June 2023
We are pleased to be able to offer you the latest information from the field of HR with Servus as of today.
The topics covered in our current newsletter are: “Long-Term Care Support and Relief Act”, “Annual Report PSVaG 2022”, “EU Conversion Directive and occupational pensions”, “Effects of the current interest rate development on the scope of obligations in occupational pension schemes”, “Inflation compensation bonus: up to 3,000 euros tax-free” and “Home office tax rebate increases in 2023”.
Table of Contents
- Long-Term Care Support and Relief Act
- Annual Report PSVaG 2022
- EU Conversion Directive and occupational pensions
- Effects of the current interest rate development on the scope of obligations in occupational pension schemes
- Inflation compensation bonus: up to 3,000 euros tax-free
- Home office tax rebate increases in 2023
Long-Term Care Support and Relief Act
The Long-Term Care Support and Relief Act (from the German, Pflegeunterstützungs- und -entlastungsgesetz, PUEG) was passed by the Bundestag on 26 May 2023. This means that significant changes in the collection of contributions to the statutory long-term care insurance caused by the law will come into force – as early as 01.07.2023: On the one hand, the increase of the contribution rate, and on the other hand, the differentiation of the contribution rate according to the number of children. Until now, the so-called contribution supplement for childless employees only depended on whether someone had children at all, regardless of their number. The contribution supplement for childless employees was a uniform 0.35 contribution rate points. However, in its decision of 07.04.2022, the Federal Constitutional Court declared this inadmissible and instead demanded an additional differentiation according to the number of children.
The contribution rate for long-term care insurance will now rise from 3.4 % to 4.0 %, i.e. by 0.6 %, for childless workers as of 01 July this year. Workers with one child will in future pay 3.4% instead of 3.05% (increase of 0.35%), whereby this contribution rate will then apply for life, i.e. regardless of the age of the child. If there is more than one child and they are not older than 25, the contribution rate is further reduced: with two children to 3.15 %, with three children to 2.90 %, with four children to 2.65 %, and with five children and more to 2.40 %. Another special feature is that this contribution rate is not divided equally between the employer and the employee, but the employer’s contribution is 1.7% of the income subject to contributions in all constellations. The employee’s share therefore varies between 2.4 % for childless employees and 0.7 % for five or more children.
In return for the contribution increases, the benefits will also be increased. On 01.01.2024, the long-term care allowance will be increased by 5%, as will the benefit amounts for outpatient benefits in kind, such as home care by outpatient care and support services. A further increase in benefits of 4.5% is planned for 01.01.2025, both in the home and in the inpatient sector. Furthermore, the regulations on the so-called care support allowance will be improved if employees have to take care of a close relative due to an acute care situation.
All in all, it should be noted that the new regulations on differentiation of contributions depending on the number of children will lead to an increased administrative burden for the employer in payroll accounting and the payment of contributions.
These changes also affect the benefits from occupational pension schemes that are subject to social security contributions. The EPF is currently working at full speed to prepare the consideration of these changes as paying agent for its sponsoring companies.
For the deductions to be taken into account, the number of children under 25 years of age must be proven by the employee to the employer as the paying agency. A digital procedure for this is to be developed by 31 March 2025 at the latest. Since it will take some time until then, and since experience shows that digital projects in social insurance take time, a simplified verification procedure is planned for a transitional period from 1 July 2023. During this period, it will be sufficient for those insured for long-term care to notify their children under the age of 25 to the institution paying the contributions (i.e. regularly their employer) or to the long-term care insurance fund, provided they are requested to do so by the latter. In this case, it should be possible to dispense with the submission and verification of concrete evidence. At the latest after the transitional period, the contribution-paying agencies and the long-term care insurance funds must then check the information on the children to be taken into account. The additional work involved for the employer should not be underestimated, especially in view of the short period of time for implementation.
Annual Report PSVaG 2022
In the annual report published at the end of April 2023, the Pensions-Sicherungs-Verein VVaG (PSVaG) announced that the number of protection cases in 2022 fell by 8 % and the claims volume of € 582 million was at the same level as the previous year. Insolvency events in 2022 remained at the relatively low level of 2021 and reflect the relatively robust economic situation of German companies – despite the Corona crisis and the Ukraine war.
The contribution rate for the 2022 business year was 1.8 per mille, significantly higher than the previous year’s rate of 0.6 per mille, but below the average contribution rate of 2.7 per mille. The PSVaG pointed out in its annual report that this increase was not due to the insolvencies that occurred, but to the difficult capital market environment.
EU Conversion Directive and occupational pension schemes
At the beginning of this year, the law implementing the EU Transformation Directive was passed. As a result, the German Transformation Act (Umwandlungsgesetz, UmwG) has contained its own catalogue of regulations for cross-border transformations since 1 March 2023. The declared aim of Directive (EU) 2019/2121, which was implemented with the amendment to the law, is to protect shareholders, creditors and employees whose relationships with the company change due to the application of a foreign legal system. In its annual report, the PSVaG pointed out the dangers this poses for the insolvency protection of occupational pensions. The facilitation of cross-border transformations and relocations of registered offices associated with the directive and its respective national implementation could lead to obligations from occupational pension schemes being transferred to a foreign legal entity. In individual cases, this could be used in an abusive or fraudulent manner if a foreign company becomes the debtor of occupational pensions or entitlements as a result of the cross-border merger, but this company does not report any other business (so-called pensioner company). Therefore, in accordance with the requirements of the law, the German registry court has a duty to examine whether such an abusive arrangement is intended. In addition, the law once again explicitly clarifies that the previous regulations on 10-year subsequent liability also apply in cross-border situations.
Effects of the current interest rate development on the scope of obligations in occupational pension schemes
The increase in interest rates achievable on the capital market often has a positive effect on the valuation of pension obligations. This is because the increase in interest rates for the accounting of pension provisions lowers the provision value to be shown in the balance sheet. This in turn offers the opportunity to reconsider outsourcing pension obligations due to the changed financial situation.
For the majority of all EPF pension plans, the question of interest rate development does not even arise. Due to their insurance-oriented design, they remain unaffected by the current interest rate jumps.
However, the current interest rate development has another effect on occupational pension schemes, which – depending on the pension scheme – also has the opposite effect for companies. Some pension obligations are structured in such a way that the pension benefits have to be adjusted according to the consumer price index. This is to be implemented regularly every three years (so-called adjustment review obligation pursuant to section 16 para. 1 in conjunction with para. 2 no. 1). Due to this three-year period and the current inflation rates, many companies may have to adjust their occupational pensions by 15% or more at the next adjustment date due to the accumulated inflation rates. In contrast, the EPF pension scheme does not provide for an adjustment of benefits in line with the increase in the consumer price index, but makes use of the alternative option of an annual adjustment of 1%. There is therefore no risk of such jumps.
Inflation compensation bonus: up to 3,000 euros tax-free
In order to minimize the burden of increased prices for all products and services, companies can pay their employees the so-called inflation compensation premium of a maximum of 3,000 euros tax-free in the period between 26 October 2022 and 31 December 2024. The basis for the inflation compensation premium is the “Act on the Temporary Reduction of the Value Added Tax Rate on Gas Deliveries via the Natural Gas Network”. It was promulgated in the Federal Law Gazette on 25 October 2022 and comes into force retroactively as of 1 October 2022.
It should be noted that the inflation compensation premium is a voluntary benefit paid by the companies, i.e. employees have no legal entitlement to it. The amount can be divided into any number of partial amounts or paid in kind. The only requirement is to pay the premium together with wages or salary and to note that it is related to inflation. In addition, the Unemployment Benefit II/Social Security Benefit Ordinance will be amended to the effect that the inflation compensation premium will not be counted as income in the case of income-related social benefits. Many German companies have already made public that they use the opportunity of the inflation compensation premium to support their employees in times of strongly increased energy and food prices. There are strong differences in the amount of the special payment granted, depending on the industry and wage development.
Home office tax rebate increases in 2023
In 2020, many employees had to switch to a home office completely unprepared due to the pandemic and worked there, sometimes in a very confined space. The costs for this work from home were originally not tax deductible, because in order to claim a home office for tax purposes, some conditions had to be met. To counteract this, the home office allowance was passed at the end of 2020 – initially for a limited period, then extended several times.
Since 1 January 2023, the home office tax rebate has now been permanently anchored in tax law, has been de-funded and improved. Employees who work in a home office will be able to claim more days and a higher value per day in 2023, up to a maximum of 1,260 euros per year. This corresponds to 210 days at six euros each, whereas for the period 2020 to 2022 it was only five euros and only for a maximum of 120 days (i.e. a maximum of EUR 600). This upper limit applies even if an employee performs several activities from the home office. Every employee working from home can claim the home office tax rebate – even if no home office is available. This relieves the burden on families with smaller flats in particular, as a separate study is now no longer a prerequisite for a tax deduction. The home office tax rebate is included in the income-related expenses tax rebate (employee lump sum). Employees who want to claim the home office flat rate in their tax return should have their employer issue a certificate of the days worked from home. Students and trainees can also use the home office lump sum for days on which they exclusively study at home and were not at the university, library or vocational school.
