Compulsory employer contributions to deferred compensation arrangements for its employees where the employee sacrifices (converts) salary to make pension contributions (Entgeltumwandlung)
From 1 January 2022, employers will be required to contribute to these deferred compensation arrangements including those under occupational pension schemes entered into before 1 January 2019. For arrangements entered into after 1 January 2019, the contributions are to be made with immediate effect. This employer contribution is intended to create incentives to make occupational pensions more attractive for employees.
All employees obliged to pay pension insurance have in principle a legal entitlement to enter into such deferred compensation arrangements. The employer is required to contribute if the deferred compensation is arranged through direct insurance (Direktversicherung), a pension fund society (Pensionskasse) or a pension fund (Pensionsfonds). The contribution applies to deferred compensation arrangements that are tax-exempt or subject to a flat-rate tax.
Employers must contribute 15% of the sacrificed salary to their employees’ deferred compensation arrangements, to the extent that they save social security contributions through the deferred compensation arrangements. If less than 15% in social security contributions is saved by the deferred compensation arrangements, the contributions may be limited to the actual savings.
Contributions may also be made at a flat rate of 15%, regardless of the amount of such savings, in order to avoid, for example, additional efforts related to payroll accounting. If collective bargaining agreements contain different rules, these take precedence over the new statutory provisions, even if this means that they now put the employee at a disadvantage.
Please note! The employer contributions will be compulsory for all companies from 1 January 2022. If they are not paid on time or in full, this gives rise to liability risks for the company concerned.
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