Insolvency money

Insolvency money is the amount paid to employees by the Federal Employment Agency if the employer is unable to pay wages due to insolvency. The claim is regulated by law and comprises a maximum of three months, calculated retroactively of the insolvency event or, in the event of prior termination of the employment relationship, calculated retroactively of the day of termination.

We have collected the most frequently asked questions here.

What is insolvency money?

The term insolvency money refers to the benefit paid by the Federal Employment Agency as a wage replacement benefit if the employer does not make any remuneration payments due to insolvency.

The entitlement lasts for a maximum of 3 months and generally corresponds to the monthly net remuneration. The entitlement is reduced if the gross pay exceeds the income threshold for unemployment insurance. If an employee is voluntarily or privately covered by health, nursing or pension insurance, he or she receives both the employee’s and employer’s contributions for the corresponding classes of insurance and must pay these to the responsible payment office.

Who is entitled to insolvency money?

All employees in an employment relationship subject to social insurance contributions are entitled to insolvency money. However, temporary staff, school and student jobs, part-time and short-term employees, who may be exempt from social insurance, are also entitled to insolvency money.

All employees in an employment relationship subject to social insurance contributions are entitled to insolvency money. However, temporary staff, school and student jobs, part-time and short-term employees, who may be exempt from social insurance, are also entitled to insolvency money.

There are special regulations for employees who are only hired after filing an application for insolvency or after an order for provisional insolvency proceedings has been issued. Due to the diverse design, no general answer can be given here.

Organizational units (e. g. board members of an AG) are generally not entitled to insolvency money. In the case of shareholders, managing directors and their relatives, a special determination of the employee status by the Federal Employment Agency is required. Special regulations also apply to employees working abroad.

The prerequisite for the payment of the insolvency money is the filing of an application with the responsible employment agency. The Agency is responsible for work within the employer’s sphere of competence.

Who is not entitled to insolvency money?

Freelancers (who as a rule charge for their services), managing directors and employees in the dominant positions of the insolvent company have no claim to insolvency money.

Employees of the insolvent company who work abroad and are not subject to the German social security obligation may be entitled to compensation in the country in which they work.

For how long is insolvency money paid?

The period for which insolvency money is paid is determined by the insolvency event. The insolvency event shall be the day on which the insolvency proceedings were opened (not the day on which the application was filed) or the day on which the application for the opening of insolvency proceedings was rejected for lack of assets or the day on which the business activity was completely discontinued.

A claim exists for a maximum of three months before the insolvency event or, if the employment relationship was terminated before the opening of the insolvency proceedings, for a maximum of 3 months before the end of the employment relationship.

If the employee has continued to work in ignorance of the insolvency event, the insolvency money period may also extend to periods after the occurrence of the insolvency event.

What is paid as insolvency money?

In principle, the outstanding net salary is paid as insolvency money. Since 01. 04. 2004, however, the upper limit has been the income threshold for unemployment insurance. To this must be added the employer’s contributions to voluntary or private health, nursing care and, if applicable, pension insurance.

Wage types eligible for insolvency benefit:

Wages (time and piecework wages), salary, continued remuneration, overtime wages, Sunday work, work on public holidays and night work, hazard, travel and dirt allowances, allowances, clothing allowance, board allowances, VL, profit shares (royalties), Remuneration in kind (if not paid by the AG in kind), holiday pay, holiday bonuses, special annual benefits, anniversary bonuses, marriage and birth benefits, wage compensation in the construction industry, sickness benefits, maternity benefits, travel expenses (incl. Km-money for business trips with your own car), fare compensation for trips w/a/work, shortfalls, tool money, commissions, employer’s subsidies for voluntary or private KV/PV/RV.

It is important that the claim arose during the insolvency money period.

Is Christmas and Holiday Pay Insolvency compensable?

There is a special arrangement for the additional holiday and Christmas bonus, if these are annually recurring one-off payments. This entitlement is remunerated with 3/12 (i. e. for the period of 3 months) of the annual entitlement. If key date regulations have been agreed by works agreements or collective agreements, these must be taken into account and suspend the 3/12 regulation.

What is not paid as insolvency money?

Settlements and indemnities, as well as benefits that are not earned in the insolvency money period, can not be paid as insolvency money. Similarly, payments above the assessment threshold for unemployment insurance are not eligible for insolvency benefit.

What about the company pension schemes?

In the case of company pensions, a distinction must first be made between pensions financed by employees and pensions financed by employers. Pensions financed by the employer are not eligible for insolvency money and cannot be taken into account as insolvency money. An employee-side insurance policy that is not paid out as a result of deferred compensation is not deemed to have been agreed for the purpose of calculating the insolvency benefit, so that any tax- and social insurance-exempt portion of the compensation is also subject to tax and social security calculation and is paid out as insolvency benefit. We always recommend that you make the contracts contribution-free for the insolvency money period so that the dunning or notice procedure is not initiated.

Who must apply for insolvency money and where and when?

The employee must personally apply to the local employment agency in the district in which the insolvent employer has its registered office for the payment of insolvency money. You will find the application form in the Form Center and at the local employment agencies as well as on the Internet portal of the Federal Employment Agency. The application must be filed within the application period of 2 months from the occurrence of the insolvency event.

Can a payment of the insolvency money also be organised by the insolvency administrator?

If there is a prospect of a successful restructuring of the insolvent business, the Employment Agency may, at the request of the restructuring consultant, the provisional insolvency administrator and a pre-financing bank or its representative, grant pre-financing for the insolvency proceedings. In this case, the employees participating in the pre-financing do not have to file their own insolvency money applications for the months for which a bank pre-finances the insolvency funds. If employees do not receive pre-financing from the bank for insolvency money every three months, they must, however, submit their own application personally to the employment agency for the remaining months.

If necessary, ask your employer whether pre-financing of the insolvency funds is planned or whether you personally have to file an application for insolvency funds with the Employment Agency.

Who can participate in this pre-financing?

Only employees whose employment relationships still exist at the time of payment may participate in the pre-financing of insolvency funds. Furthermore, the work performance must be claimed. There is no legal entitlement to pre-financing of insolvency money. Employees who have already left the company, who are released from performing work, who exercise their right of retention to perform work or who already receive services from the employment agencies or job centres as wage replacements cannot participate in advance insolvency money financing.

What should be taken into account for wage garnishments?

Garnishments are – as before – calculated during the insolvency money period, but retained. The attachment creditors must also file an application for insolvency money with the responsible employment agency within the application period. This also applies to maintenance services within the framework of the garnishment of fees.

Will further payments be retained and made by them?

No, only wage garnishments are retained. Contributions to voluntary or private health, long-term care and, if applicable, pension insurance, as well as to capital formation and old-age provision, are paid out to the employees if they are eligible for insolvency benefits. They have to take care of the kidnappings themselves.

Is the insolvency money taxed?

The receipt of insolvency money is tax-free. However, the payment of insolvency money is subject to the progression proviso of § 32b EStG (Income Tax Act) and, like unemployment benefit, is taken into account when determining the tax rate to which other taxable income is subject. For the insolvency money paid, the employees receive a certificate from the employment agency for the tax return in the following year. On the annual wage tax certificate itself, the insolvency money is not certified.

Is the health insurance cover still valid?

There is health insurance coverage for the entire insolvency money period. As long as the employment relationship is not terminated, the insurance cover continues to exist.

Attention: If an employee has voluntary or private health, nursing or pension insurance, the contributions must be paid by him/her to the relevant collection agencies, otherwise insurance cover may no longer be guaranteed. No employee shares of the corresponding private or voluntary insurance are retained for the period of insolvency money, but the employee also receives the employer’s share as insolvency money and must ensure that the contributions are paid to the insurer.

Is it possible to receive an advance on insolvency money?

Employees can apply for an advance from the employment agency before the insolvency proceedings are opened or before the application is rejected due to lack of assets. The application must be accompanied by a copy of the employment contract, a copy of the notice of termination, copies of the last three pay slips and a confirmation from the employer of open remuneration.

This requires a cross to be placed on the application form for the advance payment. The Employment Agency may then, at its discretion, grant an advance on the insolvency money.

The following requirements should be fulfilled:

  • The employment relationship should be legally terminated,
  • The employer has to confirm the payments,
  • The advance will be calculated to the insolvency money.
What should be done if the prerequisites for an advance on insolvency money are not met?

If there are no prerequisites for an advance payment on insolvency money, payment of unemployment benefit may possibly be granted within the framework of the nonetheless granted. In this case, the unemployment benefit is also credited against the insolvency benefit.

As unemployment benefit I is usually only paid for the future, you may have to apply for unemployment benefit II (Hartz IV) from the Job Centre responsible for you to cover your living costs. In both cases, you must immediately appear in person at the service office responsible for you.

If the employee is incapacitated for work, the payment of sickness benefit may also be made by the relevant health insurance fund.

Can I take up or pursue a sideline activity during the insolvency money period?

If you have already pursued a secondary activity approved by your employer before the insolvency money period, you can also pursue this activity during the insolvency money period. However, you should be able to prove, e. g. by presenting your employment contract, that this activity actually existed before.

If you want to take up a secondary activity (or also a main activity) during the insolvency money period, you must have the income you earn from this activity credited against your insolvency money claim.

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