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.
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According to Profion’s recent employee benefit benchmarking survey, in which Profion analyzed benefit plans in the German IT industry, supplemental benefits continue to be a significant part of reward and remuneration packages. This is especially true in industries where a war is raging to attract talent, such as in the IT industry. In this area, almost 100% of companies offer supplemental benefits to all their employees with unlimited employment.
When asked to rank five common benefits in order of importance, the average German employee will respond with: Retirement, Disability, Death.
Even though company pension plans are already the number one benefit for employees, their significance is increasing even more.
Government continues to pass legislation encouraging employers and employees to grow private pension plans via salary sacrifice schemes.
On 1 January, 2019, the law requiring employers to pay 15% of the amount deferred by an employee to a salary sacrifice contract came into force. This requirement applies to salary sacrifice contracts concluded on or after 1 January, 2019, and arises when the employer saves social security contributions as a result of the salary sacrifice of the employee. The aforementioned 15% subsidy amounts to approximately 75% of the employer savings due to lower social security contributions.
For all salary sacrifice contracts concluded before 1 January, 2019, this legal requirement will come into effect on 1 January, 2022.
These incentives along with the fact that the state pension is expected to continue to decrease benefits and to increase the pension eligible age due to the low worker/pensioner ratio, leads to a very pension-focused benefits market.
In addition thereto, fringe benefits and perks are also growing in significance as employers are continually forced to become creative to attract hard to find talent and meet changing employee needs.
Trendy perks include:
- Health and wellness benefits, including health check ups, are becoming more and more popular. Especially as mental health continues to gain awareness.
- Work life balance is also increasing in importance, also among younger employees
- 4 day weeks (but still being paid for a 5 day week)
- Bike to work schemes
- Kindergarten and childcare allowances
Perks and fringe benefits are also being encouraged by the government through attractive tax concessions in certain circumstances. E.g. transport allowances granted for travel between the employee’s place of residence and their place of work are now income tax and social security contribution free since the beginning of 2019.
Average Cost For Employer Sponsored Benefits
An employee’s supplemental benefit package comprising traditional benefits, i.e., pension, life and disability, will cost approximately 4% of salary.
Advice To Employers
Employment law in Germany has far reaching impact. It is important to be aware of this when you start to hire people in Germany.
Secondly, there are differences in the design and prevalence of supplemental benefits based on the region the company settles in and their industry sector. In order to offer a competitive benefit package, it is essential to bear these two variables in mind and take a close look at the relevant benchmarks.
There is no need to implement supplemental company healthcare plans because the mandatory health care system in Germany is excellent. Another surprising fact is that there are long periods of paid sick leave and maternity/parental leave that employers are legally obliged to grant to their employees.