Navigating Austrian Labor Law: Key Risks and Compliance for Employers

If you employ staff in Austria or are planning an expansion, you must understand the fundamental differences in labor law. The Austrian system provides a high level of protection for employees, and rights are regulated in great detail. Although the legislation may appear clear at first glance, practice reveals numerous pitfalls that can lead to significant fines. Our attorneys in Prague at ARROWS handle these cross-border relationships daily and will help you minimize risks under both Austrian and Czech law.

Quick Summary

• Strict Classification: Austria maintains a sharp legal distinction between employees and contractors (self-employed). Misclassification (known as "false self-employment") can lead to high fines and the retroactive assessment of social security contributions several years back.
• Dienstzettel: All employees must be provided with a written copy of the employment contract or a so-called Dienstzettel (statement of terms and conditions) immediately upon starting.
• Collective Agreements: These cover approximately 98% of private-sector employees, meaning mandatory minimum wages and working conditions apply to almost every industry, regardless of whether the employer is a union member.
• High Sanctions: Austrian law is built on a strong social partnership. Violations of regulations can result in fines amounting to tens of thousands of euros for each affected employee.
• Cross-border Work: Posting and leasing employees to Austria requires specific notification obligations, compliance with Austrian minimum wages, and maintaining payroll documentation at the place of work.

Labor Law in Austria and the Social Partnership System

Austrian labor law has deep traditions rooted in the so-called social partnership – a formal cooperative framework between employer associations (Wirtschaftskammer), trade unions, and the state. Unlike many countries where employers and employees can negotiate terms relatively freely, employee rights in Austria are firmly anchored in legislation.

Given that almost all employees in Austria fall under a collective agreement, there is a very rigid and binding legal framework in place.

Our attorneys in Prague work with Austrian labor law daily and know how to navigate it. As an international law firm with long-term experience in handling cases with cross-border elements, we understand even the finest nuances and differences between the Czech and Austrian legal systems.

The Collective Agreement System and its Impact on Employee Rights

Collective agreements (Kollektivverträge) in Austria are not optional agreements – they are normative acts that apply to the vast majority of employment relationships based on Section 11 of the Labor Constitution Act (ArbVG). Hundreds of collective agreements regulate minimum wages, special bonuses, working hours, and termination entitlements for individual sectors.

The so-called Günstigkeitsprinzip (favorability principle) defined in Section 3 of the ArbVG applies, meaning that conditions more favorable to the employee are always implemented. The structure is typically as follows: unions and employer associations agree on conditions for the entire sector.

At the company level, so-called works agreements (Betriebsvereinbarungen) can be concluded to address specifics, but they must not fall below the standards of the sectoral collective agreement. Our Czech legal team can help you determine which collective agreement applies to you and what your obligations are.

microFAQ – Collective Agreements and Corporate Autonomy

1. What should I do if I don't want to be subject to a collective agreement?
In Austria, you do not have a choice. Affiliation with a collective agreement is determined by your trade license and membership in the Economic Chamber (which is mandatory for entrepreneurs under the Economic Chamber Act). The agreement is legally binding.

2. Can I agree with an employee on a lower wage than specified by the collective agreement?
No, never. Such an agreement is invalid. The employee is entitled to the payment of the difference, even retroactively.

3. How do I find out which collective agreement applies to me?
It depends on your field of business (Gewerbeberechtigung). We recommend a consultation with our Prague-based attorneys, who will ensure correct classification to prevent future disputes.

Worker Classification: Employee or Contractor

One of the most common sources of legal problems for foreign employers in Austria is the incorrect classification of workers. Austrian law distinguishes between three main categories:

1. Employee (Echter Dienstnehmer): Full protection, social security contributions, subordination.

2. Freelance worker (Freier Dienstnehmer): A specific category where the worker does not pay wage tax in the same way as a standard employee.

3. Independent contractor (Werkvertragsnehmer/Neue Selbständige): A true entrepreneur/self-employed person who is not subject to labor law but to the Civil Code.

Austrian authorities and health insurance funds examine the actual content of the relationship, not the title of the contract.

If the contract says "contractor" but the worker is integrated into your structure, uses your resources, and follows your instructions, they will be reclassified as an employee. The Austrian Supreme Court (OGH) has long ruled that personal dependence and integration into the organization are the decisive factors.

JUDr. Jakub Dohnal, Ph.D., LL.M.

associate, managing partner

• dohnal@arws.cz

Mgr. Vojtěch Sucharda

associate, partner

• sucharda@arws.cz

Criteria for Differentiation

When assessing the relationship, the overall picture (the core of the relationship) is considered in accordance with the methodology of the Austrian Health Insurance Fund (ÖGK):

• Personal dependence and binding instructions: Do you determine the place, time, and manner of work? Can the worker refuse an assignment?
• Integration into the company organism: Does the worker use your IT systems, office, email address, and participate in meetings?
• Means of production: Do they work on your hardware or use their own?
• Personal performance of work: Must the work be performed personally, or can they be replaced by a third party whom they pay themselves?
• Entrepreneurial risk: Does the worker bear the risk of profit and loss? Do they invoice based on results, or do they have a guaranteed flat rate?

Our attorneys in Prague can help you correctly set up contracts and processes to avoid the risk of reclassification and subsequent financial penalties.

Employment Contracts in Austria and Their Requirements

In Austria, an employment contract can be concluded orally; however, the employer is obliged to issue the employee with a so-called Dienstzettel (a statement of the main terms and conditions of employment). This document must be provided to the employee immediately after starting work pursuant to Section 2(1) of the AVRAG. An amendment to the law, following EU directives, has tightened the rules and introduced administrative fines for failing to issue this document.

According to Section 2(2) of the AVRAG, the Dienstzettel (or a written employment contract) must contain:

• The name and address of the employer and employee, and the start date of the employment relationship (and the end date for fixed-term contracts).
• The notice period, termination dates, and the usual place of work.
• The salary grade classification according to the relevant collective agreement and a job description.
• The amount of basic salary and other remuneration components, the payment due date, and the holiday entitlement.
• The agreed daily and weekly working hours.
• A reference to the applicable collective agreement and the name and address of the pension fund (Mitarbeitervorsorgekasse).

As of March 2024, following the amendment, it is possible to provide the Dienstzettel in electronic form, provided the employee has access to it and can save or print it.

microFAQ – Employment Contracts and the Dienstzettel

1. Is a written employment contract mandatory in Austria?
It is not strictly mandatory for the commencement of the relationship (which can also arise de facto), but there is a legal obligation to issue a written Dienstzettel. For the sake of legal certainty, our Prague-based attorneys always recommend a comprehensive written employment contract.

2. What are the penalties for failing to issue a Dienstzettel?
Administrative fines may be imposed by the district authority (Bezirksverwaltungsbehörde) under Section 7a of the AVRAG, which can range from hundreds to thousands of euros, especially in cases of repeated violations. Furthermore, the employee may seek to determine the content of the employment relationship through court proceedings.

Minimum Wage and Wage Dumping

In Austria, there is no single statutory minimum wage for everyone. Minimum wages are set within collective agreements. Most collective agreements currently set a minimum monthly wage of around EUR 1,700–2,000 gross. The standard practice is the payment of 14 salaries per year (so-called Urlaubsgeld and Weihnachtsgeld), which are taxed at a more favorable rate.

Collective agreements determine wages based on tables that take into account qualifications and years of service. The Act on Combating Wage and Social Dumping (LSD-BG) sets out strict sanctions. 

If you fail to pay an employee the wage to which they are entitled under law, regulation, or collective agreement, you face high administrative fines under Section 29 of the LSD-BG. In serious or repeated cases, fines can reach tens of thousands of euros depending on the severity and the number of employees involved.

How to Determine the Correct Wage

1. Identify the correct collective agreement (based on the trade/industry).

2. Determine the correct salary group (based on the employee's activities).

3. Account for previous experience (if required by the collective agreement).

Contact ARROWS law firm in Prague at office@arws.cz to conduct an audit of your employees' classifications.

Working Hours and Rest Periods

Working hours are regulated by the Working Hours Act (AZG), which governs both working time and rest periods.

• Standard working hours: 8 hours per day, 40 hours per week. Many collective agreements reduce the weekly hours to 38.5.
• Maximum limits: 12 hours per day and 60 hours per week. However, the average weekly working time over a 17-week period must not exceed 48 hours.
• Overtime (Überstunden): Work exceeding the statutory weekly hours (40h) or daily hours (8h). This must be compensated with a 50% surcharge or taken as compensatory time off (at a ratio of 1:1.5).
• Breaks and rest: A mandatory 30-minute break after 6 hours of work. The continuous rest period between shifts must be at least 11 hours.

Overtime and All-In Contracts

A common practice is the use of "All-In" contracts, where a lump-sum remuneration also covers potential overtime. However, even here, the basic salary must not fall below the level set by the collective agreement. At the end of the year, the employer must perform a calculation check (Deckungsprüfung) to ensure the lump sum actually covered all overtime hours worked. If not, the difference must be paid.

Employee Benefits and Insurance

The Austrian social security system is mandatory and comprehensive. It includes health, accident, pension, and unemployment insurance under the ASVG.

• Employee contribution: approx. 18% of gross salary (deducted from pay).
• Employer contribution: approx. 21% on top of the gross salary.
• In addition, the employer pays other levies (DB, DZ, KommSt, MV-Kasse), which increases the total labor costs (Lohnnebenkosten) to approximately 30% above the gross salary.

Holiday Entitlement

Every employee is entitled to 30 working days of paid holiday per year according to Section 2 of the Holiday Act (UrlG). After 25 years of creditable service, the entitlement increases to 36 working days. Holiday entitlement accrues proportionally during the first 6 months of the first year of employment.

Sick Leave and Family Care

In the event of illness, the employee is entitled to full continued payment of wages from the employer for a period of (usually) 8 to 12 weeks, depending on the duration of the employment relationship, pursuant to the Continued Payment of Remuneration Act (EFZG). Thereafter, the employer and the insurance company each cover half. There is also an entitlement to care leave (Pflegefreistellung) of one week per year for the illness of a family member according to Section 16 of the UrlG.

Termination of Employment and its Specifics

Austrian law distinguishes between notice of termination (Kündigung) and summary dismissal (Entlassung).

Notice of Termination

Notice can be given by either party without stating a reason; however, specific dates and notice periods must be observed. Since 2021, notice periods for manual workers (Arbeiter) and white-collar employees (Angestellte) have been harmonized under Section 1159 of the ABGB. The notice period on the part of the employer depends on the length of service (ranging from 6 weeks to 5 months).

Protection Against Dismissal

In companies with 5 or more employees, "general protection against dismissal" applies under Section 105 of the ArbVG. An employee may challenge a dismissal in court if it is socially unjustifiable and the employer lacks a valid reason.

Special protection is afforded to pregnant women, parents on parental leave, members of the works council, and persons with disabilities.

The Role of the Works Council

If a works council (Betriebsrat) is established within the company, it must be informed of every dismissal one week in advance. If the employer fails to fulfill this obligation, the dismissal is invalid.

Foreign Workers and the Red-White-Red Card

For EU/EEA and Swiss citizens, the principle of free movement of workers applies. For third-country nationals, a residence and work permit is required under the Act on the Employment of Foreigners (AuslBG) and the Settlement and Residence Act (NAG). The Red-White-Red Card is the most common title for qualified workers from third countries; it is issued for 2 years and is tied to a specific employer.

It requires meeting a points-based system (education, experience, language, age) and a salary offer corresponding to the legal minimum and the usual local wage. For highly qualified workers with university degrees and above-average salaries, the EU Blue Card is also available. New developments in cross-border relations allow commuters, under certain conditions, to remain in the social security system of the employer's country even when working from home.

Intellectual Property and Copyright

Unlike Anglo-Saxon law, in Austria, the employee remains the author.

• Software: provides an exception – for computer programs created by an employee, usage rights transfer to the employer automatically and to an unlimited extent.
• Other works: For graphics, texts, or design, it is necessary to expressly agree on the transfer of usage rights to the employer in the contract.
• Inventions: If an employee creates an invention, they must notify the employer. The employer has the right to take over the invention, but the employee is legally entitled to special adequate compensation.

Our attorneys in Prague from the ARROWS law firm recommend addressing IP rights in detail directly in the employment contract to prevent disputes over the ownership of created values.

Conclusion

Austrian labor law is a complex system that does not forgive formal errors. What works in the Czech Republic or other countries may be illegal or subject to sanctions in Austria. The high level of employee protection and the strong role of collective agreements require a professional approach to HR management.

If you are planning to enter the Austrian market or are already operating there, we strongly recommend a legal audit of your employment contracts and processes. Our Prague-based attorneys from the ARROWS law firm are ready to provide you with expert support and ensure that your business in Austria is secure and compliant with the law. We are insured up to CZK 400,000,000 and have extensive experience in international law. Do not hesitate to contact us at office@arws.cz.

FAQ – Frequently Asked Questions

1. Is the probationary period automatic in Austria?
No. The probationary period (Probezeit) must be expressly agreed upon in the employment contract. The maximum duration is 1 month. During this period, the employment relationship can be terminated at any time without giving a reason.

2. Do I have to pay the 13th and 14th salary?
The law does not mandate it, but the vast majority of collective agreements do. If a KV applies to you (which is almost certain), then these payments (Urlaubsgeld and Weihnachtsgeld) are mandatory and are referenced by the general portal on collective agreements.

3. How does the non-compete clause work?
A non-compete clause (Konkurrenzklausel) is valid only if agreed upon in writing, the employee is of legal age, and their salary exceeds a certain threshold. The restriction must not last longer than 1 year after the termination of employment.

Disclaimer: The information contained in this article is for general informative purposes only and serves as a basic guide to the issue. Although we strive for maximum accuracy, legal regulations and their interpretation evolve over time. To verify the current wording of regulations and their application to your specific situation, it is necessary to contact our Czech legal team at ARROWS law firm directly (office@arws.cz). We bear no responsibility for any damages or complications arising from the independent use of information from this article without our prior individual legal consultation and professional assessment. Every case requires a tailor-made solution; therefore, please do not hesitate to reach out to us.

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