Section 614 of the German Civil Code (BGB) regulates payment due dates as follows:
»Remuneration shall be paid after the services have been performed. If remuneration is measured in terms of periods of time, then it shall be paid after the end of each of the individual periods.«
Consequently, in the context of employment relationships, employees must regularly perform their services as a sort of advance performance. Only once they have done so their claims to payment from their employers will become due. If payment has been arranged on a monthly basis, according to Section 614 BGB, payment for the month in question is not due until after the end of the month, which is to say on the first of the following month. However, a specific payment date is often arranged within the scope of collective bargaining agreements or corresponding works agreements. In practice, monthly compensation is usually paid before the end of the month to make it easier for employees to pay the amounts due at the beginning of each month (such as rent, etc.).
Nevertheless, Section 614 of the BGB is contractually modifiable, so it is possible to arrange a suitable payment date. That necessarily begs the question of when payment is due at the latest.
Minimum Wage Act: A reference point
One possible starting point for determining the latest point in time when remuneration may be paid comes from Section 2, para. 1 (2) of the Minimum Wage Act (MiLoG), which is, admittedly, still relatively young. This regulation states that employers are obligated to pay employees the statutory minimum wage no later than the last bank working day of the month following the month in which they performed work. Accordingly, the statutory minimum wage for work performed in January must be paid no later than the last bank working day of the directly following month, February.
Does delayed payment put people at an unreasonable disadvantage?
A more recent ruling issued by the Regional Labor Court (LAG) of Baden-Württemberg (LAG Baden-Württemberg, October 9, 2017, ref. no.: 4 Sa 8/17) demonstrates that, despite the regulations stated in MiLoG, it is not possible to simply delay payment of monthly wages until the end of the following month. In that instance, the parties contractually stipulated that the employee’s claims to payment should come due between the 15th and the 20th of the subsequent month. From the point of view of the Regional Labor Court of Baden-Württemberg, a provision like this in General Terms and Conditions (GTC), which is what most employment contracts are, routinely puts employees at an unreasonable disadvantage. In these kinds of contractual provisions, a deviation from Section 614 of the BGB should be possible only if this deviation, and thus the postponement of the payment date, can be justified by relevant interests of the employer that are worthy of protection. This can be the case (only) in exceptional situations if the individual remuneration components vary on a monthly basis due to the remuneration arrangement and, accordingly, must be redetermined in each case (e.g. settling monthly royalties). Even in this instance, however, the court only considered it acceptable to postpone the payment date until the 15th of the following month, at the latest. Accordingly, the Regional Labor Court of Baden-Württemberg found the provision stating remuneration claims were due between the 15th and the 20th of the subsequent month to be invalid.
Co-determination of the works council?
The co-determination right of works councils regarding the time of payment was standardized in Section 87, para. 1 (4) of the Works Council Constitution Act (BetrVG) and provides some interesting information in our search for additional latitude. The restrictions of GTC law do not apply to works agreements concluded on this basis, which means it could be possible to arrange a later payment date for remuneration. However, in practice, it will be difficult to convince works councils to agree to postponed payment dates like these. And even then, the works agreement would have to comply with the legal limits stipulated in the MiLoG.
Exercise caution when arranging due dates for payment in the subsequent month. In particular, based on Section 2, para. 1 (2) of the MiLoG, it is not reasonable to conclude that the arrangement of a payment date at the end of the following month is always permissible. Even if payment of remuneration is not possible at the end of the month for which it is due for practical reasons, employers should not postpone the payment date for basic remuneration beyond the 15th of the following month. However, other payment dates may be chosen for variable compensation components.