Amidst alarming reports of naïve, desperate expats underpaid by profit-hungry bar and restaurant owners, a closer look into the notoriously shady gastronomy sector in Berlin shows that Germany’s new minimum wage law has done little but perpetuate an under-the-table cash system that seems to suit everyone.
It’s well known that Berlin’s hospitality industry has a tradition for both employing young expats and bending the books when it comes to paying staff. In restaurants, cafés and bars all across the city, Schwarzgeld culture is rife.
The payment playing field was supposedly levelled last January when the Bundestag implemented Germany’s inaugural statutory minimum wage, set at €8.50 per hour.
Nevertheless, this much-heralded piece of legislation has had next to no effect on the way restaurateurs and bar owners pay their employees. Indeed, Berlin’s restaurants and bars are routinely employing staff on salaries well below minimum wage, the currency being black cash.
To the law-abiding citizen this may seem like an unethical state of affairs: money grabbing restaurateurs exploiting their employees, who in turn are cheating the system by dodging taxes. But it’s not quite as clear-cut as that.
The black book
One person with intricate knowledge of the whole murky enterprise is Joel*. Originally from Canada, the former artist moved to Berlin in 2000 and later set about opening a bar and a restaurant in Schöneberg. Though Joel was eager to bare all about his personal experience ‘cooking the books’, he was reluctant to discuss the matter over the phone and urged that if it was necessary to correspond over the internet, encrypted emails were the only option.
In a booth at the back of his restaurant, just out of earshot from nearby clientele, he explains how fraudulent bookkeeping keeps his businesses afloat. “How I look after my books is a major component of my expertise,” Joel says. “You have to pick up tricks and sometimes invent them. It’s a bit schizophrenic, but it’s a huge part of my job.”
The trickery is primarily centred on finding ways to avoid the heavy tax burden on both businesses and salaries. “It would be totally incomprehensible for me to pay all the taxes I’m supposed to,” Joel says. “I don’t think the hospitality trade would exist if everything was above board.” VAT alone eats up 19 percent of his sit-down restaurant’s cash flow. The only way he’s able to make any money is by doctoring the books. But not at the restaurant. “I’ve never made a penny off of it,” he says. “But the only reason I can run the restaurant clean is because the bar is dirty.”
There, he masks the full extent of the wages he gives to his staff. “If I have an employee on the books it lowers the amount of income tax I have to pay,” he says. “But by declaring a member of staff, I also have to pay their social insurance.” By keeping staff off the books, Joel personally has to pay more income tax, yet this works out 10 percent cheaper than if he were to cover their social insurance contributions.
Officially, members of his staff are on a ‘mini-job’ contract: 12 hours per week, €450 per month, the maximum amount employees can make before they are taxed and their employers are required to fork out for their social insurance. “On paper I only pay my staff up to the amount we’re actually registering them to have worked,” says Joel. “If they’ve worked more hours, which is usually the case, I’ll pay the difference in cash.”
Getting caught out by the Finanzamt for this kind of activity can lead to hefty fines. Given the risks, Joel is meticulously careful and employs an accountant to make everything appear kosher. “Accountants are the true German mafia, you can’t operate without one,” he says. “It’s a protection racket. If you’re breaking the rules, a good accountant will make your business look licit. Their job is to ensure all the red flags stay down so that you fall off the radar.”
The right recipe
Another restaurateur who’s au fait with non-compliance is Frank*. Originally from Wales, Frank came to Berlin in 1989 to work as a cook and opened his own Kreuzberg restaurant in 2010. At present he employs two workers on a full-time basis and a couple of students part-time, all of whom get paid the minimum wage plus a little extra cash-in-hand.
In turn, he employs fewer staff and charges more for his meals than your typical Berlin dive. “There’s a reason why restaurants are so cheap in Berlin. If they had to stand by the letter of the law, the prices would quickly go up – or the restaurants would start closing their doors,” he says. “And that would have an effect on the city.”
Convinced that everyone is milking the establishment in some shape or form, Frank reckons that the minimum wage has had little effect on the way restaurants are run. What the law mostly changed was the ‘official’ number of hours worked by individual members of staff. “It’s a simple trick. You declare 15 hours at €8.50 minimum wage – all according to the law – whereas the guy actually works 30 hours. Half of the shifts are paid black, cash in hand. That’s the most common. Some businesses don’t even bother with this minimum of respectability though, and their staff is just completely off the books!”
But in order to pay people under the table, Frank explains that you need to generate enough black cash. “You can ‘forget’ to register some cheques. You can also fiddle with your cash register. There are all kinds of artists and experts in the field, and some pretty clever software that will help you come up with the perfect recipe – like cooks, everyone’s got their own!”
According to a forecast conducted last year by Tübingen’s Institute for Economic Research, only about 40 percent of service industry employees would be paid the legal €8.50 an hour in 2015, perpetuating a ‘shadow economy’ that constitutes up to 12.2 percent of Germany’s GDP.
“It’s a lot, but I’m not surprised,” says Frank. “There’s still a long way to go… In my street I still keep hearing about Turkish businesses paying between €4.50 and €5 an hour – all black cash. It’ll take some time… They announced they’d hire more controllers to implement the new law, but I haven’t been checked in the last five years. I guess people know I’m clean!”
Frank has been paying his staff the minimum wage long before it was even introduced. But he argues that employees are often happier to be compensated under the table. “I’ve seen it many times. When I tell them that with me it’s ‘declared minimum wage’, they’re excited. But when they realise that the €8.50 hourly rate is Brutto – and after tax, it’s actually €6.20 – they start pulling funny faces. Of course then you’re insured and all that, but they’re young and they might not stick around, so they don’t care. I can tell you that many are happier with black cash!” concludes Frank.
As a matter of fact, many expats employed in the business find satisfaction with the system, either because they’re happy to have some extra cash in hand or because, burdened with visa issues and/or minimal German, they’re happy to be able to work at all. This is the case for Katie*, an American expat who moved here at the beginning of 2015 after securing German citizenship through her grandmother. Within a week and a half of arriving in Berlin, she stumbled across a Kreuzberg bar and handed in a CV on the off chance they’d be hiring.
“I got lucky and they offered me a trial shift for the following week,” she remembers. To start with, Katie received €5 per hour plus gratuities, all in cash. “When I first got here I wasn’t aware of the minimum wage,” she admits. “I couldn’t speak a word of German, and I was prepared to do whatever it took to secure a job.”
Six months in, her boss boosted her hourly rate to €6 and told her that she’d been placed on a mini-job contract, meaning that she’s earning €8.50 an hour on paper – but for 12 hours a week. “I actually work 48-56 hours. But that’s paid all in cash, which is a huge bonus,” Katie says. “It works out better for me and my boss this way.” All of her colleagues are paid similarly, regardless of whether or not they’re German.
She admits that she occasionally resents her boss for not paying her the minimum nor declaring her actual working hours. This sometimes encourages her to manipulate the system to suit her own ends.
“If it’s busy I’ll ‘forget’ to book an order. I’ll serve the customer their drinks and put the money straight into the tip purse, which we split at the end of the night.” When the month is done, Katie’s net remuneration equates to “give or take” €1500-2000 – more than if she were a bona-fide employee.
Meanwhile, Leo*, a Brit, has been waiting tables in an Asian restaurant in Prenzlauer Berg six hours a day, seven days a week for the past three months. For this he bags €6 an hour, plus €30 in tips for an average shift. Leo isn’t registered as living in Berlin and doesn’t have any health insurance; his earnings are entirely black. He also works for 6 hours every day, 168 each month.
From the outset, his boss made it clear he wouldn’t be declaring him as an employee. Yet, “I don’t feel taken for a ride,” he says. “Yes, my boss could pay me an extra €2.50 an hour and he’s making money out of me, but that’s completely counteracted by the flexibility of my job and the €1300 I take home every month in cash. It works both ways: you scratch my back and I’ll scratch yours.”
It seemed like a sweet deal to Audrey*, an American who, desperate to find a job yet barred from working owing to the constraints of her artist’s visa, started working for black cash at a Charlottenburg café last year. Kept completely off the record, her bosses paid her €7 an hour, which turned out to be closer to €10 due to tips.
But eventually, overburdened and stressed, Audrey fell out with her bosses as they started demanding she work 10-hour solo shifts in the busy café. She finally decided to give up her job when the chef at her café, who also worked for cash and had no health insurance, slipped and gashed open his arm on the edge of a work counter. “
He was badly hurt and needed medical attention,” she says with a grimace. “We began arguing, I told him he couldn’t carry on working because he was getting blood everywhere, he was panicking because he wasn’t insured.” By chance, one of her boss’ friends happened to be in the café at the time. “They spent some time trying to figure out what to do. Eventually they called a doctor friend of theirs and they stitched the guy’s arm up at home. It was so shady.” Whether gross misconduct or a gesture of goodwill given the chef’s insurance dilemma, it goes to show how far her employers were willing to go to shroud their dodgy dealings.
Joel’s stance is that it’s not even worth paying social insurance for non-German employees. “If the person comes from overseas, they probably aren’t planning on staying in Germany until the day they’ll reap those benefits anyway.”
In doing this, people like Joel are shouldering the risk by skirting the law. “But I couldn’t give a fuck about doing things under the table because I’m already paying like crazy,” he says. “It might be illegal and I’m carrying liability, but I can sleep at night.”
Indeed, as things stand, it’s mostly employees who reap the rewards for their bosses’ actions. “It was great not being taxed,” says Audrey. “I never worried about being paid black. If some one came in to check our papers it wouldn’t be my problem; it’d be the owners’.” Katie also has a similar viewpoint: “It’s my boss’ choice, it’s his company on the line, and it’s him deciding to fake the paperwork.”
There may be trouble on the horizon for the black book system keeping Berlin’s hospitality ecosystem alive. From 2016, the Finanzamt has sanctioned a new law whereby all restaurants and bars must install chipped cash registers that record each transaction in real time. This will make it easier for the powers that be to conduct tax audits and detect where companies are being crooked.
For Joel, this may signal the beginning of the end. “Bars with a cash box won’t work anymore,” he says in dismay. “It will cripple everything because the whole process of retrospectively cooking the books will be a lot more problematic.”
Obviously it will cost Joel more money as a businessman, but he’s sure it will have a more wide-ranging effect. “People are used to eating cheaply here,” he says. “You won’t be able to find a lunch for €5 anymore. The prices are going to have to go up, and a lot of places are going to close because they won’t be able to adapt,” he speculates.
As a veteran of the scene, Frank believes that things don’t change overnight and it’s unlikely that Berlin’s restaurant and bar owners will be wrangled into submission anytime soon. Either they’ll come up with another novel method to keep the taxman at bay, or the authorities will simply let their transgressions slide. “It’d have too great of an effect on the economy if they enforced it more vigorously,” he says. “The government isn’t stupid. It’s better for them to ignore it.”
Originally published in issue #145, January 2015.