In this episode, Matthias Unterrieder and Dorothea Arlt discuss the intricacies of calculating reduced all-inclusive salaries during parental part-time, in light of two recent decisions by the Austrian Supreme Court.
What is an all-inclusive salary?
An all-inclusive salary is a type of lump-sum compensation for an employee that is meant to cover all of his/her additional services (e.g. overtime incl. surcharges, on call duty, weekend work, holidays or during night hours, etc.).
All-inclusive clauses typically consist of a base salary and a lump-sum that covers additional services as mentioned above. Statutory provisions stipulate that all-inclusive clauses agreed to in 2016 or later shall specify a base salary. The contractually agreed to base salary often corresponds to the minimum salary according to the collective bargaining agreement. All-inclusive clauses agreed to before 2016 do not include the base salary, as it was not required by law then. However, since these former all-inclusive clauses are still valid, they are quite common in practice.
It is permissible to stipulate in the employment contract that the employer can demand overtime from the employee. There is a limit to the maximum number of working hours that shall be observed, but there is also a relatively large framework within which an obligation to work overtime can be agreed to, and the employee who is paid for it has to actually work the overtime within the framework of such an arrangement.
In a nutshell, parental part-time allows mothers and fathers to unilaterally reduce their working hours after the birth of a child. This means that in many cases the employer cannot object to parental part-time work. During parental part-time, remuneration is to be reduced on a pro rata basis in proportion to the reduction in working hours.
Overtime during parental part-time
Although it is not prohibited to work overtime during parental part-time, employers can no longer require employees to work overtime, meaning employees can decline any overtime work.
If an all-inclusive salary has been agreed upon, parental part-time would result in the employer not being able to require the employee to work overtime, but the employee would still receive payment for overtime. This has been perceived by many as unfair and two recent Austrian Supreme Court decisions shed some light on how to solve this issue:
Case 1: Fixed overtime hours in the employment contract
According to the employment contract of the employee (who was the plaintiff in this case), he received an all-inclusive salary. It was determined that this all-inclusive salary for all employees in a comparable position included inter alia 15 hours of overtime per month. When the employee went on parental part-time, the employer re-calculated the new compensation by first deducting the 15 hours of overtime and then calculating the remaining remuneration in proportion to the reduced working hours.
The Supreme Court overall agreed with the employer’s approach and ruled:
- It would be a disruption of the relationship between performance and compensation if the employer was obligated to continue paying the employee the all-inclusive salary, although it is not permissible to demand the performance of overtime during parental part-time. For this reason, the part of the remuneration paid for overtime shall be suspended during parental part-time.
- The overtime portion may be deducted from the all-inclusive salary, provided that the extent of overtime is determinable. In the case at hand, the employment contract specified 15 hours of overtime.
- Thus, the employer was right, and was allowed to deduct the remuneration for these 15 hours of overtime and only then reduced the remaining remuneration in proportion to the reduced working hours.
Case 2: Defined expectation of overtime hours
In this case, the employment contract contained an agreement that on average 25 overtime hours per month are expected to be performed. An all-inclusive salary was agreed upon, which means that the employee did not receive any additional compensation for performing any extra services (e.g. overtime, weekend work, night work, etc.). As in the first case, the employer first deducted 25 hours from the remuneration and only then reduced the remuneration in proportion to the reduced working hours.
In general, the Supreme Court confirmed the employer’s approach and ruled:
- By defining an expectation of 25 hours of overtime in the employment contract, the parties agreed on an obligation to work on average 25 overtime hours. When the employee decided to make use of parental part-time, the obligation to work overtime ceased to apply and, thus, the employer no longer had to pay for overtime.
- If the employee works overtime during parental part-time, this overtime shall be calculated individually and be paid to the employee.
- Since the employment contract in question was concluded before 2016, it did not include a defined base salary. The Supreme Court decided that the base salary can be determined as the minimum salary according to the applicable collective bargaining agreement.
Questions not yet clarified by the Supreme Court
- Absence of a collective bargaining agreement (CBA): In the second decision, the Supreme Court took the minimum salary under the applicable CBA as the base salary. However, there are some employment relationships where no CBA is applicable. In this case, from our perspective, the employee is entitled to a base salary that is customary in the sector and in the region. The employer can use such a customary basic salary to calculate compensation for overtime.
- The number of overtime hours are not determined in the employment contract: In practice, many contracts do not stipulate the exact number of overtime hours that shall be compensated by the all-inclusive remuneration. However, according to the Supreme Court, the amount of overtime must be determinable for it to be deducted from the salary. Thus, the question is: How can overtime hours be determined? According to opinions in legal literature, the number of overtime hours worked in the last twelve months during which the employee worked regularly may be used and can serve as a reference point.
Based on the Supreme Court’s rulings and the unclarified questions in this regard, we recommend the following:
- Employment contract parties should agree on a base salary in the employment contract.
- Employment contracts should ideally define the overtime expectation in such a way that corresponds as closely as possible to the extra hours that will be worked.