for work on Sundays or public holidays, for night shift or for work under harsh or dangerous working conditions);
  • payments made to reimburse the employee for expenses in connection with his/her work (irrespective of whether such payments are made on the basis of specific invoices or on a lump sum basis);
  • payments made to acknowledge an employee’s loyalty or length of service; and
  • vacation allowance.
Recording and Disclosure Obligations

To effectively control compliance with the Act, employers in certain industries, including in particular the construction, freight forwarding, transportation, logistics, and building cleaning industries, are required to record with respect to each employee the commencement, end and length of the daily working time and to keep such records for a period of at least two years. In addition, such employers are required to keep for the period of employment, however, at least until completion of the services rendered, any and all documents necessary to monitor compliance of the employer with the Minimum Wage Act (e.g., employment contracts, payroll statements, statements of account). These documents must not only be kept in the German language, but also within the Germany territory. As a consequence, foreign employers may be required to translate such documents into German and, in the absence of any of their own offices or plants in Germany, determine an authorized representative who stores such documents on their behalf.

Affected employers resident abroad are additionally required to disclose to the German customs authorities, prior to the commencement of each service rendered within Germany, various details concerning in particular the employees who are subject to the Act, including the name of such employees as well as the place and length of their employment. In addition, such foreign employers must submit a written affirmation, stating that the statutory minimum wage will be paid. Any act of noncompliance with the recording and/or disclosure obligations under the Minimum Wage Act will trigger fines in the amount of up to EUR 30,000, depending on the individual case.

Liability for Subcontractors

Under the German Minimum Wage Act, companies that operate with subcontractors are liable for the payment of the statutory minimum wage by their subcontractors. The principal and any subcontractor are jointly and severally liable, meaning that the subcontractor’s employees are entitled to claim the minimum wage directly from the principal. While in such a case the company may still take recourse against the contractor, this shifts the risk of recovery to the former. In addition, in case the subcontractor does not pay the statutory minimum wage, a fine in the amount of up to EUR 500,000 cannot only be imposed upon the subcontractor, but also on the contracting company, and both entities can be excluded from public tenders for a certain period of time.

As a consequence, employers should carefully select their subcontractors. Service agreements with subcontractors should provide for the obligation of the subcontractor to comply with the German Minimum Wage Act and to indemnify the principal against, and hold him harmless with respect to, any damages or fines resulting from a violation of the Act. In addition, service agreements should expressly provide for an extraordinary termination right of the principal with respect to each case of noncompliance, as well as for the right of the principal to carry out occasional controls with its subcontractor to monitor the implementation of the Act.

Practical Implications

Given the increased costs of employment associated with the implementation of the Act, many employers are expected to make employees redundant or at least to stop recruiting additional staff. According to a survey conducted by the research institute Ifo, every fourth company impacted by the Act planned either layoffs or an increase in prices. Various goods, including fruit and vegetables, as well as certain services, such as hairdressing or transportation by cabs, are expected to become more expensive for customers.


To avoid significant fines and the exclusion from public tenders, domestic and foreign employers in Germany should make sure that their employees in Germany receive at least the minimum wage of EUR 8.50 gross per hour and that, depending on the industry in which they are active, the applicable recording and disclosure requirements are met. Given the liability for compliance of subcontractors, companies that contract out work should not only carefully select their contractors, but should also make sure that the agreements entered into with such subcontractor provide for the obligation of the contractor to indemnify the company against any damages resulting from a violation of the Act.

Stephan Grauke is based in Weil’s Frankfurt office and is a partner in the Corporate department. Mareike Pfeiffer and Johannes Allmendinger are associates, also based in Weil’s Frankfurt office in the firm’s Corporate department.

Please email the authors at, or with questions about this article. To read Weil’s March 2015 Employer Update in full, click here