4.6. Compensation
Most countries have a minimum wage stipulated by the law. The minimum wage governs the
compensation of employees for a regular work week, i.e. without overtime. Moreover, there is
often a series of additional laws in this area such as laws regulating compensation during
hours off work and the payment of supplements.
The regulation of the legal minimum wage differs from country to country. The vendor must
remain constantly informed about the minimum wage that applies to his production
operations. This is also particularly important because the legal minimum wages may
increase at regular intervals.
Compensation for Piece Work
Employees that do piece work also have the right to receive the legal minimum wage. The
same applies to regulations for the compensation of overtime (see below). Every extra
working hour beyond the regular working hours is considered as overtime and must be
compensated accordingly (minimum wage plus overtime bonuses).
In the audit, the auditor will check how the compensation for piece work is calculated per
article/stage of work, and the extent to which the average worker is capable of achieving the
legal minimum wage during regular working hours. If the minimum wage is not achieved,
then the vendor shall compensate the differential.
The vendor must ensure that all relevant documents are available during the audit.
Overtime Differentials
Overtime hours are not considered as regular working hours. It must be compensated at the
legal minimum wage plus the overtime bonuses stipulated by law. A distinction is often made
between overtime on regular working days, Sundays and holidays. Work on Sundays and
holidays is generally considered overtime and must be compensated accordingly.
This applies to workers employed on an hourly basis and for piece workers. The calculations
must be documented and presented during the audit.
Compensation for Nonworking Days, i.e. days/ hours off work
Local laws also regulate the cases when wages must be paid even though the employees
are not working. The following regulations are common:
- National or religious holidays
- During illness
- During maternity protection and parent leave
- During leave to which the employee is entitled by law
- When production is idle
The vendor must inform the employee about how much leave he is entitled to and whether
there are other regulations comparable to the aforementioned points. All wage payments are
to be documented.
Social Security Contributions
In the audit, the auditors will also check whether the vendor has made the social security
contributions required by law for all employees. This concerns e.g. unemployment insurance,
social security insurance, indemnity, etc.
Deductions from Wages
Deductions from wages are only allowed to a limited extent. These include:
- Income taxes
- Contributions to the social security fund required by law
- Deductions for extra services provided by the employer as long as their use is
voluntary and at net cost price (e.g. employee accommodations)
- Deductions for the redemption of loans and advances on wages