Phase
Social code book III
Native name
Sozialgesetzbuch III
Type
Wage guarantee in case of insolvency
Added to database
08 May 2015

Article

Articles 165-172 - Insolvency compensation Article 358 - Raising the fund


Description

In case an employer terminates business activities and does not pay the remaining due wages to workers, workers are entitled to receive financial insolvency compensation (Insolvenzgeld). The insolvency compensation is restricted: Compensation will only be paid for the three month prior to the opening of insolvency proceedings or the rejection of insolvency proceedings. In case the employment relationship between a worker and a company ended before that decision, workers are eligible to receive insolvency compensation for the three months before the termination of the employment contract. Redundant workers already receiving unemployment benefits are not entitled to receive insolvency compensation. An employer is considered insolvent if the company is definitely closed down, if there is a high probability that payment obligations cannot be settled at the due date, or if the assets are not sufficient to cover the company's debts. In this process, different actors have a duty to inform the affected workers: Workers must be informed by the works council (as stipulated by the Works Constitution Act in case of insolvency) and the employer or the responsible insolvency manager. 

The insolvency compensation comprises net wages including holiday remuneration, payment in case of illness, remuneration for overtime, travel costs, subsidies for maternity benefit, subsidies for voluntary health insurance, and capital-forming benefits, with certain maximum limits; income from a new employment contract or from self-employment during the 'insolvency income period' will be deducted. 

The compensation is covered by a centralised contribution system ('Insolvenzumlage') set up for potential claims of workers in the case of insolvency. The fund rests on monthly contributions by private employers (0.06% of the pay roll in 2023, 0,09% in 2022) which are paid alongside with social security contributions to the statutory health insurers. The insurers transfer the contributions to the Federal Employment Agency (Bundesagentur für Arbeit) that governs the funds. Private households, public employers, and public agencies/bodies exempt from the risk of insolvency do not have to contribute to this fund. For 2023, the insolvency compensation is capped at a wage level of €7,300 in Western Germany and €7,100 in Eastern Germany.

All workers employed with private employers are entitled to this provision, including trainees, apprentices and home workers. The compensation is paid by the Federal Employment Agency.

Application for insolvency income has to be filed with the Federal Employment Agency within two months after the agency has attested the termination of business or the insolvency, otherwise the employee loses the entitlement.


Commentary

The Federal Employment Agency provides statistics on the claimants of insolvency compensation ('Insolvenzgeld'). In 2020, 60.286 employees claimed insolvency compensation. 2.954 claims were made by other actors (e.g. maintenance claims or claims in the context of a seizure), and 59.850 by collection agencies (the employment agency pays on request also the compulsory contributions to statutory health, pension and social care insurance that are in arrears for the insolvency benefit period, as well as the contributions to employment promotion). In 2021, 33.720 employees claimed insolvency compensation. 1.699 claims were made by other actors, and 47.283 by collection agencies. In 2022, 36.989 employees claimed insolvency compensation. 1.597 claims were made by other actors, and 44.822 by collection agencies.

Note that the number of claims is higher than the number of affected employees due to overlapping claims by employees, social security institutions and third parties.


Additional metadata

Cost covered by
Companies
Involved actors other than national government
Public employment service Works council
Involvement (others)
None
Thresholds
Affected employees: No, applicable in all circumstances
Company size: No, applicable in all circumstances
Additional information: No, applicable in all circumstances

Citation

Eurofound (2015), Germany: Wage guarantee in case of insolvency, Restructuring legislation database, Dublin, https://apps.eurofound.europa.eu/legislationdb/wage-guarantee-in-case-of-insolvency/germany

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