Proper Payment of Social Security Contributions
With the conclusion of an employment contract, employers and employees enter into rights and obligations. Among the primary obligations of the employer is the payment of wages to its employees. This includes the proper payment of social security contributions for the employee. If the employer does not pay the agreed wage, they are not only in breach of contract with the employee but also committing a criminal act by withholding wages.
Withholding and embezzling of wages is punishable under § 266a of the Criminal Code (StGB). This refers to the proper payment of social insurance contributions for the employee, mainly contributions to health and long-term care insurance, pension insurance, and unemployment insurance. Employers can face prison sentences of up to five years and, in severe cases, up to ten years for withholding or embezzling wages, according to attorney Michael Rainer, a contact for economic criminal law at the commercial law firm MTR Legal Rechtsanwälte. Therefore, it is advisable for employers to properly pay social insurance contributions. If the employer does not pay the taxes for the employee, tax evasion may also be applicable.
Employers are Liable for Incorrect or Incomplete Information
Employers are required to correctly pay both the employee and employer contributions to social security. According to § 266a (2) StGB, the employer is also criminally liable if they make incorrect or incomplete statements to social insurance carriers or leave the competent authority unaware of significant facts, thereby withholding social insurance contributions. This can occur, for example, by calculating dues based on too low wages or by falling below the collectively agreed minimum wage.
The embezzlement of wages is regulated in § 266a (3). Accordingly, an employer is criminally liable if they withhold parts of the wages meant to be paid to others on behalf of the employee, such as asset-forming benefits or voluntary insurances, but do not forward them to the entitled entities.
The Perpetrator is Always the Employer
A particularity in the withholding or embezzlement of wages is that the perpetrator is already known. This is also a reason for the very high rate of case resolution. Because this crime can only be committed by the employer or a person equivalent to them. More problematic is the definition of the employer, as a legal entity such as a GmbH (limited liability company) can be the employer. Then, its legal representatives, such as the managing director, are liable. This applies to both the authorized and the de facto managing director. A typical characteristic of being an employer is, among other things, a comprehensive right of instruction.
As soon as an employment relationship exists, the employer is obligated to correctly pay the employee’s share to the social insurance carriers. An employment relationship can exist even if no wages are paid for the activity. Merely working under instructions or being integrated into the work organization can indicate an employment relationship.
Fine, Imprisonment, and Professional Ban are Possible Penalties
The extent of the penalty largely depends on the amount of the withheld or embezzled wages and also on the duration of the withholding. According to § 266a StGB, penalties can include fines and prison sentences of up to five years, and in severe cases up to ten years. A severe case is, for example, when the perpetrator acted out of gross selfishness and withheld particularly high contributions or continuously withheld contributions using counterfeit or falsified documents.
Besides fines and imprisonment, other consequences may threaten. For example, a professional ban may be imposed or the perpetrator may be excluded from public procurement for up to three years.
Defense Against Accusations
If there are accusations of withholding or embezzling wages, an attorney experienced in economic criminal law should be immediately consulted to discuss an efficient defense strategy. No statements should be made to the authorities without a lawyer. If the reasons why the wages were not paid can be plausibly explained and the payment is made within a set deadline, punishment may be avoided. However, the collection agency must be informed immediately, at the latest when the contributions are due, about the amount of the withheld contributions.
MTR Legal Rechtsanwälte offers advice on withholding wages and other cases of economic criminal law.
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