Bureaucratic Overload

Minimum Wage Blues for Businesses

bar owner dirk busch by stefan floss for handelsblatt
It's become too expensive to hire someone to dish it out.
  • Why it matters

    Why it matters

    Workers, employers and government enforcers are trying to adjust to the new law that took effect January 1. For some, the change isn’t easy and may make their businesses less competitive.

  • Facts

    Facts

    • In July, lawmakers approved the introduction of Germany’s first national minimum wage.
    • Most other E.U. countries have such a law.
    • German companies must adhere to what many employers say are onerous documentation requirements.
  • Audio

    Audio

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The Schützenhaus Hotel in Pulsnitz, a small town near Dresden, is empty this Friday morning. A radio is on in the kitchen. Somewhere, a door slams. The owner, Dirk Busch, 59, comes into the main dining room. The tall, tired-looking man is angry. “This has nothing to do with the market economy. This is dictatorship at the expense of the customer,” he said.

The restaurateur is not upset that Germany’s new minimum wage law requires him to pay his 15 employees an hourly rate of at least €8.50 ($9.83). He had long paid his staff more before the law took effect January 1. “Otherwise you can’t find any waiters here, they all go to Dresden.”

He is, however, angry that employees’ work hours are capped at 10 per day – and records must be meticulously logged. “If I want to celebrate a wedding here, I have to have people work in two shifts,” he says. He has had to hire seven more workers and raise prices by 43 percent.

In the summer, Germany’s labor minister, Andrea Nahles of the center-left Social Democratic Party, called the minimum wage law a “decision of historic significance” and said that, because of the law, “four million people will sleep better as of January 2015.”

“The minimum wage will ruin many businesses.”

Annett Frenzel, Taxi Business Owner

According to Ms. Nahles, 3.7 million people will directly benefit from the minimum wage law. The strict documentation requirements, however, apply to 9.3 million people. Politicians in the Christian Democratic Union, the majority partner in Germany’s right-left federal coalition, are keen to fight this “bureaucratic monster.”

Whether or not four million Germans are sleeping better is impossible to prove. What is clear is that the new wage law has caused massive upheaval since its introduction less than one month ago.

The hairdressing sector is among six industries that are currently exempt from the new law, and won’t have to comply until August this year.

Klaus-Dieter Kaiser, 56, owner of two elegant barbershops in the town of Lunenburg, Lower Saxony, has 20 employees. “I would have a totally guilty conscience if my employees would have to go to the employment office to increase their wages,” he said. Only beginners get minimum wage, the rest of his employees earn more.

Hairdresser Klaus-dieter kaiser by Michael Behns
Klaus-Dieter Kaiser wishes Berlin would cut the red tape. Source: Michael Behns

 

Mr. Kaiser, however, is operating at the more expensive end of the spectrum. Customers of Kaiser Hair Design can expect to pay €32.50 for a simple men’s haircut. What really bothers the hairdresser is that he now has to document his staff’s work and break times, and keep the records for two years. “Typical German bureaucracy,” he said.

The rise in wages is hitting many smaller employers hard, especially in the former East Germany.

Annett and Oliver Frenzel have been running a small taxi business since 2004 in the town of Potsdam, outside Berlin. They have eleven drivers on their books, but wonder for how much longer they can carry on. “The minimum wage will ruin many businesses,” said Ms. Frenzel.

In the taxi sector, wages were paid according to revenues. With night and weekend surcharges, drivers could keep almost 40 percent of their fares, and live quite well on the money. Now, drivers must be paid by the hour. Ms. Frenzel estimates she paid between €5 and €7 per hour before, and the wage range among drivers was big. Now, each driver gets a fixed €8.50. “Working hard doesn’t pay anymore and laziness is not penalized,” she said.

 

taxi drivers dpa
New load for taxi drivers. Source: DPA

 

Other businesses are passing on the increased labor costs to customers.

The family-run Gabrys Transport, which specializes in delivering cars and car parts to workshops and dealers in the Berlin and Brandenburg area, is one such company. It has 36 employees and sales of around €2 million a year

Stefan Gabrys has added the extra 40 cents to reach the minimum hourly wage for his drivers but scrapped their bonuses. “If I now want to add more surcharges than my west-German competition, customers start asking if I’m trying to get rich.”

The minimum wage not only means more work for employers, but also for the enforcers.

“Everyone tells us that he now earns €8.50. They have that drummed into them.”

German Customs officer

It is raining, and an icy wind whistles over the Glienicker Bridge in Berlin. But the officers of finance control for illegal employment must be out in any kind of weather. For a few weeks now, they have had the additional responsibility of monitoring minimum wage implementation. Countrywide, 1,600 additional workers have been hired to cope with the extra work.

Frauke Ernst, 42, who asked that we not use her real name, is training four officers. Today the inspection centers on two construction sites where steel work is happening – a job she said was often done by illegal workers.

More than 30 men are working at the construction site in the town of Potsdam. The foreman knows only the 21 men from his company, the others are from “somewhere in Eastern Europe, but they can speak German to some extent,” he said.

The customs officers demand identification cards and pull out clipboards: Name, age, employer, social security, work permit, address. Then the most important field in the inspection form: “information on wages and work hours.”

“Everyone here tells us that he now earns €8.50. They have that drummed into them,” Ms. Ernst says. However, the given wage figure often isn’t true.

To prove a violation, the officers must compare the information from the workers with company records. The wages will be paid in February, so customs can only check the records in March.

Nationwide, these controllers collected €777 million in unpaid social security contributions in 2013. Now it might be considerably more. Company bosses who avoid the minimum wage face up to €500,000 in penalties.

Eighty-six percent of Germans in a German Trade Union Confederation (DGB) poll were in favor of a minimum wage. The construction workers in Potsdam like it too.“Honestly for us, it is better, when there is less illegal employment, because then we all get more money,” said one worker. Such statements delight union officials.

DGB chairman Reiner Hoffman is at the Berlin Ostkreuz train station this morning distributing brochures and answering questions about the minimum wage as people hurry to get to work. For decades, unions fought for a minimum wage, and now it’s finally here. “We want to pat ourselves on the back,” an aide said.

There is a “great need for information,” Mr. Hoffmann said. The DGB has set up an information hotline and deal with up to 500 calls a day.  A minimum wage of €8.50 for everyone sounds simple, but numerous exceptions exist: apprentices, minors under 18 without professional degrees, long-term unemployed people in the first six months of their new job, many interns – all these are not covered by the minimum wage.

The Christian Democratic Union party does not want to add more exceptions, but to cut down on the amount of paperwork involved.

That is what restaurateur Dirk Busch in Pulsnitz wants too. He wants to run his businesses but is nervous that any kind of violation of the new rules could cost him a fine of €15,000 per employee.

“At the end of January, the Pulsnitz fire department is coming for their annual meeting. They are very hungry and thirsty. However, if customs appear, we are going to have to close.”

 

 

Simon Book joined Handelsblatt’s investigative reporting team in May 2013. Thomas Sigmund is the bureau chief and director of political coverage in Berlin. Frank Specht writes about the job market and labor unions from Handelsblatt’s Berlin office. Anja Stehle is a reporter with Handelsblatt. To contact the authors: book@handelsblatt.com; sigmund@handelsblatt.com; specht@handelsblatt.com; specht@handelsblatt.com.

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