Social Code Book III
In case of outstanding payments following the termination of business activities, workers are entitled to three months of financial compensation prior to the opening of insolvency proceedings or the rejection of insolvency proceedings (if the employment relationship ended before that, for the three months before the termination of the employment contract). Only workers are entitled to insolvency compensation (Insolvenzgeld), redundant workers drawing unemployment benefits are not entitled. An employer is considered insolvent if the company is definitely closed down or if there is a high probability that payment obligations cannot be settled at due date or if the assets are not sufficient to cover the company's debts. The worker is informed by the works council (covered by the Works Constitution Act in case of insolvency) and the employer respectively by the insolvency manager.
The compensation comprises net wages including holiday remuneration, payment in case of illness, remuneration for overtime, travel costs etc., 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 pay roll in 2020) 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 risk of insolvency do not have to contribute to this fund. The insolvency allowance is provided for monthly wages that do not exceed €6,900 in Western Germany and €6,450 in Eastern Germany (as of November 2020).
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.
The Federal Employment Agency provides statistics on the claimants of 'Insolvenzgeld'. In 2019 this number rose for the first time since 2013 to 63,421 accepted claims. In 2011, the claims of 130,649 workers were satisfied, some 8,075 were rejected.
The Federal Employment Agency spent over €842 million on insolvency compensation and related social security contributions in 2019 (BA, 2019).
In 2018 there were 79,669 claims, 62,430 of those were approved. The Federal Employment Agency spent over €182 million on insolvency compensation in 2018.
In 2017 the received claims accounted 83,544; 67,357 were approved.
In 2016 the German Federal Employment Agency received 80,805 insolvency compensation claims from employees; 69,493 of those were approved.
Cost covered by
Involved actors other than national government
- Public employment service
- Works council