Labor Laws

Industry, Ministry Clash Over Temps

temp worker EB-Stock
Some 1.2 million, or 28 percent, of all self-employed have contracts that exempt companies from contributing to social insurance schemes, according to a report by the EY consultancy.
  • Why it matters

    Why it matters

    Draft legislation designed to stop isolated cases of labor abuse in Germany could cause massive problems for companies that have been increasingly relying on temporary workers for wide range of outsourced jobs.

  • Facts

    Facts

    • German industry leaders met with labor minister to try to water down draft legislation that would impose greater controls on hiring temporary workers.
    • Numerous companies in the country are relying increasingly on temporary workers.
    • Reliance on self-employed could be costing social insurance system billions each year.
  • Audio

    Audio

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Germany’s powerful labor minister has a major fight on her hands with the country’s conservative business leaders.

New draft legislation by Labor Minister Andrea Nahles, designed to give more protection and pay to temporary workers, could seriously impact the business models of numerous firms in Germany that need to respond flexibly and quickly to fluctuating market conditions, say industry leaders in the country.

The executives have been working overtime to water down the measure, proposed by the cener-left minister last month, and protect an increasingly popular labor market tool to increase – or decrease – workforces depending on demand. They may even have Germany’s conservative chancellor, Angela Merkel, on their side.

The number of temporary workers in Germany soared from 328,000 in 2003 to about 800,000 in 2015. These workers, say their supporters, fill a gap in the nation’s labor market, where strict job protection rules and the high costs associated with discharging employees have traditionally served as a deterrent to hiring people.

Ms. Nahles sees it differently: She hopes to introduce new restrictions on the use of temporary workers whom she and her center-left Social Democratic Party claim are being abused by various companies trying to circumvent job protection rules. The restrictions would limit temporary work to a maximum of 18 months, although exemptions would be made for certain sectors, such as the metal and electronic engineering sector, that have already implemented their own caps.

Industry experts warn that companies haven’t factored in the risk that they could lose the battle with Ms. Nahles and the German government. Markus Lohmeier, a partner at consulting firm EY, warned of “enormous” damages, including billions of euros in fines and back taxes if companies don’t clean up their act and change the way they hire temporary labor.

“The borders between what’s acceptable and what’s unacceptable for temporary workers are fluid and should be examined in each individual case.”

Martin Möniks, Labor Lawyer

Top industry officials, including Ingo Kramer, head of the German association of employers, and Reiner Hoffmann, the head of the German Federation of Trade Unions, were joined by union leaders and Peter Altmaier, Chancellor Angela Merkel’s chief of staff, for what was described as a “crisis meeting” on Wednesday with Ms. Nahles to present their case against her draft legislation.

An official at the labor ministry tried to downplay the significance of the meeting, calling it a “totally normal part of the law-making process.”

Last month at an employers’ event, Ms. Merkel said the proposed legislation went beyond what her conservative Christian Democrats and the Social Democrats had agreed during coalition government negotiations after the 2013 federal elections. Objections from the ruling conservatives suggest the measure will not likely become law in its current form.

The powerful employers’ association warned in a 15-page paper that Ms. Nahles’s draft could “in one swoop” outlaw a contractual form that has been completely legal and acceptable until now.

nahles-michael kappeler-dpa
Ms. Nahles hopes to introduce new restrictions on the use of temporary workers whom she and her center-left Social Democrat Party claim are being abused by various companies trying to circumvent job protection rules. Source: Michael Kappeler/DPA

 

Labor market reforms in Germany more than a decade ago triggered the boom in temporary jobs and helped lower umemployment, currently at 6 percent, the lowest since reunification and among the lowest levels in the European Union.

Under Ms. Nahles’ proposal, employers would be required to pay temporary workers the same wages as employees after nine months on the job. Sectors already moving toward wage parity would have 12 months to make the change. Companies would also be barred from using temporary workers as strikebreakers to replace employees on strike.

Numerous business leaders worry that under the proposed scheme, outsourcing jobs to temporary workers could become prohibitively difficult in a number of sectors, where workers like the flexibilty and in some cases the pay, especially in the information-technology sector.

Ms. Nahles is eager to prevent slaughterhouses from exploiting Eastern European meat workers, after some isolated cases of abuse made the headlines in 2013. German public broadcaster ARD had aired a documentary film that depicted the appalling working and living conditions of migrants working in meat processing facilities in the country.

Martin Mönks, a labor lawyer, warned about overreacting to isolated cases of abuse with a law that could cause problems for many other sectors and companies where there the use of temporary workers has long been unproblematic.

“The borders between what’s acceptable and what’s unacceptable for temporary workers are fluid and should be examined in each individual case,” Mr. Mönks said.

A new study by the EY consultancy obtained by Handelsblatt shows how fluid those borders have become, and how important outsourcing is for companies in Germany, known far and wide for its rigid protection of labor.

The near-tripling of the number of temps in just over a decade is testimony to its increasing popularity. Retailers, for example, often hire temporary workers during the Christmas season, and automakers react quickly to changes in the market.

The EY survey also found that the increasing reliance of German businesses on questionable contracts with self-employed workers could be costing the country’s social insurance schemes billions of euros a year.

German companies rely on external workers for about 9 percent of their total workforce. About one sixth of the 400 companies surveyed relied on self-employed workers for more than 20 percent of their labor force.

According to EY’s research, some 1.2 million, or 28 percent, of all self-employed have contracts that exempt companies from contributing to social insurance schemes like pensions and unemployment benefits, which are required for full-time employees.

Every second security company, for instance, uses temps as security guards. Maintance firms are also big users of temporary wokers, and numerous higher paid IT experts and tax advisors prefer to work on a temporary basis, according to the EY report.

Germany’s social insurance system is being short-changed more than €3 billion a year.

Larger companies with sales above €1 billion, or $1.1 billion, are turning increasingly to outsourcing for sensitive core areas such as development, production and research. But EY consultants point to growing concerns about the legality of that practice, warning of the risk of temporary workers falling into the category of “pseudo self-employed.”

As a result of that practice, Germany’s social insurance system is being short-changed more than €3 billion a year, “and that’s just a conservative estimate,” said Mr. Lohmeier, a partner at EY.

He said pseudo self-employment is especially prevalent in the logistics, construction, real estate and technology sectors.

“The potential damage for companies is enormous: It could result in considerable payments for tax arrears, additional fines, company executives could be held liable and a company’s good reputation could be tarnished (if authorities crack down on these contracts),” Mr. Lohmeier noted. “But the issue is a blind spot of compliance for a lot of companies.”

Around 82 percent of the companies saw no or only limited risk of being confronted with sanctions, which Mr. Lohmeier labeled “grossly negligent.”

 

Axel Schrinner writes about tax and financial policy for Handelsblatt. Frank Specht covers the labor market. To contact the authors: schrinner@handelsblatt.com and specht@handelsblatt.com

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