The Inflation-Bonus: Insights and Background

For the first time since the introduction of the euro, inflation in the euro zone has risen above 10%. The federal government has reacted and developed strategies in order to relieve the burden on employers and employees.

Unfortunately, hardly anyone is spared from price increases at the moment. In October, inflation in the euro area reached a new high and consumer prices rose by?10.7%?compared to the previous year.

Germany performs even worse in comparison, registering a price increase of?11.6%. Double-digit inflation rates were last measured in Germany more than seventy years ago.

In order to cushion the effects of the crisis for companies and consumers, the federal government reacted and passed their third relief package on September 3rd. The new provisions also include the so-called?Inflation-Bonus, which has already caused a stir and is intended to relieve employers and employees alike.

What is behind the bonus, who is it actually supposed to relieve and what is there to be considered in case of a payout? Let us clarify!

Inflation-Bonus: The Basics

?What?

Employers may issue a special payment of?up to 3,000 euros?to their employees or grant it as wages in kind (e.g. in the form of vouchers) - free of tax and social security! The bonus is a?voluntary?special payment, the employees are not entitled to it.

?When?

The?benefit period?is limited, the pay out must occur between?October 26, 2022?and?December 31, 2024.

?How?

Payments can be made in several tranches or as a one-time payment. The Inflation-Bonus must be granted?in addition?to the remuneration that is already owed and it must be made clear that the bonus is intended to?mitigate the additional burden of inflation?and associated?price increases. Companies must adhere to?evidentiary obligations and keep a record, for example, by placing a corresponding note on the transfer slip or by concluding an additional agreement. In addition, the bonus must be recorded in the payroll account.

Inflation-Bonus: Important Information

The Principle of?Equal Treatment?under labor law must also be taken into account in connection with the Inflation-Bonus. Accordingly, individual employees may not be treated worse than others for no objective reason. If a company decides to pay out the bonus, fairness is required and all employees must be involved. In particular,?part-time employees?and?mini-jobbers?must also be taken into account here. In principle, the payment of different sums is possible however, provided there are?factual?and comprehensible underlying reasons.

Do you have a?works council?in the company? Don't forget to include them, as they have a?right of co-determination?regarding the modalities and distribution of the bonus.

Good to know:?In the case of several employment relationships (with different employers), the bonus may be paid separately for each employment relationship.

Inflation-Bonus: Background

At first glance, the Inflation-Bonus appears to be a gift for employees: a generous gesture on the part of employers and a welcome relief from rising prices.

But what is the purpose of the bonus, is it really just about relieving the burden on employees or is there more to it?

The latter is the case:?With the bonus, the legislator is trying to kill two birds with one stone and counteract inflation directly. Many experts see the Inflation-Bonus as an alternative to salary increases, which are being vehemently demanded across all sectors due to price increases. The payment of a tax- and social security-free bonus is not only comparatively much cheaper for employers, it is also intended to avoid the dreaded wage-price spiral. This is defined as the mutually dependent ongoing increase in prices and wages, which further drives and solidifies inflation. The bonus can therefore certainly represent a relief for employees, but its actual aim is to relieve the employers, who may offer it as an alternative to a salary increase. However, such an implementation of the bonus is not exactly met with applause by employees and unions: it is often argued that a one-off bonus, even if paid out in several tranches, is not sufficient to compensate for the sustained price increases over the next few years.

How about you, has the new Inflation-Bonus already been discussed in your company and which questions are still open? Please let us know via?[email protected]?if you would like to discuss the topic in detail but do not have a suitable partner for tax matters at your side yet. twinwin has a reliable contact for you.