Incomplete and inaccurate time tracking in companies

Following a ruling by the European Court of Justice (ECJ) in May 2019, employers are required to keep general records of working hours (ECJ, judgment of 14 May 2019, Case C-55/18). The German legislature has not yet complied with this obligation to implement the ruling. However, the Federal Labour Court (Bundesarbeitsgericht, BAG) has clarified that employers are required to track the actual daily and weekly working hours of their employees. The BAG has derived this obligation from Section 3(2)(1) of the Working Hours Act (ArbSchG) in an interpretation consistent with EU law (BAG, decision of 13 September 2022 – 1 ABR 22/21).

Employers are therefore required to implement and actually use a system that tracks their employees’ working hours comprehensively and reliably. It is necessary to track the actual daily and weekly working hours – thus, the hours actually worked, not just those contractually required.

Incomplete or even manipulated working time records entail numerous legal risks, including potential breaches of:

• the obligation to pay the agreed remuneration under Section 611a(2) of the German Civil Code (BGB)
• the obligation to pay social security contributions (Section 28e(1) of Book IV of the Social Code)
• the obligation to pay the minimum wage (Section 21(1)(11) of the Minimum Wage Act (MiLoG))
• the employer’s duty to ensure compliance with maximum working hours and rest periods (Section 22 of the Working Hours Act (ArbZG))
• the obligation to record actual daily and weekly working hours (Section 3(2)(1) of the Working Hours Act (ArbSchG))

Minimum wage, working time law and social security law

The statutory minimum wage (Section 1 MiLoG) is an entitlement to an hourly wage. If the combination of remuneration paid and actual hours worked results in the remuneration paid per hour falling below the minimum wage, this constitutes a breach of the Minimum Wage Act, which is punishable by fines of up to EUR 500,000 (Section 21(3) MiLoG).

Violations of the provisions of the Working Hours Act (ArbZG) are also subject to fines in accordance with Section 22 ArbZG. If working hours are not tracked or are tracked incompletely, maximum working hours (Section 3 ArbZG) and rest periods (Section 5 ArbZG) cannot be reliably monitored or complied with. Violations of the ArbZG provisions often come to light during investigations following accidents or employee complaints – frequently with unpleasant consequences for the company and those responsible.

Furthermore, the employer risks facing additional claims from social security authorities for all unreported elements of remuneration. If, due to incorrect time recording, employees are underpaid, contributions to health, pension, long-term care and unemployment insurance will also be underpaid. Social security law applies the so-called accrual principle: The obligation to pay social security contributions arises as soon as the legal entitlement to remuneration arises in law, regardless of whether the remuneration is actually paid in full. The employer is generally liable for the subsequent payment of the total social security contributions (employer’s and employee’s share). In addition, a late payment surcharge applies in accordance with Section 24(1) of SGB IV: under this provision, a late payment surcharge is payable for each month or part thereof that contributions remain unpaid beyond the due date. This amounts to 1% of the outstanding amount, rounded down to the nearest 50 euros.

Criminal risks

However, the criminal law risks can be particularly serious: Any employer who withholds an employee’s social security contributions from the relevant collection agency faces, pursuant to Section 266a(1) of the German Criminal Code (StGB), a prison sentence of up to five years or a fine. Here, too, the principle of accrual under social security law applies – it is therefore not decisive whether the remuneration was actually paid. Rather, the contributions attributable to the difference between the wage due and the wage actually paid are also relevant under criminal law.

An ‘employer’ within the meaning of Section 266a of the German Criminal Code (StGB) is the person to whom the employee is obliged to perform work and to whom they are in a relationship of personal dependence. Legal entities (e.g. GmbH, AG) cannot be held criminally liable in Germany. Rather, criminal liability is linked to the natural persons acting on behalf of the employer – in particular, managing directors and board members.

Thus, seemingly minor discrepancies in the recording of working hours can quickly give rise to significant financial risks and personal liability risks for the relevant bodies.

Practical guidance and recommendations

Complaints and anonymous reports frequently lead to legal proceedings concerning incorrect working time tracking. Employers should ensure that tracked hours correspond to actual work performed by implementing verified time-tracking systems, training managers, establishing clear overtime and time-tracking policies, and conducting random spot checks. If there is any suspicion of past errors, legal advice should be sought immediately, as proper time tracking is a key component of social security and criminal law compliance.