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By Benjamin Pfaffenberger
WINHELLER Attorneys at Law & Tax Advisors
Frankfurt, Germany

Employers are required by law to pay wages and salaries on time. If they fail to do so, they risk a penalty. Since July 01, 2016, a fixed sum of 40 euros is payable as lump-sum compensation for late payments. This provision dates back to the Late Payment Directive of the European Union.

The fixed late payment compensation, a concept which is otherwise unknown to German law, is intended to compensate the creditor for the disadvantages resulting from the debtor’s late payment regardless of whether or not the creditor has actually suffered any damage or incurred any expenses. Said disadvantages include postage for reminders or other inconvenience caused by the late payment. The fixed late payment compensation does not apply, however, if the defaulting debtor is a consumer. The creditor, on the other hand, may be a consumer.

Fixed Compensation Against Delays in Payment

So far, the German supreme courts have not yet ruled on whether the fixed late payment compensation also applies to late payments of an employee’s wage claims against his or her employer under labor law. Arguments against this interpretation include that the Late Payment Directive of the European Union aims to combat material defaults in payment in commercial transactions, hence in the B2B sector. On average, invoices in commercial transactions are paid with a delay of no fewer than 60 days. Under labor law, the situation is not comparable as wages and salaries are usually paid punctually on the due date.

No Exception Under Labor Law

However, in a recent ruling, the Regional Labor Court of Cologne held that the fixed late payment compensation also applied to delays in payments of wage claims under labor law. According to the Regional Labor Court, no exception for labor law can be derived from either law or the purpose of the Late Payment Directive.

However, the supreme Federal Labor Court has not yet ruled on the matter. In cases of lengthy proceedings against unfair dismissal or back payments of wages for long periods of time due to incorrect wage calculations, employers might face high amounts of compensation as the fixed late payment compensation is payable for every new working month.

If you have any queries regarding the fixed compensation for late payments and wages, please do not hesitate to contact our specialist attorneys for employment law.