Working End > Insolvency > Insolvency Money

Insolvency Money for Employees

Definition, Explanation

When a company has reported insolvent and no longer pays wages and salaries, the labour agency pays insolvency money on application for 3 months maximum. Legal basis is SGB III (Social Code).

Prerequisite for payment is that the company has reported insolvent due to illiquidity and that the insolvency procedure has been opened by the insolvency court. Even in case of a refused insolvency application due to lack of mass, and in case of complete cease of company activity (when no longer any activity permanently serving the company purpose is exerted), employees can apply for insolvency money. This includes employees of abroad companies who are working in Germany, respectively whom Social Insurance Code applies to. Correspondingly, employees who have been sent abroad temporarily are included.

Who is entitled to insolvency money:

• All employees including executive employees
• Interns
• Apprentices
• Home workers
• University and school students, pensioners, mini-jobbers, although they are freed from social insurance obligation
• as far as they have performed work both before and during the time of insolvency and are missing some of the payment

The board members of an “AG” (public company) are not entitled to insolvency money.

The amount of the insolvency money is calculated out of the previously paid work remuneration of the last 3 months prior to the start of the insolvency procedure; in case the employee has been dismissed before, it is the 3 months prior to end of the employment.

Relevant kinds of work remuneration are:

• Wage and salary
• Extra pays for overtime hours, Sunday and Holiday work, night work
• Bonuses
• Christmas money
• Capital-forming payments
• Holiday pay
• Annual special payments
• Jubilee specials
• Partial payments of sickness benefits or maternity pays
• Travel- and entertainment expenses
• Commissions

Tax and insolvency money:

• Insolvency money is taxless
• In the tax declaration form, it must be mentioned as part of the income and is considered for calculating the tax amount
• With your tax declaration, send the insolvency money confirmation letter

Insolvency money and unemployment benefit

• Besides insolvency money, you can apply for unemployment benefit. For this it is irrelevant whether your employment has ended yet or not
• Being paid unemployment benefit parallel to insolvency money does not decrease the duration you are entitled to unemployment benefit
• Insolvency money and unemployment benefit are offset against each other when granted for the same period of time
• Also income from a new employment or a self-employing activity will be set off against the insolvency money. Pays from a side-job that you got before you started getting insolvency money are not set off
• During insolvency money payment, the labour agency also pays social insurance contributions

The application for insolvency money should contain:

• Application form
• File reference number of the procedure at the bankruptcy court
• Employment contract
• Dismissal notice if existing
• Last 3 salary records
• The application must be filed within 2 months since opening of the insolvency procedure at the labour agency or social insurer, and at the community or German representatives if abroad

Actual payment of the insolvency money can only be done when insolvency has been determined to have occurred, and required documents as the confirmation are out, and potential labour court plaints have been decided. Like normal income, the entitlement to insolvency money can be pledged or alienated.

Pay-back of insolvency money:

• Advance payments applied for and approved due to unclear insolvency opening are set off against insolvency money
• Over pays must be paid back

Insolvency money is funded by employers, charged as allocation by professional associations and paid by the labour agency. Since January 1st, 2010 the contribution to the insolvency fund of the workers' compensation board is 0,41 % of the gross pay. From the beginning of January 2011 the insolvency fund is not charged for the next time.

Tips, Checklist

• The company must give notice of the insolvency to the employees
• Within 2 months, an employee has to apply for insolvency money at the labour agency, in case of doubt whether insolvent or not, do apply to be on the safe side
• Be informed about advance payment conditions by the labour agency
• If you are late (2 months period) with the application through no fault of your own, then you can apply as long as 2 months after cease of the hindrance reason
• Apply extra for advance payment
• Get an insolvency confirmation from the employer. This is required by the labour agency, as well as a written declaration of the duration and amount of due remuneration by the employer. You must certify your income with a final total record
• The insolvency money amount is oriented after net income, with an upper limit of 5200 € gross
• Maximum duration of insolvency money paid is 3 months
• Regulations apply even if the employment has been cancelled before insolvency occurred and there are due salary payments
• Do not renounce your salary at the employer’s request when insolvency is feared in order to prevent insolvency. That would cut your insolvency- and unemployment money
• Also do not cancel hastily. You would risk a 3 months interruption period of unemployment benefit
• Do not stay at home when your income is not paid. The employment further exists and is only cancelled with the cancellation periods
• You can cancel without notice when the insolvency procedure is running and you are not paid income any longer
• Suing for income does not pay off, since you mostly will pay court and lawyer and the claimed payment cannot be enforced
• If you plan to refuse to work, you should inform yourself precisely about the regulations and perquisites
• Also employees can file for their company’s insolvency as creditors
• Contact your employer if wage is not paid
• As a general manager, if you want to obtain insolvency money, you should fill the “Feststellungsbogen zur versicherungsrechtlichen Beurteilung eines Gesellschafter-Geschäftsführers einer GmbH” (insurance evaluation of a GM) in order to be considered an employee
• Before you do things like cancelling without notice, wait and see whether the insolvency practitioner works out social programme compensations with the works council
• Before you cancel meet the works council
• Particularly after 3 months – after which no more insolvency money is paid – cancelling can be advisable. Consult your works council
• Labour agency also pays social insurance contributions

Last update: 01/28/2011