Inflation Adjustment Payment
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The current inflation has far-reaching consequences for citizens. It is leading to a noticeable increase in the cost of living. The effects of inflation are already being felt when it comes to meeting basic needs such as food, housing and energy. The financial leeway of many households is restricted and savings plans are jeopardized. Inflation also increases social inequality. Lower-income groups have to spend a larger proportion of their income on basic needs and are therefore hit harder.
The government wants to counteract this with its “Act on the temporary reduction of the VAT rate on the supply of gas via the natural gas network“, which was passed in 2022. In addition to the reduction in VAT, the law also provides for the so-called inflation adjustment payment. It allows employers to pay their employees up to EUR 3000 in addition to their regular salary. What’s more, this compensation is tax-free and no social security contributions have to be paid.
The following article explains who benefits from this and what employers need to bear in mind. If you have any further questions, please contact our law firm LLP Law | Patent in Munich.
Scope of application of the law
Section 3 no. 11c EStG serves as the legal basis for the inflation adjustment payment. This systematically aligns it with the COVID special payment or COVID payment. Between October 26, 2022 and December 31, 2024, it can be paid out in addition to regular wages. In addition to full-time or part-time employees, mini-jobbers and employees in short-term employment can also benefit from the reward. The law also covers trainees, paid interns and employees on short-time work, parental leave or partial retirement. Receipt of sick pay also does not stand in the way of the reward. Volunteers are also included in the scope of application if it meets the requirements of the definition of an employee for tax purposes.
In what period can the inflation adjustment payment be granted?
Like the COVID bonus before it, the inflation adjustment payment can only be paid out within a certain period. Employers who wish to grant their employees the reward must therefore act before the end of 2024. It does not matter when the company decides to make such a payment. Only the date of payment counts. Nor does it matter when or for how long the employee in question has been employed.
What do I have to consider as an employer?
The inflation adjustment payment is a voluntary scheme. No B2B company is obliged to do so under the new law. It is important to note that the reward may not replace any other payments. It must be granted in addition to regular pay. Christmas bonuses or similar special payments may not simply be reclassified as inflation compensation bonuses.
Payment of the reward must be granted specifically for the purpose of “mitigating the increase in consumer prices”. It is sufficient for the employer to officially clarify the connection between the reward and inflation or price increases in some way. For example, by stating the purpose of the reward in the payslip. It is not necessary to check whether the employee is affected. It is therefore not important whether the employees suffer from inflation in individual cases. The law does not clarify the extent to which the employer may attach conditions to the receipt of the reward. Caution is also required if the employer wishes to pay the inflation compensation bonus only to certain employees (keyword “General Equal Treatment Act”/”AGG”). These questions must be answered from an employment law perspective. LLP Law | Patent can advise B2B companies to ensure compliance with equal treatment principles and the avoidance of discrimination.
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Amount of the tax-free entitlement
Whether the full EUR 3000 or only a partial amount is paid out is also up to the employer. It is also possible to split the bonus over several months or pay it out in the form of a benefit in kind. If the reward granted exceeds EUR 3000, the tax exemption for the amount that was paid in excess no longer applies.
However, the EUR 3000 limit only applies to the employer. The same employer may not pay the reward to the same employee more than once. However, the same employee may receive the reward from different employers. The employer therefore does not have to check whether the inflation adjustment payment has already been paid to the employee in another employment relationship. If you have any questions about the correct payment of the inflation adjustment payment, please contact our law firm in Munich at any time. Our lawyers at LLP Law | Patent will be happy to assist you here:
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Conclusion: Inflation adjustment payment
The inflation adjustment payment is an important measure to alleviate the financial burden on employees. The option for employers to handle the reward flexibly – whether as a one-off payment or split over several months – enables individual adjustment to the respective company and employee situations. Employers must observe the legal requirements of the inflation adjustment payment. These include, in particular, that the reward is granted in addition to the regular salary and that it specifically serves to compensate for the effects of inflation. If anything is unclear or to ensure correct handling, it is advisable to seek expert advice, for example from a law firm such as LLP Law | Patent in Munich.
The inflation adjustment payment is therefore not only a financial support measure, but also an expression of solidarity and commitment on the part of employers towards their employees in economically challenging times. It offers an important opportunity to respond to the current economic challenges and reduce the burden on employees, as well as showing appreciation and understanding for them.
Julia Steinle | Rechtsanwältin (Lawyer)
Mrs Steinle is responsible for individual and collective labour law at LLP Law|Patent. She supports you in drafting your personnel contracts, and is at your disposal as an experienced negotiator both before industrial tribunals and in discussions with employees and trade unions.
Another key focus of Mrs Steinle is on drafting national and international contracts, in particular those relating to technology, IT law and copyright law. She has extensive and long-term experience in conducting legal proceedings before the civil courts.
