And are you paying the inflation compensation bonus?

3 years ago

Listen to the following conversation I recently had at a so-called “fireside chat with HR managers”:

Are you paying the inflation compensation bonus? This was asked by an older gentleman – head of HR of a medium-sized company?

The answers varied. From “of course to we already have or we are still considering also no – rather no to what exactly is this inflation compensation bonus” everything was there.

And you, what about you? Are you paying the IAP?

In any case, the following thought – also with me – cannot be suppressed: Again something new and what requirements apply to this, you don’t quite know again – but yes, there will definitely be a great FAQ again!!! Of course, this can be found with the date 07.12.2022 on the website of the Federal Ministry of Finance.

The purpose of this IAP is to cushion the economic consequences of the Russian war of aggression and at the same time ensure that inflation does not lead to permanent wage increases, as permanent wage increases would known to drive inflation further.

Thus, an IAP was adopted in the law to temporarily reduce the sales tax rate on gas supplies via the natural gas network and newly inserted into § 3 No. 11c EStG. This bonus should now generally enable employers to pay an amount of up to 3,000 euros tax-free and social security-free to their employees in the period from October 26, 2022 to December 31, 2024. Whether this IAP is paid depends on a legal basis under labor law (if necessary, regulation in the collective agreement or in a company agreement) there is no legal entitlement to this IAP. On the other hand, the “how”, i.e. if this is paid – how this is then distributed is undoubtedly demanding under labor law and subject to co-determination in accordance with § 87 Para. 1 No. 10 BetrVG. In this case, the ball is more in the labor law court, because in order to avoid unpleasant surprises afterwards, every employer should observe the requirements of the labor law principle of equal treatment when implementing it.

Because the principle of equal treatment …

is a barrier to the exercise of freedom of contract.
is a requirement of distributive justice.
requires that equal things be treated equally and unequal things be treated unequally according to their nature.
prohibits arbitrary/irrelevant differentiation between employees in a specific group.
prohibits the formation of irrelevant groups.

Because some employers may not want to grant all employees of their company the maximum amount of the inflation compensation bonus. For example, he could want to link the amount and payment modalities of the bonus to further criteria in order to design them differently for different employee groups if necessary. As already mentioned in the upper part, it must be checked in the case of the “whether” and “how” whether objective reasons justify unequal treatment.

It is clear that this IAP is intended to cushion the economic burden, so it is obvious to use as a starting point which employees are particularly affected by the increased prices. Linking to the income situation or to social aspects would therefore be conceivable. On the other hand, a differentiation according to performance criteria is expressly prohibited.

In order to ensure the tax and social security exemption of the IAP, it is generally not possible to reduce salary or other remuneration-related benefits and instead pay an inflation compensation bonus. Because according to § 3 No. 11c EStG, the inflation compensation bonus must be granted “in addition to the salary already owed“. Accordingly, the following requirements must be strictly observed for the application of § 3 No. 11c EStG:

The benefit period is limited in time – from the day after the law was announced (October 26, 2022) to December 31, 2024. The generous period is intended to give employers flexibility.
The 3,000 euros should be a tax-free amount. Cash grants and benefits in kind are subsidized.
The employer should also be able to provide the services in several installments.
A prerequisite for tax exemption is that the benefit is granted in addition to the salary already owed (§ 8 Para. 4 EStG).

There are no special requirements for proof that the special payment is related to the general price increases. In principle, it is sufficient if the employer makes it clear in any form (e.g. by means of a corresponding note on the transfer slip as part of the payroll) that this is related to the price increase when granting the benefit.

A conclusion

In summary, it can be stated for the use of the inflation compensation bonus that there are companies that have already paid it, others that will still pay it and still others that do not yet know or will not use it at all – there is no legal entitlement on a legal basis!

However, the employer must be aware that in the event of the granting of the inflation compensation bonus, not only the tax and social security requirements must be met, but the employer must also be aware of the labor law risks.

In addition, there is a very usable scope for design, which can play a role in collective bargaining, in particular through the tax and social security exemption of the IAP, in order to reach compromises and achieve an overall result that is acceptable to both sides.

How does your company answer the question “Are you paying the inflation compensation bonus?” We look forward to your comment.

Image source: AdobeStock Photographer: Farknot Architekt

Author

Christiane Droste-Klempp
Guest author

Christiane Droste-Klempp is an independent consultant for the entire area of payroll accounting with a focus on partial retirement, time value accounts and company pension schemes and has been an experienced speaker for payroll accounting and partner and trainer of ICS adminservice GmbH for many years.

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