Germany is facing a serious demographic crisis, as a result of which the German “pay as you go” pension system needs to be supplemented. Employees in Germany, therefore, care most about their pension plan because the state pension alone is insufficient. Hence the reason why company pension benefits are the most popular supplemental benefit in the country.
A German employee’s supplemental benefit package comprising traditional benefits, i.e., pension, life and disability, will cost approximately 4% of salary.
Mandatory employee benefits in Germany include retirement, unemployment insurance, healthcare, and long-term nursing care. Common supplementary employee benefits in Germany include retirement, life insurance, and lump-sum disability. Perks include company cars, job bikes, transportation allowances, childcare, gym memberships, and lunch vouchers.
Mandatory Employee Benefits in Germany
Retirement financing is the biggest concern for employees, as the state pension amounts continue to decrease and the retirement age increases. Every employer is required, by law, to transfer minimum contributions into the state pension system for both the employer and employee as shown above.
Contributions to the state pension do not accumulate into a cash-backed fund on behalf of the employee but are paid from current income from pension insurance by means of an allocation process (pay-as-you-go system). Due to the funding crisis, the monthly gross normal retirement pension amount is approximately €1,154 based on 45 yrs. of contribution and an average income. Early retirement is possible from age 63, albeit with reductions of 0.3% per month. Due to changes in the pension law, pension payments are now subject to tax. This is applied on a gradual basis for pensions already being paid in order to avoid undue hardship for the pensioners.
The maximum normal gross monthly retirement pension amounts to approximately €3,000. This is however a theoretical figure since it is almost unachievable.
Every person in gainful employment working at least 18 hours a week is insured against unemployment. Benefits are payable from the first day of unemployment due to involuntary termination (dismissal), and after 12 weeks for voluntary termination (resignation), provided the unemployed person has been employed gainfully for at least 12 months during the previous two years.
The benefit amounts to 60% of net earnings in the last 12 months, or 67% if there are children. The duration of payment also depends on the length of the period during which contributions have been paid and on the claimant’s age. The benefit is paid for a minimum of six months and up to a maximum of 18 months. After this period the benefit continues at a reduced rate of about €374 per month with an additional child allowance which varies depending on the child’s age. The benefits are tax-free.
Everyone working or residing in Germany is obliged to have health insurance. Ninety percent of people in Germany have public health insurance as the government-mandated plans still provide a broad spectrum of excellent services, which include vision, dental, pre and antenatal, as well as pediatric care. (This Asinta article outlines German maternity benefits in greater detail.) Public health insurance is also popular because unemployed spouses and children under 25 are co-insured at no additional cost. Healthcare contributions are shared equally between the employer and the employee and deducted via payroll. Private insurance is available for individuals earning more than a threshold prescribed by the government annually (€5,213 per month in 2020). However, this is all handled privately and NOT via an employer-sponsored benefit, even though these benefits are funded via payroll. Unlike with public health insurance, unemployed spouses and children must pay individual premiums for private health insurance.
Long term nursing care
This employee benefit in Germany is mandatory for all members of public health insurers. Employees who are members of a private health insurance scheme are required to purchase coverage for long-term care. Benefits include home and long-term inpatient care depending on the level of care required. Benefits are tax-free.
Worker’s Compensation – Any new business in Germany with employees must register with the Social Accident Insurance, i.e., Workers Compensation Fund. Therefore, it does not matter whether or not it has a registered office or a branch in Germany. This insurance covers all employees against occupational accidents, i.e., on-the-job accidents, accidents on business trips, accidents on the way to and from work, and occupational illnesses. Employers, self-employed persons, freelancers, and persons of similar status are not insured.
The statutory accident insurance as part of your employee benefits in Germany covers all work-related incidents. This usually also applies to employees who are on business travels abroad, as long as their stay abroad is only for a limited period determined before their departure. For longer or unlimited business travels abroad, companies are recommended to clarify the situation with their fund and possibly take out additional accident insurance.
Supplementary Employee Benefits
Germany has complex employment laws which make setting up employee benefits in Germany complicated. The generally pro-employee laws require all staff to be treated equally, irrespective of gender or disability. Employment contracts are a critical component and must be handled by skilled German labor law attorneys.
In addition, it is crucial to be aware of the demographics, needs, and preferences of the workforce before implementing new benefits. Perks are only effective if the added value is perceivable and matches the employees’ needs. We at Profion can help design benefit plans which suit clients’ needs, are within their budgets, and meet or exceed industry standards, especially in industries with a high demand for talent.
It is also worth bearing in mind that some benefits and perks can be offered tax-free, while others may entail tax liability for the employee. As with legal advice, Profion is not in the position to provide tax advice. We thus strongly recommend working closely with a tax advisor in Germany during the decision-making process. This not only ensures compliance with German tax laws but also ensures that the intended perks are designed in a way that is most valuable for the employees and is aligned to the company’s philosophy.
Retirement plans are based on defined contribution or so-called hybrid defined-contribution approaches. Contribution rates range between 2% and 5% of pensionable pay, depending on the industry, company size, and employee hierarchical level. Matching contribution plans are often designed as 1:1 or 1:1⁄2 matches with a maximum employer contribution according to the given employer contribution limit.
Benefits usually amount to one or two times pensionable pay or a fixed amount that is paid as a lump sum to the employee’s survivors. Life insurance benefits are subject to income tax for the beneficiaries on payment. Premiums paid to cover the life insurance benefits are however tax-deductible.
TPD Lump Sum Disability
Most occupational supplementary plans provide LTD or TPD benefits. The TPD benefit, usually a lump sum, is typically two times pensionable pay, while the LTD benefit is an annuity. The LTD annuity is payable until recovery or completion of the normal retirement age or death, whichever case occurs first. LTD/TPD benefits are subject to income tax for the employee on payment. Premiums for LTD/TPD benefits are tax-deductible.
Most employees have public insurance and supplemental health and dental plans are not very uncommon due to them not being necessary and taxable to the employee. Moreover, in the case of illness where employment has been in existence for at least four weeks, the employer is required to continue pay at 100% for the first six weeks of illness. From the 7th week, the employer’s obligation to continue pay ceases and the respective state sickness fund takes over the payment of the so-called sickness benefit. This benefit amounts to 70% of the gross pay.
This is rarely provided in Germany as even the public health insurers provide dental benefits. Dental insurance is a taxable benefit.
Public health insurance also includes dental and vision, however, employers are required to pay the costs for special computer glasses if these are prescribed by an ophthalmologist or a company doctor. Such special glasses are considered a ‘working tool’ and therefore, necessary for the employee to do their job properly and prevent further deterioration of their sight.
Perks should be a part of your employee benefits in Germany in order to attract and retain talent.
This is becoming front and center of most employer discussions and is a subset of the flexibility discussion. There is a rise in more communal spaces with breakout activities like table tennis or pool.
The majority of companies in the tech industry in Germany provide 30 days of vacation to all employees irrespective of status or seniority. This contrasts starkly with the statutory requirement of just 20 days (based on a five-day week). Since a healthy work/life balance is becoming increasingly important for German employees, offering special leave is usually perceived as a very valuable benefit, especially by younger employees.
Job Tickets/Company Cars/Allowances
Employers pay an allowance for public transportation or provide a job ticket (bus or train pass) and in certain instances, free of tax. Employers generally offer either a vehicle or a car allowance to executive management, sales, and technical support staff. The trend however is to offer an allowance rather than a vehicle. There is no limit on the allowance as it is treated, and taxed, like salary.
Provided through paper vouchers, monetary refunds or prepaid cards. In 2020 employees may receive a maximum of €6.50 per lunch voucher/meal. Of this €6.50, the employer pays €3.10, while the employee must pay the remaining €3.40 in order to be exempt from tax and social security contributions.
Employers subsidize the costs for employees’ gym memberships.
Employee Product Discounts
Employees are granted discounts on either their own company’s products or foreign products.
Gifts for Special and Personal Occasions
Includes birthday, jubilee, wedding, or birth of a baby. Employers can either hand out a bought gift or a prepaid gift card. Gifts or vouchers up to €60 are tax-free for the employee.
Christmas Bonus/13th Check
Typically paid out to employees in November through payroll.
Free Snacks & Drinks in the Office
Ranging from fresh fruit, candy, cereals, and baked goods to coffee, fruit juices, water, or even alcoholic beverages.
Employer enters a framework agreement with a provider of choice and can then lease bikes to employees through a monthly contribution deducted from the employees’ salaries or the employer pays part of or the whole amount.
Health & Wellness
Initiatives and measures to promote mental, physical, and emotional wellbeing. Usually, tax-free up to €600 a year if it can be shown that these initiatives/measures are contributing to the health of the employee and consequently promote wellbeing in the company.
The employer reimburses the costs for childcare to the employee, either partly or completely. May be tax-free.
Temporary Housing — Employees receive temporary housing while they look for their own housing.
Employees work four days or between 30–35 hours a week and are still paid and treated as full-time employees.
The company has a doctor on “call” for consultations by phone or email. Available 24 hours a day in some cases.
Family & Occupation
Flexible working hours and places that enable, especially parents, to work from anywhere and when it is convenient for both work and home/family. It is also used by single and childless employees who can organize different activities during otherwise working hours.
The check-ups can be designed according to clients’, i.e., employees’ needs.